DOMESTIC construction machinery makers are opening banks, designing tractors and abandoning core business deals in an effort to diversify and stay profitable as China’s sputtering economy brings a sustained downturn to a once-booming market.

    Encouraged to expand after the government fired up a US$640 billion stimulus package seven years ago to help them beat the global financial crisis, manufacturers from Zoomlion Heavy Industry Science and Technology Co. to Sany Heavy Industry Co. are stuck with a glut of unsold equipment, factories they don’t need and tumbling earnings.

    With domestic demand, government investment and the housing market all weakening, growth in the world’s second-biggest economy slid to a 24-year low of 7.4 percent last year. The head of the central bank’s research bureau believes growth could slow again this year, and all but one of China’s 32 provinces, municipalities and autonomous regions have cut their 2015 economic targets.

    “It will be another tough year for construction machinery makers as the growth of the country’s fixed asset investment continues to slow,” said Shi Yang, a China-based senior consultant with industry intelligence firm Off-Highway Research Ltd.

    That’s bad news for an industry already burdened with chronic overcapacity. In 2013, China alone had enough plant to make 420,000 wheel loaders, used to move materials around construction sites, nearly twice global demand of 240,000 for the year, according to Shi.

    The machinery makers’ response has been to cast their net far and wide in an urgent search for new business. Shenzhen-listed Zoomlion, which warned in January its 2014 profit might slump by four-fifths, has added snow ploughs, fire-fighting vehicles and even farm tractors and harvesters to its equipment portfolio.

    “We are now transforming into a diversified manufacturer,” said Wang Xuhong, a spokesman for Zoomlion. The firm is now awaiting regulatory approval to get into China’s heavy truck business.

    “If we can make it, Zoomlion could be five or six times as big in the future and won’t be so vulnerable to a downturn in any particular sector,” said Wang.

    Shanghai-listed Sany, which cut staff by around 18 percent in 2013 as the downturn started to bite, said its parent group is setting up a bank in partnership with privately owned firms. In a stock exchange filing, Sany said it sees “huge growth potential” in banking, without disclosing details of its plans.

    Meanwhile, Shantui Construction Machinery Co., China’s biggest maker of bulldozers, walked away from a deal to take control of a domestic crane-making subsidiary of U.S. construction machinery firm Manitowoc Co. in 2013 for 216.8 million yuan (US$35 million).

    While the move was unusual for an ambitious Chinese firm, so were the circumstances: Shantui had just seen its annual profit all but wiped out by the construction market downturn.

    Complicating the overcapacity situation is a swathe of industry outsiders that spent money building machinery making plants in the years following the government’s stimulus package. Those firms, from Wuliangye Group, parent of liquor maker Wuliangye Yibin Co., to shipbuilder China Rongsheng Heavy Industries Group Holding Ltd., must now also take tough decisions.

    Wuliangye has halted production at a plant in Yibin, in southwestern China, which can make 10,000 construction site excavators a year, a Wuliangye Yibin executive said. Speaking on condition of anonymity, the executive said Wuliangye is reviewing options for the business.

    An executive at Wuliangye Group confirmed excavator manufacturing has been stopped, but declined further comment. (SD-Agencies)