The recent tightening of domestic monetary policy, the economic slowdown or potential recession in major foreign markets—especially the U.S.—and the sharp increase in domestic production costs, particularly steel prices, have emerged as the top three risks impacting the construction machinery industry. These factors have triggered investor anxiety, leading to a sustained outflow from the sector and a continuous decline in its index over recent days. However, we believe that the long-term development of the construction machinery industry is primarily driven by real estate and infrastructure investment growth. While short-term challenges like monetary tightening, temporary foreign economic slowdowns, and rising costs may create some pressure, they are unlikely to fundamentally undermine the steady expansion of domestic and international investment in these sectors. In the long run, the rapid growth of the domestic construction machinery industry remains intact. With both domestic and international markets showing strong growth potential, and with the impacts of monetary tightening and steel price increases being relatively limited, we maintain an "attractive" investment rating for the sector. **Limited Impact of Monetary Tightening** Monetary tightening mainly affects sales and production within the construction machinery industry. However, due to the low reliance of most construction machinery companies on financial institution credit, the impact on sales is more pronounced than on production. In economies with high indirect financing ratios, faster annual growth in new loans typically correlates with stronger economic performance. In 2008, credit growth from financial institutions is not expected to drop sharply. The main focus of macroeconomic regulation was to control credit expansion, ensuring that new loan volumes did not exceed those of 2007 (3.63 trillion yuan). Given the industry’s ongoing demand for credit and the current financial stability of banks, total new loans in 2008 are likely to remain similar to 2007 levels. This suggests a credit growth rate of around 13.8% in 2008, slightly lower than 2007's 16.1%, but still robust. Therefore, while there is some impact, it is not severe enough to significantly disrupt the industry. **High Export Growth Potential** Over the past years, the domestic construction machinery industry has seen remarkable export growth, with a compound annual growth rate of 64% between 2002 and 2007. Currently, exports reach 198 countries and regions, with the U.S. being the largest market at about 12%, followed by Japan at around 10%. Despite the global economic slowdown expected in 2008, export growth for construction machinery is anticipated to remain strong in the coming years. First, the domestic market currently represents only a small portion of the global construction machinery market, leaving significant room for further expansion. In 2006, the combined market capacity of all regions outside China was approximately $142.4 billion, compared to China's $5 billion in exports—accounting for just 3.5% of the total. This highlights the vast untapped potential in international markets. Second, while 2008 may represent a low point in the global economy, recovery is expected in 2009. The World Bank forecasts global GDP growth to fall from 3.6% in 2007 to 3.3% in 2008, then rebound to 3.6% in 2009. Similarly, the U.S. Federal Reserve predicts 2008 economic growth of 1.0%-2.2%, which will recover to 1.8%-3.2% in 2009. These trends suggest continued demand for construction equipment globally, supporting the sector’s resilience and long-term growth outlook.

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