The Zhitong Finance App learned that CICC released a research report saying that judging from changing trends, it is expected that adjustments in real estate policies may drive real estate starts to bottom up, which in turn will gradually drive domestic excavator demand to bottom up. Domestic sales of excavators in China exceeded 290,000 units in 2020, and the real estate construction area in that year exceeded 2.2 billion square meters. Referring to Japan's experience, after a phased reduction in local production, the steady domestic demand for excavators in Japan fell from 100,000 to 150,000 units to 5-10 million units. Therefore, the bank believes that domestic demand for excavators in China will also enter a new normal in the future. From a long-term perspective, rising labor costs and an aging population will increase the number of application scenarios for excavators, and manual substitution will continue to be interpreted as a slow variable.

The main views of CICC are as follows:

Domestic sales of excavators in China are clearly affected by real estate. They are not highly related to infrastructure, and replacement is based on demand. The bank estimates that real estate and infrastructure together account for 7-80% of downstream excavator applications, while infrastructure is a countercyclical investment. Historical data from China, the US, and Japan shows that excavator sales are clearly affected by real estate, and the correlation with infrastructure is not high. In recent years, domestic demand for excavators in China is mainly based on replacement demand, and replacement is based on downstream demand, which is not an isolated variable.

Overseas excavators also use real estate as the dominant variable. Referring to the development experience of the Japanese excavator industry, the bank believes that in the medium to long term, internationalization is the main growth engine for China's excavator industry. The sales volume of excavators in Japan and the US is also clearly affected by real estate. Domestic sales of excavators in Japan continued to decline after reaching their peak in the late 1990s. The downward period lasted far longer than the product life cycle. The bank believes this represents a process of rebalancing supply and demand. Compared with the US and Japanese excavator development models, the bank believes that the future development model of China's excavators is more inclined towards the Japanese model, and that the room for future growth mainly comes from overseas.

China is currently in the process of clearing its holdings. Total supply and demand need to be rebalanced, and short-term demand will still be under pressure. According to the construction machinery industry yearbook, in 2022 and before, the number of excavators in China continued to increase, and the number of downstream projects decreased markedly in the past two years, making overownership serious. Although excavator sales in 2023 have dropped 70% from the 2020 industry high, the overownership situation is still serious. The bank believes this will be a core factor suppressing demand for short to medium term excavators.

The bank anticipates that the domestic excavator market may show a flatter upward trend in the future. Judging from the changing trend, the bank anticipates that adjustments in real estate policies may drive real estate starts and etc. to bottom up, which in turn will gradually drive domestic excavator demand to bottom up. Domestic sales of excavators in China exceeded 290,000 units in 2020, and the real estate construction area in that year exceeded 2.2 billion square meters. Referring to Japan's experience, after a phased reduction in local production, the steady domestic demand for excavators in Japan fell from 100,000 to 150,000 units to 5-10 million units. Therefore, the bank believes that domestic demand for excavators in China will also enter a new normal in the future. From a long-term perspective, rising labor costs and an aging population will increase the number of application scenarios for excavators, and manual substitution will continue to be interpreted as a slow variable.

Risk warning: Domestic real estate sales have declined, overseas demand for construction machinery has declined, and the overseas economy is in recession.