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Recently, from the merger between Carlyle and Xugong, the German Schaeffler Group and Luoyang Bearing, and then Shenyang Machine Tool recently listed 49% of the shares on the exchange, a series of mergers and acquisitions of the domestic equipment manufacturing industry, let the media And the general public put the focus on this industry.
As a traditional industry, what is the current status of domestic equipment manufacturing industry, what are the main problems faced, how to support domestic equipment and equipment manufacturing, what core principles should be adopted in mergers and acquisitions? On these issues, our reporter interviewed Shi Yong, director of the Major Equipment Information Center of the Machinery Industry Information Research Institute.
The Beijing News: The current equipment manufacturing industry should be said to be highly concerned. However, the media and the general public concerned that the industry may mainly start from continuous mergers and acquisitions. There is a saying that the current profit margin of this industry is relatively low, is this the case?
Shi Yong: This statement may not be too accurate. According to figures released by the National Bureau of Statistics, in the first half of the year, the fixed assets investment in the equipment manufacturing industry exceeded 50%. This figure also shows that the equipment manufacturing industry is a fast-growing industry. Since 2002, the rapid development has now reached its fifth year, with an average growth rate of more than 20%. This is all that has not been done for years, and it is very good momentum. It can also be seen that some private enterprises in Wenzhou were originally engaged in electronic technology products, and are now also transforming into equipment manufacturing. Private entrepreneurs are more savvy, and only high-profit industries can attract them. Now they are transforming into equipment manufacturing, indicating that the profit rate of this industry should be good, otherwise they will not attract these private enterprises.
In addition, there is a more direct number. Although it is a traditional industry, the industrial added value of the equipment manufacturing industry is relatively high, about 27%. Like the high-tech industry, it is 24%-25%, but it is lower than the equipment manufacturing industry.
I personally feel that the low profit margin of the equipment manufacturing industry is not appropriate.
Beijing News: Compared with the international market, how big is the gap between domestic equipment manufacturing industry?
Shi Yong: No one in the machinery industry said so badly, but no one said so well. In terms of independent intellectual property rights, the gap with the international community is 5 to 15 years. Foreign countries update too fast, they have money and technology, so it is a virtuous circle. Unlike the domestic market, there is only a little money to buy some technology, but there is no money to digest it.
The key to the development of equipment manufacturing industry is to encourage users to use
Beijing News: So what is the biggest problem facing the equipment manufacturing industry?
Shi Yong: The biggest problem now is that after the major equipment of our country is manufactured, users don't need it. Compared with the international level, the reliability and stability of equipment produced in China do have some gaps. But if there are no users, the gap will become bigger and bigger.
There is still a very troublesome thing now. The user does not have to be on the one hand, on the other hand, the process technology that the user has mastered is not fed back to the manufacturer. If its process manufacturer doesn't know, then the production of the product is untargeted, and the product produced is useless.
The most complicated process is in petrochemicals, and there are too many technical parameters. Because the manufacturer does not understand, the products that enter the assembly line cannot be designed. This is also an important bottleneck restricting the development of the equipment manufacturing industry.
The Beijing News: So how do you support the domestic equipment manufacturing industry?
Shi Yong: This should be done at the national level. As far as I know, the Ministry of Commerce is formulating a policy to actively encourage the import of machinery and equipment. This has something to do with trade balance, but it is in fact contradictory to encouraging industrial development. In order to achieve trade balance, only importing machinery and equipment is encouraged. It is impossible to encourage the import of footwear. However, while encouraging imports, they also need to use domestic equipment. All are under the State Council, how to coordinate the relationship between different policies should be the most important.
The Beijing News: In July this year, the State Council issued the "Several Opinions on Accelerating the Revitalization of the Equipment Manufacturing Industry" (hereinafter referred to as the "Opinions"). Among them, the policies on fiscal, taxation, and capital for the equipment manufacturing industry are specifically stipulated. In terms of finance and taxation, what are the specific policies?
Shi Yong: Finance and taxation mainly have some advantages in research and accelerated depreciation.
In particular, the VAT reform in the three provinces of Northeast China has changed from production-type VAT to consumption-type VAT. The support is very strong. To put it simply, buying equipment at that price will cost less than 17 yuan per 100 yuan, mainly to encourage fixed asset investment. But there are also problems, and our country is now overheated. Production-type VAT is used because the investment is overheated. For example, if you buy a machine tool, if the price is 100 yuan, but you have to spend 117 yuan, of which 17 dollars is tax. It is reasonable to say that the 17-dollar VAT that can be spent can be deducted from the products produced by this machine tool, but the production-type VAT is not allowed to pass, and it is broken.
When the products produced go downstream, they cannot be deducted. The consumption-type value-added tax is deductible. Unless you don't produce something, it's another matter. If the enterprise buys equipment, if it is production-type value-added tax, the equipment investment will be larger, but if it is consumption type, it will be relatively small. At that time, there was such a concern. After this change, the investment will be even more overheated.
Industry catalogue will avoid blind introduction of equipment
The Beijing News: Now, the state has mentioned the independent innovation of equipment manufacturing industry to a very high position. What is its significance?
Shi Yong: The equipment manufacturing industry is the backbone of the country and the basis of original innovation.
For example, what chips can be produced, but the equipment for producing chips is still imported. If the equipment cannot be imported, the production of the chips will be troublesome. Foreign production lines are not imported, isn't innovation still a fake? Therefore, the innovation of one industry chain has finally reached the innovation of equipment manufacturing industry.
We feel that from the height of the innovation country, if the equipment manufacturing industry is not innovative, then everything is difficult to achieve.
If the equipment manufacturing industry can innovate, then our country is really strong.
This is also why the Central Committee of the Communist Party of China issued this No. 8 document (opinion) to encourage the revitalization of the equipment manufacturing industry. Beijing News: Can you talk about the current independent innovation of the domestic equipment manufacturing industry?
Shi Yong: We are currently doing a survey on the intellectual property rights of the equipment manufacturing industry, and we can get a result by the end of the year. Now the equipment manufacturing industry has an output value of more than 10,000 yuan, but how much of this is contributed by independent intellectual property rights, and there is no quantitative data. Another major issue is the extent to which independent intellectual property rights can support the development of the equipment manufacturing industry.
The Beijing News: The relevant departments are brewing industry funds, one of which is related to encouraging enterprises to enhance independent innovation. Is there a big risk for companies to conduct independent research and development?
Shi Yong: This kind of research and development is definitely risky and the investment is relatively large. Some major R&D investments require hundreds of millions of dollars, and investment is indeed a problem. If success is okay, in the event of a failure, the company may be dragged down.
The Beijing News: It is understood that in order to avoid blind introduction of machinery and equipment, you are formulating a catalogue of major technical equipment and major industrial technologies that are banned and restricted. Can you talk about this?
Shi Yong: The key industry catalogue is made by us. It mainly encourages the use of domestically produced equipment. Encouraging the use is not forced. The main purpose is to prevent enterprises from blindly introducing machinery and equipment. The catalogue is a supporting policy for the Medium and Long-term Science and Technology Plan, which is mainly to create a good environment for enterprises to encourage innovation. Now, what China's independent innovation can create, why not use it. There may still be risks, especially like petrochemicals. Once the machine is shut down, the loss may not be hundreds of thousands, but tens of millions. But the political risks caused by this are not borne by the people, and there will be some problems. Domestic equipment should be encouraged from the national level, including policies, funds and even some administrative means.
The Beijing News: By the end of this year, China has joined the WTO for the fifth anniversary. Now, how to evade some rules of the WTO?
Shi Yong: The equipment manufacturing industry was opened very early, and it was already open in the 1980s. It should be supported from both technical research and development as well as the region. In terms of technology, the research and development of common technology should be fostered. If it is fostered to a specific enterprise, there may be some problems, but it is not a big problem. When the state introduces some policies, it will involve conflicts between national interests and other interests. How to circumvent some rules while preserving national interests, there should be some skills. In the West, some countries also support, but they are all supported in the name of the industry. Therefore, there will be some clever means of support.
From the perspective of industry, the equity transfer of Shenyang Machine Tool is not suitable
The Beijing News: In the "Eleventh Five-Year Plan" for the use of foreign capital announced not long ago, the issue of industrial safety was specifically mentioned, and it was stipulated that key enterprises in some industries were subject to review by foreign mergers and acquisitions.
It should be said that this issue is particularly concerned in the equipment manufacturing industry.
Shi Yong: We are also doing some major equipment industry issues, including mergers and acquisitions. For the merger and reorganization of the equipment industry, we have proposed several core conditions. Among them, the core principle is whether mergers are beneficial to your enterprise's technological innovation, otherwise the merger will be meaningless. If it is for the purpose of corporate diversification or other aspects of mergers and acquisitions, we believe that should not be the dominant idea. Leading thinking should be conducive to technological innovation.
The Beijing News: Everyone is very concerned about the continuous acquisition of foreign equipment to domestic equipment manufacturing companies. So, what is the impact of these mergers and acquisitions on the industry?
Shi Yong: It should be said that the control of enterprises that are related to the country's lifeline products is still in the hands of the state. Especially for heavy enterprises like China's one heavy and two heavy ones, they not only serve the common people, but also undertake the task of producing military products. Other heavy-duty factories that serve military services like these have to pay for the loss and cannot be allowed to be merged. However, those enterprises that produce large quantities of products, such as low-voltage electrical appliances, instrumentation, engineering machinery, machine tools, etc., have entered foreign and private enterprises.
The Beijing News: Carlyle’s acquisition of Xugong has not yet achieved results. What do you think about the merger? In addition, Shenyang Machine Tool is listed on the property rights exchange to transfer its 49% stake. What do you think about the 49% figure?
Shi Yong: For the XCMG M&A incident, it seems that the report of the previous few days has been changed to 50% to 50%. My judgment on this matter is that it should be operated by the State Council in the end. It is definitely not a ministry. Every aspect is very cautious now. Because this is a case, if this is released, it will be difficult to re-examine the similar mergers and acquisitions in the future.
As for the equity transfer of Shenyang Machine Tool, my personal opinion is that it is now operated by the local government. After the local government transferred the equity, it took the money to the local government, and the company could not get anything. For example, after 49% of the shares were transferred, because the money was not the enterprise, but the state. Get the SASAC and don't help the company.
It’s not right for this matter. But from the perspective of our industry, I think this is not a big deal.
The Beijing News: So, what kind of mergers and acquisitions should be encouraged?
Shi Yong: For example, if a company merges with some foreign companies, it will be very good to take over its core technology through mergers. We have always encouraged.
For another example, if a downstream company merged the Shenyang machine tool, the Shenyang machine tool would directly serve its users. Such mergers and reorganizations between upstream and downstream enterprises are also encouraged. Now it is not the old user who does not need domestic equipment. If the user merges the factory and the upstream and downstream are circulating, then it can still be used.
As a traditional industry, what is the current status of domestic equipment manufacturing industry, what are the main problems faced, how to support domestic equipment and equipment manufacturing, what core principles should be adopted in mergers and acquisitions? On these issues, our reporter interviewed Shi Yong, director of the Major Equipment Information Center of the Machinery Industry Information Research Institute.
The Beijing News: The current equipment manufacturing industry should be said to be highly concerned. However, the media and the general public concerned that the industry may mainly start from continuous mergers and acquisitions. There is a saying that the current profit margin of this industry is relatively low, is this the case?
Shi Yong: This statement may not be too accurate. According to figures released by the National Bureau of Statistics, in the first half of the year, the fixed assets investment in the equipment manufacturing industry exceeded 50%. This figure also shows that the equipment manufacturing industry is a fast-growing industry. Since 2002, the rapid development has now reached its fifth year, with an average growth rate of more than 20%. This is all that has not been done for years, and it is very good momentum. It can also be seen that some private enterprises in Wenzhou were originally engaged in electronic technology products, and are now also transforming into equipment manufacturing. Private entrepreneurs are more savvy, and only high-profit industries can attract them. Now they are transforming into equipment manufacturing, indicating that the profit rate of this industry should be good, otherwise they will not attract these private enterprises.
In addition, there is a more direct number. Although it is a traditional industry, the industrial added value of the equipment manufacturing industry is relatively high, about 27%. Like the high-tech industry, it is 24%-25%, but it is lower than the equipment manufacturing industry.
I personally feel that the low profit margin of the equipment manufacturing industry is not appropriate.
Beijing News: Compared with the international market, how big is the gap between domestic equipment manufacturing industry?
Shi Yong: No one in the machinery industry said so badly, but no one said so well. In terms of independent intellectual property rights, the gap with the international community is 5 to 15 years. Foreign countries update too fast, they have money and technology, so it is a virtuous circle. Unlike the domestic market, there is only a little money to buy some technology, but there is no money to digest it.
The key to the development of equipment manufacturing industry is to encourage users to use
Beijing News: So what is the biggest problem facing the equipment manufacturing industry?
Shi Yong: The biggest problem now is that after the major equipment of our country is manufactured, users don't need it. Compared with the international level, the reliability and stability of equipment produced in China do have some gaps. But if there are no users, the gap will become bigger and bigger.
There is still a very troublesome thing now. The user does not have to be on the one hand, on the other hand, the process technology that the user has mastered is not fed back to the manufacturer. If its process manufacturer doesn't know, then the production of the product is untargeted, and the product produced is useless.
The most complicated process is in petrochemicals, and there are too many technical parameters. Because the manufacturer does not understand, the products that enter the assembly line cannot be designed. This is also an important bottleneck restricting the development of the equipment manufacturing industry.
The Beijing News: So how do you support the domestic equipment manufacturing industry?
Shi Yong: This should be done at the national level. As far as I know, the Ministry of Commerce is formulating a policy to actively encourage the import of machinery and equipment. This has something to do with trade balance, but it is in fact contradictory to encouraging industrial development. In order to achieve trade balance, only importing machinery and equipment is encouraged. It is impossible to encourage the import of footwear. However, while encouraging imports, they also need to use domestic equipment. All are under the State Council, how to coordinate the relationship between different policies should be the most important.
The Beijing News: In July this year, the State Council issued the "Several Opinions on Accelerating the Revitalization of the Equipment Manufacturing Industry" (hereinafter referred to as the "Opinions"). Among them, the policies on fiscal, taxation, and capital for the equipment manufacturing industry are specifically stipulated. In terms of finance and taxation, what are the specific policies?
Shi Yong: Finance and taxation mainly have some advantages in research and accelerated depreciation.
In particular, the VAT reform in the three provinces of Northeast China has changed from production-type VAT to consumption-type VAT. The support is very strong. To put it simply, buying equipment at that price will cost less than 17 yuan per 100 yuan, mainly to encourage fixed asset investment. But there are also problems, and our country is now overheated. Production-type VAT is used because the investment is overheated. For example, if you buy a machine tool, if the price is 100 yuan, but you have to spend 117 yuan, of which 17 dollars is tax. It is reasonable to say that the 17-dollar VAT that can be spent can be deducted from the products produced by this machine tool, but the production-type VAT is not allowed to pass, and it is broken.
When the products produced go downstream, they cannot be deducted. The consumption-type value-added tax is deductible. Unless you don't produce something, it's another matter. If the enterprise buys equipment, if it is production-type value-added tax, the equipment investment will be larger, but if it is consumption type, it will be relatively small. At that time, there was such a concern. After this change, the investment will be even more overheated.
Industry catalogue will avoid blind introduction of equipment
The Beijing News: Now, the state has mentioned the independent innovation of equipment manufacturing industry to a very high position. What is its significance?
Shi Yong: The equipment manufacturing industry is the backbone of the country and the basis of original innovation.
For example, what chips can be produced, but the equipment for producing chips is still imported. If the equipment cannot be imported, the production of the chips will be troublesome. Foreign production lines are not imported, isn't innovation still a fake? Therefore, the innovation of one industry chain has finally reached the innovation of equipment manufacturing industry.
We feel that from the height of the innovation country, if the equipment manufacturing industry is not innovative, then everything is difficult to achieve.
If the equipment manufacturing industry can innovate, then our country is really strong.
This is also why the Central Committee of the Communist Party of China issued this No. 8 document (opinion) to encourage the revitalization of the equipment manufacturing industry. Beijing News: Can you talk about the current independent innovation of the domestic equipment manufacturing industry?
Shi Yong: We are currently doing a survey on the intellectual property rights of the equipment manufacturing industry, and we can get a result by the end of the year. Now the equipment manufacturing industry has an output value of more than 10,000 yuan, but how much of this is contributed by independent intellectual property rights, and there is no quantitative data. Another major issue is the extent to which independent intellectual property rights can support the development of the equipment manufacturing industry.
The Beijing News: The relevant departments are brewing industry funds, one of which is related to encouraging enterprises to enhance independent innovation. Is there a big risk for companies to conduct independent research and development?
Shi Yong: This kind of research and development is definitely risky and the investment is relatively large. Some major R&D investments require hundreds of millions of dollars, and investment is indeed a problem. If success is okay, in the event of a failure, the company may be dragged down.
The Beijing News: It is understood that in order to avoid blind introduction of machinery and equipment, you are formulating a catalogue of major technical equipment and major industrial technologies that are banned and restricted. Can you talk about this?
Shi Yong: The key industry catalogue is made by us. It mainly encourages the use of domestically produced equipment. Encouraging the use is not forced. The main purpose is to prevent enterprises from blindly introducing machinery and equipment. The catalogue is a supporting policy for the Medium and Long-term Science and Technology Plan, which is mainly to create a good environment for enterprises to encourage innovation. Now, what China's independent innovation can create, why not use it. There may still be risks, especially like petrochemicals. Once the machine is shut down, the loss may not be hundreds of thousands, but tens of millions. But the political risks caused by this are not borne by the people, and there will be some problems. Domestic equipment should be encouraged from the national level, including policies, funds and even some administrative means.
The Beijing News: By the end of this year, China has joined the WTO for the fifth anniversary. Now, how to evade some rules of the WTO?
Shi Yong: The equipment manufacturing industry was opened very early, and it was already open in the 1980s. It should be supported from both technical research and development as well as the region. In terms of technology, the research and development of common technology should be fostered. If it is fostered to a specific enterprise, there may be some problems, but it is not a big problem. When the state introduces some policies, it will involve conflicts between national interests and other interests. How to circumvent some rules while preserving national interests, there should be some skills. In the West, some countries also support, but they are all supported in the name of the industry. Therefore, there will be some clever means of support.
From the perspective of industry, the equity transfer of Shenyang Machine Tool is not suitable
The Beijing News: In the "Eleventh Five-Year Plan" for the use of foreign capital announced not long ago, the issue of industrial safety was specifically mentioned, and it was stipulated that key enterprises in some industries were subject to review by foreign mergers and acquisitions.
It should be said that this issue is particularly concerned in the equipment manufacturing industry.
Shi Yong: We are also doing some major equipment industry issues, including mergers and acquisitions. For the merger and reorganization of the equipment industry, we have proposed several core conditions. Among them, the core principle is whether mergers are beneficial to your enterprise's technological innovation, otherwise the merger will be meaningless. If it is for the purpose of corporate diversification or other aspects of mergers and acquisitions, we believe that should not be the dominant idea. Leading thinking should be conducive to technological innovation.
The Beijing News: Everyone is very concerned about the continuous acquisition of foreign equipment to domestic equipment manufacturing companies. So, what is the impact of these mergers and acquisitions on the industry?
Shi Yong: It should be said that the control of enterprises that are related to the country's lifeline products is still in the hands of the state. Especially for heavy enterprises like China's one heavy and two heavy ones, they not only serve the common people, but also undertake the task of producing military products. Other heavy-duty factories that serve military services like these have to pay for the loss and cannot be allowed to be merged. However, those enterprises that produce large quantities of products, such as low-voltage electrical appliances, instrumentation, engineering machinery, machine tools, etc., have entered foreign and private enterprises.
The Beijing News: Carlyle’s acquisition of Xugong has not yet achieved results. What do you think about the merger? In addition, Shenyang Machine Tool is listed on the property rights exchange to transfer its 49% stake. What do you think about the 49% figure?
Shi Yong: For the XCMG M&A incident, it seems that the report of the previous few days has been changed to 50% to 50%. My judgment on this matter is that it should be operated by the State Council in the end. It is definitely not a ministry. Every aspect is very cautious now. Because this is a case, if this is released, it will be difficult to re-examine the similar mergers and acquisitions in the future.
As for the equity transfer of Shenyang Machine Tool, my personal opinion is that it is now operated by the local government. After the local government transferred the equity, it took the money to the local government, and the company could not get anything. For example, after 49% of the shares were transferred, because the money was not the enterprise, but the state. Get the SASAC and don't help the company.
It’s not right for this matter. But from the perspective of our industry, I think this is not a big deal.
The Beijing News: So, what kind of mergers and acquisitions should be encouraged?
Shi Yong: For example, if a company merges with some foreign companies, it will be very good to take over its core technology through mergers. We have always encouraged.
For another example, if a downstream company merged the Shenyang machine tool, the Shenyang machine tool would directly serve its users. Such mergers and reorganizations between upstream and downstream enterprises are also encouraged. Now it is not the old user who does not need domestic equipment. If the user merges the factory and the upstream and downstream are circulating, then it can still be used.
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