The ongoing domestic monetary tightening, the economic slowdown or even recession in major foreign markets like the U.S., and the sharp increase in domestic production costs—especially steel prices—have emerged as the three key risks potentially impacting the construction machinery industry. These factors have triggered investor anxiety, leading to continued capital outflows from the sector and a sustained decline in its index over recent days. However, we believe that the long-term growth of the construction machinery industry largely depends on real estate development and infrastructure investment. While short-term challenges such as monetary tightening, temporary foreign economic slowdowns, and rising costs may exist, they are unlikely to undermine the steady expansion of both domestic and international investments in this sector. In the long run, the rapid growth of the domestic construction machinery industry is expected to remain intact. With strong growth potential in both local and global markets, and with the impact of monetary tightening and higher steel prices being relatively limited, we maintain our “attractive” investment rating for the sector. **Limited Impact of Monetary Tightening** Monetary tightening primarily affects sales and production in the construction machinery industry. However, given the low reliance of most companies on financial institution credit, the impact on sales is not as significant. In economies where indirect financing plays a large role, faster growth in new loans often correlates with stronger economic performance. In 2008, credit growth from financial institutions is unlikely to drop sharply. The main goal of the macroeconomic policy was to keep the total new loan volume under control, not exceeding the 2007 level of 3.63 trillion yuan. Considering the current demand for credit and the financial strength of banks, it's likely that new loan volumes in 2008 will be similar to those in 2007. This would result in a credit growth rate of around 13.8%, which is only slightly lower than the 16.1% recorded in 2007. Therefore, the impact of monetary tightening on the construction machinery industry is minimal compared to past periods. **Export Growth Remains Strong** Over the past years, the export of construction machinery products has grown rapidly, with a compound annual growth rate of 64% between 2002 and 2007. Currently, Chinese construction machinery products are exported to 198 countries and regions, with the U.S. being the largest market, accounting for about 12%, followed by Japan at 10%. Despite the expected global economic slowdown in 2008, the export growth of construction machinery products is still expected to remain robust. First, the domestic market currently represents only a small portion of the global construction machinery market, leaving ample room for further expansion. In 2006, the total market capacity outside China was approximately $142.4 billion, while China’s exports were around $5 billion, representing just 3.5% of the global market. This highlights the vast untapped potential for Chinese construction machinery exports. Second, although 2008 may mark the lowest point in the global economy over the next few years, a recovery is anticipated in 2009. According to the World Bank, global GDP growth is projected to slow from 3.6% in 2007 to 3.3% in 2008, then rebound to 3.6% in 2009. Similarly, the U.S. Federal Reserve expects economic growth to fall to 1.0%-2.2% in 2008, but recover to 1.8%-3.2% in 2009. These trends suggest that the demand for construction machinery globally will remain resilient in the coming years.

ShenZhen Jakeconn Precision Technology Co., Ltd. , https://www.jakeconn.com