One study conducted by the consulting firm KPMG indicates that China has overtaken the United States and Germany to become the largest machine tool maker in the world, with sales of US$5.7 billion in 2002. Its skilled labour force and low cost base make it a viable base for sourcing or manufacturing.

Entitled China Machine Tools Market, the study seeks to provide a better understanding of the market and the issues of concern to industry participants. In its analysis, KPMG has drawn on a number of public sources of information and spoken to both local and foreign industry participants in China. It also conducted a survey of leading machine equipment industry participants in Germany to shed light on how they are responding to the opportunities in China. Most respondents were already trading or manufacturing in China and were able to provide first-hand views on the issues of greatest concern to their business there.

The analysis shows that there will continue to be a sizeable market for imported high-end machine tools in China, but that local firms are rapidly closing the technology gap and improving quality and performance. Multinational players will need to assess carefully how to participate in China effectively in light of the rapidly changing competitive landscape and market conditions.

Automotive-related manufacturing has accounted for half of machine tool consumption in recent years, while aircraft-related manufacturing, in particular the maintenance and repair sector, is likely to become another significant market in China.

Competition in China is intensifying as the country further integrates with the world economy. Chinese manufacturers have become increasingly sophisticated in their choice of machine tools, leading to growth in demand for NC machine tools. However, the low-end market is crowded with domestic players, which has resulted in significant pressure on prices. Foreign equipment still dominates the middle to high-end market with superior technology and quality.

In order to stay competitive, domestic companies are becoming more active in new product development and more willing to use joint ventures and co-operative arrangements to acquire new technology.

Given the fact that Germany is the second largest machine-tool-consuming country and one of the leading machine tool exporters in the world, KPMG conducted a survey of machine equipment and machine tools companies in Germany between August and November 2003. Out of the respondents, 98% were currently doing business with China either through export (52%), established production facilities (36%) or licensed production (15%).

The study’s findings confirmed that a large majority of the respondents viewed China as an important end market, and that most of the respondents in the survey already in China were likely to expand. Intellectual property was seen as the most critical business factor for respondents.

Finally, over half of respondents indicated that recruitment and the regulatory environment were two major business issues when doing business in China.