Multinationals Boost Their Outlook For China

  @moranzhang on November 30 2012 7:19 AM
Caterpillar
Caterpillar Inc. is scheduled to release its third-quarter earnings results on Oct. 22. Reuters

Big multinationals seem to agree on one thing: Their crucial battleground, China, is coming out of its great economic slump. Meanwhile, sales in Europe are sputtering and the pending “fiscal cliff” of tax hikes and spending cuts is sending ripples through the U.S. economy.

The world’s No. 2 economy has lost steam since the second half of 2011, with Chinese economic growth falling to 7.4 percent in the third quarter of this year, the slowest pace in more than three years.

But recent figures including fixed-assets, manufacturing, industrial profits and exports, cemented the view of many analysts and investors that the Chinese economy is heading toward a rebound.

China’s vast manufacturing sector saw expansion accelerate in November for the first time in 13 months, the China HSBC Flash Manufacturing Purchasing Managers Index showed last week. “This confirms that the economic recovery continues to gain momentum towards the year end,” Qu Hongbin, chief China economist at HSBC, said in a statement accompanying the data.

Encouraged by the recent string of stronger-than-expected economic indicators and a promising long-term outlook, U.S. multinational companies are once again speeding up their expansion in China.

On Thursday, General Motors Company (NYSE: GM) and its joint venture partners in China said they intend to invest 6.6 billion yuan ($1 billion) to build a third commercial-vehicle plant in the southwest of the country to keep up with demand in the Chinese auto market.

China has been the world's biggest auto market by vehicles sold since 2009, when it surpassed the U.S. Some 18.5 million vehicles were sold in China last year.

Construction is due to begin next year, with the first phase set to open in 2015. Once finished, the plant can make 400,000 vehicles and engines a year. It will help the joint venture reach its goal of producing 2 million vehicles a year in China by 2015.

The Detroit-based GM, which counts China as its biggest market by volume, said its sales in China may see a lift in 2013 from gains in commercial vehicle deliveries and demand for passenger cars.

During the first 10 months of this year, GM and its joint ventures sold 2.3 million vehicles in China, an increase of 11 percent from a year earlier.

Also on Thursday, Rio Tinto plc (NYSE: RIO), the world's No. 2 producer of iron ore after Vale SA (NYSE: VALE) of Brazil, said it is cautiously optimistic about a pickup in growth in China, its biggest customer.

“The short-term macroeconomic outlook remains volatile, with major uncertainties around future U.S. and European economic growth. However, Rio Tinto is guardedly optimistic on China's prospects," it said ahead of an investor briefing in Sydney.

"While we should not expect demand to grow at the blistering pace we have seen over the last decade, nevertheless growth in demand will still be substantial,” Ian Bauert, the miner's top executive in China, said earlier this week at the In The Zone Conference in Perth, Australia.

Large volumes of iron ore, coking coal, copper and bauxite will be required in China, even if the economy grows at only 7 percent to 8 percent in the next few years, Bauert said.

And there’s also Caterpillar Inc. (NYSE: CAT), the world's largest maker of construction and mining equipment.

Although the Peoria, Ill.-based company warned earlier this year that it had overestimated Chinese demand for construction equipment, saying its inventories in the country were so high that it would export 2,300 excavators from China to other developing countries, the maker of the yellow-painted construction and mining equipment is still betting on China.

“China's growth has slowed, but it is still by far the largest market in the world. We think that it will continue to grow, and the opportunity is there," Caterpillar Group President and Chief Financial Officer Edward J. Rapp told China Daily on Tuesday. "We hold long-term confidence in China."

“The basic forecast is we will see some improvement in 2013, or say, modest growth compared with 2012," he added.

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