The heavy truck industry in China is highly correlated with economic growth and is closely related to the property development, infrastructure and transport sectors. Demand for heavy trucks often exhibits clear industry cycles, accelerating for a few years and then decelerating; in extreme cases, demand even shrinks for a year or two.
The industry is dominated by a handful of manufacturers - Dongfeng, First Auto Works (FAW), China Heavy Duty Truck Group (CHDTG), Shaanxi Heavy Duty, Futian, Hongyan and North Benz. There are three categories of products - heavy trucks, tractors and chassis. Each has roughly comparable volumes and they all have diesel engines.
Most heavy trucks made by Dongfeng and FAW have smaller loads of eight tonnes, while the other manufacturers headed by CHDTG and Shaanxi make 'really heavy trucks' with loads of 15 tonnes or above. The 'really heavy truck' industry is dominated by two camps - the mighty CHDTG, and Shaanxi and its smaller peers. Shaanxi, Futian and their peers get their engines from Weichai Power, who holds about half of the really heavy truck engine market.
Wheel loaders, diesel-powered vehicles used to move mud and sand, are a similar industry. Demand is related to construction and infrastructure. Most carry loads of five tonnes. This industry is also dominated by a handful, headed by Liugong, Longgong, Xiagong, Lingong and Xugong, which get most of their engines from Weichai, which commands a 70 per cent market share.
Both industries experienced spectacular growth between 1999 and 2004, with rates reaching up to 50 per cent year on year. But good times do not last. In 2004, demand was 371,000 heavy trucks, up 43 per cent year on year; things began to slow in the first half of 2005 when oversupply was aggravated by macroeconomic austerity measures against repetitive infrastructure and illegal coal mines, state policies that regulated dimensions and specifications of heavy trucks, and ineffective implementation of policies that were to penalise truck overloading by charging highway tolls for trucks by weight.
Even worse, anticipated congestion at container ports on the American west coast in 2005 failed to materialise, leading to the redundancy of some trucks. These misfortunes led to a 36 per cent fall in the first reduction in years.
Given robust economic growth, the redundant trucks should be digested in a year or two and demand should resume growth by 2007. Likewise, demand for wheel loaders also decelerated sharply in 2005 to only 112,000 vehicles.