Multinationals like Procter & Gamble tend to take one look at China and see 2.6 billion armpits in need of deodorant.
Wannabe multinationals actually inside China are apt to take a more rounded view. Take Sany Heavy Industry, the country’s biggest maker of construction machinery, which is busily expanding almost everywhere but China.
That is not merely a reflection of its desire to create a global brand to rival Komatsu of Japan or Caterpillar of the United States. Building plants in the U.S., Brazil, India and Germany, as it has done this year to push overseas sales, represents a sensible hedge. With 96 per cent of sales generated within China in the first six months, and 97 per cent of gross profit, the 93 billion yuan ($15-billlion) Shanghai-listed firm is uncomfortably exposed to the risk of a serious domestic slowdown in construction.
That prospect seems a remote one. Four-fifths of Sany’s sales are from concrete pumps, excavators and truck-mounted cranes, which should be buoyed by any form of investment in China’s capital stock.
Still, real estate development, which accounts for a quarter of the country’s total fixed-asset investment, is undeniably weak: property prices are now falling in about half of China’s biggest cities. And as Credit Suisse notes, China’s fleet of earthmoving vehicles is already bigger than either the U.S. or Japan on a per-unit of gross capital formation basis - even if the calculation assumes a much shorter asset life in China, to account for higher usage intensity.
The fact that Sany’s shares have hugely underperformed the Shanghai benchmark over the past month, and are now trading at a five-year low on a forward earnings basis, suggests an urgent need to tap alternative sources of demand. If chairman Liang Wengen wants to keep his crown as China’s richest man, he should waste little time in steering resources outside his own borders.