Building a lasting foundation amid tough domestic market

Coupled with a weak economy and sluggish property market, the industry's overcapacity started becoming more and more evident, leading to vicious competition.

Pan Chao, chief analyst at the Beijing-based PC Investment Co Ltd, said: "This is exactly the way Chinese companies are doing things－blindly expanding production volume without paying attention to the consequences. They did not realize that it was an illusion of prosperity."

He said this is where the Chinese companies must learn from their foreign peers. "They (foreign companies) will focus on innovation capability or increase industrial input in a cautious way to save for rainy days, even during a booming period."

The ongoing flurry of overseas deals in the heavy machinery sector are a sign that companies are looking for clear options to offset domestic overcapacity. The overseas M&A deals will help companies gain an edge over their domestic peers, the sources said.

Zoomlion, a leading construction equipment maker, said it will increase overseas operations to 30 to 40 percent of its business in the next three to five years, compared with just 10 percent in 2014.

This will be realized mostly through strategic mergers and acquisitions rather than large purchases, said Zhang Jianjun, a senior official at the Changsha-based company.

"Various acquisition opportunities are welcome to complement our existing product lines, but large deals are not under consideration at the moment," he said.

Currently the major export destinations for Chinese construction equipment makers are the so-called "second home markets"－emerging markets such as Southeast Asia, Central Asia and Africa.

But due to sluggish global demand after the global financial crisis, Chinese companies are utilizing the low valuations in the European and US markets to pick up suitable assets.

In recent years, Chinese heavy machine producers have struck many deals in Europe. These include Zoomlion's major rival Sany's takeover of Putzmeister Holding GmbH, a German engineering firm, for 360 million euros ($445 million), and Zoomlion's taking a stake in Raxtar, a Dutch hoist maker, and its acquisition of Germany's leading dry mortar producer, M-TEC.

"We want to enter key markets like the US directly and compete with the big global firms in the construction equipment industry," said Zhang from Zoomlion.

China's machinery industry is likely to recover in the second half of 2015, as a result of a better economic outlook and the anticipated growth in the real estate market, according to the China Construction Machinery Association.

However, industry experts indicated that there are several potential risks for overseas takeovers, like uncertainties in the local market environment and regulations in foreign countries.

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