East buoys Caterpillar

Caterpillar Inc's focus on emerging economies before the credit crunch hit may end up helping the company through recession.

The Illinois-based company is the world's largest earth-moving equipment maker and China's infrastructure needs may generate enough business to make up the ground it is losing in North America.

Caterpillar suffered a blow in December when Goldman Sachs downgraded its stock from neutral to sell and cut its 2009 earnings-per-share estimate. Caterpillar announced a slew of cutting cost measures the same month, including slashing executive compensation, suspending merit pay increases and freezing hiring.

But 55 percent of Caterpillar's sales come from outside the US and the company's global outlook is positive, especially after Beijing announced a 4-trillion yuan economic stimulus package that includes big spending on highways and railroads.

Caterpillar equipment on display at a Shanghai exhibition.

China accounts for 4 percent of Caterpillar's sales, which in 2008 meant $2-billion (35 percent more than in 2007), according to company estimates.

"Caterpillar definitely will benefit from Beijing's stimulus plan," said Kate Wang, spokeswoman of Caterpillar China Investment Co Ltd.

The stimulus package is a big payoff for Caterpillar, which spent years deepening its footprint and spreading its business network in China.

Caterpillar acquired Shandong SEM Machinery Co Ltd, China's seventh largest wheel loader maker, in 2008, increasing its manufacturing facilities across China to 16. The buyout was a coup for Caterpillar and the company plans to make SEM a cornerstone in its China growth plans, according to Caterpillar CEO Jim Owens.

Caterpillar will spend $100 million to triple SEM's output and expects to open two new equipment-making plants this year, the company said.

"Despite what's happening in the US, Caterpillar's commitment to China is unchanged," said Wang.

The company is building an R&D center in eastern China's Wuxi, which will be its second largest after its US headquarters when completed in 2012.

Caterpillar even moved its Asia-Pacific headquarters from Tokyo to Beijing.

The triangular Caterpillar logo adorns equipment across China from agricultural irrigation projects in the northeast, remote oil fields in the northwest and the Black Triangle region to hydro-electric projects in the Three Gorges.

But the Chinese road is not all smooth for Caterpillar. The West's recession has international implications and China's growth may slow next year even with the stimulus.

"It is hard to tell at this point when and how much the stimulus medicine will take effect and really impact the economy," said Wang. "We are confident it will create more opportunity for our customers."

And Caterpillar is facing plenty of rivals in China.

Xugong Group Construction is the most formidable among scores of domestic construction equipment makers and expects sales of nearly $6 billion in 2008, three times more than Caterpillar's. Xugong ending 10 years of cooperation with Caterpillar in 2008 and now partners with South Korea's Doosan.

(China Daily 01/05/2009 page3)