The Rising Influence of Rising Affluence

[DewDiligence]

The capital-goods slowdown in China has barely affected CAT; this is from the Q&A section of CAT’s 4Q11 PR:

http://finance.yahoo.com/news/Caterpillar-Reports-Record-prnewstmp-1986687138.html?x=0&.v=1&c=1

Q: We have heard that the construction equipment industry in China weakened significantly during the second half of 2011. With that as a backdrop, how is it that your fourth-quarter sales and revenues for the Asia/Pacific region are up almost 50 percent year-over-year? Also, what are your expectations for China in 2012?

A: In total, sales and revenues in Asia/Pacific are up 49 percent in the fourth quarter of 2011 versus the fourth quarter of 2010. Excluding our Bucyrus acquisition, sales and revenues in Asia/Pacific were up about 32 percent. While it is true that the construction equipment industry has decreased in China, and dealer deliveries to end users of new construction equipment have declined, our competitive position has improved and dealer deliveries of new machines have not declined as much as the industry overall. In addition, we sell engines, turbines and aftermarket parts in China, and collectively, they have performed better than machine deliveries to end users. Finally, China makes up less than a quarter of our Asia/Pacific sales and the other countries in the Asia/Pacific region have performed much better.

For 2012, we are expecting economic growth in China of about 8.5 percent [i.e. a rate in line with economists’ expectations for China’s GDP growth]. We have seen the Chinese government begin to ease lending policies and expect that will continue in 2012. That should be enough for the industry overall and our sales in China to improve.

Another explanation for CAT’s outperformance is that (according to the ft.com article in #msg-71476535) the industrial companies reporting a slowdown in China are mostly the “short cycle” variety—i.e. companies who sell products that are ordered and delivered in a short amount of time. (3M is a prominent example.). CAT, on the other hand, is very much a “long cycle” manufacturer; orders for some CAT machines are being taken now for models to be delivered in 2014.

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