As we approach the midpoint of 2023, the machine tool industry, as the core sector in the equipment field, has drawn significant attention from the industrial sector. While the Chinese machine tool market is gradually recovering this year, domestic enterprises are expanding their vision overseas, and foreign companies are also placing more expectations on the Chinese market.
Experts predict market uncertainties
At the recently held 2023 European Machine Tool Exhibition in Hanover, Germany, representatives from machine tool associations around the world made predictions for the global machine tool market.
Mao Yufeng, Chairman of the China Machine Tool & Tool Builders' Association, stated that in 2023, the industry witnessed changes in China's industrial structure adjustment and machine tool consumer market, including a decline in total automobile production but a significant increase in sales of new energy vehicles. In addition to the changes in the consumer market, he also emphasized some major challenges, including fragile economic recovery, persistent inflation, unstable financial markets, and increasing debt pressures, which have led to uncertainties in the prospects of the machine tool industry.
At the exhibition, Marcus Burton, Chairman of the Economic Committee of the European Association of Machine Tool Industries, predicted that although the machine tool production of European Association of Machine Tool Industries member countries is expected to grow by about 5.5% in 2023, reaching nearly 27 billion euros, the global machine tool production is projected to remain relatively stable, slightly lower than the level of 2022. He stated that considering the current situation, the association has slightly adjusted its expectations. Nevertheless, the association remains optimistic about the positive growth of European machine tool production in 2023 and sees positive preliminary signs for 2024. At the same time, he also emphasized upcoming major challenges, including a slowdown in global economic growth and rising interest rates, among other unfavorable factors. These factors, combined, exacerbate the uncertainty in the short-term demand pattern of the machine tool industry.
Kazuo Yuhara, Chairman of the Japan Machine Tool Builders' Association, stated that the Japanese metal cutting machine tool industry has shown significant growth. In 2022, the total value of machine tool orders in Japan soared to a record 1.7596 trillion yen, a 14.2% increase from 2021. In the same year, the production of metal cutting machine tools increased by 20.5% compared to 2021, reaching 1.0788 trillion yen, with strong growth trends in both exports and imports. Although the order volume of metal cutting machine tools declined from January to July 2023, Kazuo Yuhara also emphasized the positive impact of investment demand in green and digital-related fields and the optimistic expectation of market recovery in certain sectors.
Douglas K. Woods, President of the Association for Manufacturing Technology, stated that after experiencing a year of market consumption close to the average level, the U.S. machine tool industry will continue to stabilize in 2023 and 2024. In 2023, the impact of tightened U.S. monetary policy became evident, leading to a slight decline in machine tool consumption. However, there are signs indicating that machine tool production and imports in the United States will recover in 2024, while exports will stabilize.
China's market is highly regarded by multiple countries
Simultaneously, countries around the world are also looking towards the Chinese market. According to the 2022 Global Market Report published by VDM German Mechanical Engineering Network, the global machine tool industry had a total output value of approximately 80.3 billion euros in 2022, with China ranking first globally with an output value of 25.7 billion euros, accounting for a 32% market share. The global consumption in the machine tool industry in 2022 was 80.8 billion euros, with China again leading the market with a scale of 26 billion euros, accounting for 32%.
China is known as the "World's Factory," with manufacturers from various industries having factories in China, resulting in a significant demand for the Chinese machine tool market. For many years, China has been leading in machine tool production and consumption ahead of the world. Research from Gardner Intelligence, a US publisher, shows that in 2022, China's machine tool (cutting + forming) consumption was 27.41 billion US dollars, a decrease of 9.3% compared to 2021. The production value in the same year was 27.1 billion US dollars, a decrease of 2.9%. Despite the decline in quantity, both figures are far ahead of other countries. The import value was 6.6 billion US dollars, a decrease of 12% compared to 2021, remaining the world's largest machine tool importing country. The President of Fanuc Corporation, who also serves as the President of the Japan Machine Tool Builders' Association, Mr. Inaba Yoshiharu, stated, "At that time, various industries in China were in a state of recovery, especially with the expanding scope of remote work from home. The IT products industry, including personal computers, tablets, and smartphones that meet the demand for remote work, as well as the electrical and precision manufacturing industry, including the semiconductor sector, actively contributed to the recovery." As the demand for remote work weakened, the electrical and precision manufacturing industry showed a tendency towards stagnation. However, during this period, the demand for electric vehicles became more active, and infrastructure and construction equipment also experienced some recovery. The future of the Chinese machine tool industry continues to be promising.
Steady Recovery of China's Machine Tool Industry
Moreover, Chinese machine tool companies have a competitive advantage in occupying the domestic market, and this year, their product sales have shown signs of recovery. According to statistics from key contact companies of the China Machine Tool & Tool Builders' Association, from January to August 2023, the operating income of key contact companies increased by 3.6% compared to the same period last year, while the total profit decreased by 16.1%. All sub-industries remained profitable. New orders for metal processing machine tools increased by 0.5% year-on-year, and the backlog of orders increased by 10.0%. Overall, the machine tool industry has shown a stable recovery trend in the first eight months of 2023.
According to data released by the National Bureau of Statistics, the production of metal cutting machine tools by enterprises above a certain scale in China was 398,000 units from January to August, a year-on-year decrease of 1.0%. The production of metal forming machine tools was 101,000 units, a year-on-year decrease of 19.8%.
According to Chinese customs data, the total import and export value of machine tool industry reached 21.3 billion USD in the first eight months, a decrease of 4.3% compared to the same period last year. Among them, imports amounted to 7.49 billion USD, a decrease of 11.6% year-on-year, while exports amounted to 13.81 billion USD, a slight increase of 0.1% year-on-year.
At the same time, China has provided multiple supports to the machine tool industry through relevant policies. Recently, the Ministry of Finance and four other departments issued a public notice to increase the proportion of additional deductions for R&D expenses of integrated circuit and industrial mother machine enterprises. It is proposed that the actual R&D expenses incurred by integrated circuit enterprises and industrial mother machine enterprises that have not formed intangible assets and are not included in the current period's income and expenses shall be deducted in accordance with the regulations. From January 1, 2023, to December 31, 2027, an additional 20% deduction shall be made before tax based on the actual amount incurred. For those that have formed intangible assets, they shall be amortized before tax at 220% of the cost of intangible assets during the aforementioned period. This tax incentive policy is more targeted, only applicable to integrated circuit production, design, equipment, materials, packaging, and testing enterprises encouraged by the state, as well as enterprises that produce and sell products that meet the basic standards of advanced industrial mother machines. The policy also provides greater incentives for innovative enterprises.