Issue 2/2004
03/02/04
The Chinese elevator market and elevator industry
Ren Tianxiao, President of the Chinese Elevator Association
Adopting policies aimed at reform and opening the economy to the outside world created a gigantic market for the elevator industry in China, this in the wake of broad economic development and due in particular to turbulent growth in the real estate sector. The elevator industry experienced a thrust forward never seen before. With the acceleration of the urbanization process and above all with the implementation of the development strategy for China’s western regions, this trend will persist in China for the foreseeable future. More and more construction projects are being launched, including department stores, airports and underground transit facilities. The demand for residential elevators, escalators and moving walkways will continue to expand. And both supply and demand in the elevator market are flourishing.
Category: Issue 2/2004
Posted by: Editor
Booming elevator market with bright prospects
In the thirty years between 1949 and 1979 only about 10,000 elevators were built and installed in China. Since the 1980s the Chinese economy has developed as rapidly as it has continuously. Thus the demand for elevators has also risen unabated. While 2,249 elevators were produced and installed in 1980, by 1986 that number had risen to 10,000. In 1993 the milestone of 20,000 elevators per year was passed. More than 30,000 elevators were manufactured and installed in 1998. The number of elevators engineered and erected reached 50,000 in 2001 and topped 60,000 in 2002, setting a new record in the elevator industry’s development history (see Figure 1). When compared with 1980, elevator production and installation had risen by a factor of 26 in the intervening 22 years; that represents annual average growth of 16%. According to initial estimates, more than 80,000 elevators will have been produced in 2003.
And in spite of all this, elevator production in China has far from reached the saturation point. Statistics show that at present there are 346,067 elevators in service in China, meaning that there is only one lift in place for every 4,000 persons. That corresponds to only one fourth of the average world level and from 1/20 to 1/10 of the average in the developed industrial nations. Seen over the long term, the entire inventory of elevators on the Chinese mainland will have to number at least 1.2 million units if China is to catch up to the global average. This represents a current market potential for about 900,000 elevators. Consequently the future elevator market in China presents wonderful perspectives for unbroken development.
If we observe total elevator production in 2002 then we find that passenger lifts accounted for 41,500 units, representing growth of 28 % compared with the prior year, while 10,400 escalators were built (65 % growth) along with 7,500 freight lifts (growth of 29%) and mixed-use elevators 2,500, a rise of 67 %. The elevator companies have in the meantime attained considerable size:
There are 14 companies reporting annual production of more than 1,000 lifts, six with annual output of from 500 to 1,000 lifts, sixteen producing between 200 and 500 lifts annually, and thirteen producing between 100 and 200 lifts each year. Each of the largest eighteen companies holds more than a 1 % market share; together they account for about 80 % of the entire market. Each of the three largest companies – Shanghai Mitsubishi, Gongzhou Hitachi and Otis (China Otis and Xizi Otis) – holds a 10 to 20 % share of the market. Shanghai Mitsubishi produced more than 15,000 elevators in 2003 and Xizi Otis, located in Hangzhou, produced almost 2,000 escalators. With this order of magnitude and degree of efficiency, each of the three companies has achieved premier status not only locally, but internationally as well.
Increasing market competition and strengthening production expertise
The thriving elevator market in China has drawn the attention of almost every leading lift manufacturing company. The most advanced elevator products and the latest in production methods are competing on the Chinese market. The best-known elevator manufacturers – such as Otis from the USA, Schindler, Kone and Thyssen from Europe and Japan’s Mitsubishi, Hitachi, Toshiba and Fiji – have all invested in erecting production facilities in China (at Beijing, Tian- jin, Shanghai, Guangzhou, Shenyang, Hangzhou, Suzhou, Langfang etc.). One can say that all the companies which ought to have come to China are, without exception, already on site. They have selected the finest domestic elevator companies as partners in cooperative efforts, built the best factories in the context of joint ventures, and equipped these with the most modern equipment available; they have introduced the foremost technologies and trained the most highly qualified personnel. At present they account for more than an 80 % share of the market. It is in this spirit that one can quite justifiably maintain that the elevator market in China has created the largest arena for competition among the world’s mightiest elevatoring giants.
The policy of open markets and the introduction of advanced technologies and management experience from foreign countries have lent strong impetus to the elevator industry in China. A number of superb domestic elevator companies operating independent of foreign participation – such as Suzhou Jiangnan, Shandong Bester, Zhejiang Giant, the Building Equipment Company in Shanghai, Dongguan Feipeng, Ningbo Hongda, Suzhou Shenlong, Suzhou Dongnan etc. – have not been forced out of the Chinese elevator market by the strong joint venture companies. Quite the contrary, the example set by the modern companies has made it possible for the locals to discern their own market position and their own paths into the future. Even though these domestic companies are still relatively small, they are by no means behind the times in many respects, such as company management, technical competence, product quality and after-sales service. Not only have they assumed an autonomous position on the Chinese elevator market; they also export their products to Southeast Asia, Oceania, Europe and the Americas. Some companies have even undertaken overseas investments in order to further their own advancement. Practice has shown that these companies are competitive not only on the domestic market but on the international market, as well.
At the same time these elevator makers have also boosted their quality consciousness. More than one hundred companies have already been certified as per the ISO 9000 quality system. Nine companies have been certified in accordance with ISO 14?000 and four pursuant to OHSAS 18?000. The domestic elevator companies quickly brought production conditions, quality management, environment protection, occupational safety and the like up to an advanced international level.
At present almost every type of elevator, escalator and moving walkway required domestically can be produced in China. Imports of elevators are now declining each year while exports of lift-related products rise year by year. In 2002 the import and export volumes were nearly identical (Figure 2). It is expected that exports will have exceeded exports in 2003.
Changes in the traditional production structures for elevators
With the transition from central planning to a market-driven economy and under the pressure of globalization, the production processes employed in the Chinese elevator industry are to an ever increasing extent oriented on the rules of the markets and product properties. In the past elevator companies concentrated only on manufacturing and processing. Today their primary activities are found in installation and maintenance. Processing and manufacturing are traditionally influenced by the philosophy of “large and comprehensive” – and the “small and comprehensive” concept, as well – but they are now moving toward production in cooperation with supplier firms and even toward global procurement. There are trends toward transforming the production plants into logistics centers to an ever greater extent.
Since new administrative rules make manufacturers responsible for installation and maintenance, too, the elevator companies have, one after another, set up service networks to boost their performance capabilities in after-sales service. This has caused a considerable reduction in elevator operating accidents and has markedly enhanced reliability in service. Nowadays those companies which have only production capacities but no installation and maintenance capabilities can only with some difficulty be deemed to be elevator companies at all and are only reluctantly accepted by the modern market. While numerous leading elevator component manufacturers such as Wittur in Germany and Sawella in Spain have made a debut on the Chinese market, a number of excellent Chinese supply companies have developed at breakneck speed. These include Ningbo Xinda, Ningbo Shenling, Runfa in Zhangjiagang, Shanghai Step, Laogang Shenling, Shenyang Languang, Changshu Elevator Machinery and Hebei Dongfang, among others.
Turnover volumes for several component manufacturers have already surpassed the sales levels for some of the middle-market elevator engineering companies which offer complete lift systems. Specialization in production offers advantages such as good quality and low pric-es. This has proven to be of great assistance not only for small and medium-sized elevator companies, which have more modest production capacities; it has also helped the “large and comprehensive” elevator makers with foreign partners to reduce their costs. Elevators are a typical integration product, using both mechanical and electrical engineering. The elevator industry has all the essential components of a knowledge-driven sector. One result of development among component manufacturers and production specialization is that elevator company profitability is no longer dependent solely on investment volume and production capacities. All the companies, whether large or small, can survive, provided that they have adequate technical know-how and qualified personnel.
Continuing rises in technical levels and product quality
Since joining the ISO/TC178 Committee (ISO technical committee for elevators, escalators, moving walkways) in 1985, China has taken an active part in international technical meetings dealing with elevator standards and has introduced, either verbatim or appropriately modified, a number of international standards from advanced countries. This a relatively complete system of standards has come into being. For two of the standards in particular – GB 7588 (safety regulations for the manufacture and installation of elevators, equivalent of EN 81) and GB 6899 (safety regulations for the manufacture and installation of escalators, equivalent of EN 115) – compliance (as European standards) is mandatory in China and they have become part of the technical regulations (CODE). Consequently China is one of the countries which has the most stringent requirements in terms of quality and safety in elevators. At present technical renewal is being further accelerated in the elevator companies. The high standards have made it possible to optimize product structure so that the technical level and the quality of the Chinese elevator products matches the world’s high level.
The elevator market in China is a very large market and at the same time a very demanding market. Not only do Chinese customers have high expectations for product quality; they are also very accepting of new technologies. That is why frequency- and voltage-controlled speed regulation, designs without a separate machine room, synchronous drive technology using permanent magnets, computer control technology and remote monitoring capacities have spread very rapidly in China. It is the Chinese elevator owners who benefit most of all from world-class competition on the Chinese elevator market. They can purchase freely in China the newest and best lift products at the most reasonable prices. To do full justice to market demands the Chinese elevator companies, responding to heavy market competition, have boosted their quality consciousness considerably. They attach great importance both to the development and application of new technologies and to continuous monitoring and improvement of manufacturing quality so that the difference between the quality of imported elevators and those produced locally has continued to narrow.
With the development of the Chinese elevator industry Chinese companies were to learn from the advanced technologies and management experience available in other countries. At the same time, they were also to present their own products on the international market. As a showcase for the newest technologies and elevator industry products, the interlift trade fair in Augsburg, Germany, has sparked major interest among Chinese elevator and component manufacturers. In October of 2003 more than ten companies in the Chinese elevator industry – among them Shanghai Step, Shandong Bester, Zhejiang Giant, Ningbo Xinda, Hangzhou Xizi Trust, Shanghai BST, Changshu Elevator Machinery, Tianjin Golik, Shanghai Changshun Elevator Cable etc. – took part in interlift 2003. Over 200 trade visitors from China attended the fair.
Future improvements in the structures of the industry and the markets
Elevators are electrically operated mechanical products which place particularly high requirements on safety and demand extremely intensive work in after-sales service. Operational reliability is dependent not only upon product manufacturing and installation, but to a great extent on proper maintenance and repairs, as well. The continuously rising number of elevators in operation means new development opportunities for the maintenance and service sector. Specializing in the production of components plays a very beneficial role in improving product quality while at the same time reducing production costs. This is welcomed by many elevator builders and by maintenance and service companies. And still there’s a great deal of potential for development. To better comply with market requirements, elevator companies should pay attention to setting up their own development competence and establishing a maintenance, repair and after-sales network while increasing the competitiveness of local elevator products and the national elevator brands. The elevator market in China has become more animated following China’s joining the WTO. With the reduction of customs duties the volume of foreign elevator product imports could be raised while the Chinese elevator products and components, with their advanced technologies, good quality and low costs, are becoming ever more competitive in the international arena, increasing the chances for expanding exports from China. Elevator companies should not attempt to penetrate new markets solely on the basis of product quality; they should also emphasize honesty and trust based on their corporate image. The rules of practice should be standardized. Professional ethics should be observed. A market environment characterized by fair competition should be established and maintained.
Economic expansion and in particular the scope of the real estate market form the basis for the elevator market. Given the current situation, the development outlook is very positive. The problems encountered in and by elevator companies during the transformation of the economic order are unavoidable. But problems such as these can be solved, step-by-step, in the course of reform efforts. For the Association it is a great honor to actively participate in the development of China and thus to make a contribution to the development of the elevator industry. The prospects for the future of the Chinese elevator market and elevator industry look very, very bright, indeed.
2/2004
