NEW YORK (Reuters) - Caterpillar Inc (CAT.N) has begun exporting Chinese-made machinery to the Middle East and Africa, part of a plan to offset a dip in China’s economic growth, a top official at the company said in an interview.
The move by the world’s largest maker of construction equipment is only temporary and the company still expects China to remain its fastest growth market, Richard Lavin, who oversees Caterpillar’s business in China, told Reuters.
Lavin declined to name specific countries in the Middle East and Africa where the Chinese-made goods are headed, or list the amount of product, but noted front-end loaders and excavators comprise the bulk of exports.
“The global economic situation, especially the situation in China, has presented us a short-term opportunity to serve very specific markets with some supplies over the last half of 2012,” he said. “But that is not part of overall strategy for China.”
China’s economy has been pressured this year by a drop in its domestic property market and high inflation, with the economic growth rate slowing to 7.6 percent in the second quarter, the slowest pace in more than three years.
That is reflected in waning demand for the machinery Caterpillar makes at its 18 Chinese plants, and caused a glut of inventory.
While Caterpillar’s Chinese sales are small — in the first quarter they only comprised 3 percent of total revenue — the company has been aggressively growing in the country and believes the country will fuel growth for years.
Worries about China’s slowdown overshadowed Caterpillar’s strong first-quarter profit and did little to bolster second-quarter results earlier this year.
The Chinese government recently cut interest rates and is planning to boost infrastructure spending, both of which Caterpillar expects to help its sales.
“It will have a positive effect on our industry,” Lavin said. “The Chinese government has shown itself to be pretty adept over history at being able to pull the right levers at the right point in time to adjust growth trajectories.”
Typically, though, any boost to the construction industry from interest rate cuts doesn’t happen until six-to-nine months after government action, Lavin said.
That would help results for the first quarter of 2013, but not 2012, reflecting previous comments from Caterpillar executives who not expecting any “material improvement” in China this year.
The rate cuts “cause us to be somewhat more optimistic” about 2013, said Lavin, who is based in Hong Kong. “The growth story for China is still quite compelling.”
The latest Reuters benchmark poll forecasts that China’s economy should recover modestly in the second half of the year, with third-quarter growth of 7.9 percent and fourth-quarter growth of 8.2 percent.
The pending change in China’s top political leadership later this year and early next won’t affect Caterpillar’s expansion plans, Lavin said.
Chinese President Hu Jintao must retire from running the country’s Communist Party later this year and from the presidency in early 2013.
“China has shown itself capable to manage these leadership transitions seamlessly,” Lavin said. “I think what we can expect is stability in the transition, and that’s going to be good for the economy and good for industry.”
Editing by Leslie Gevirtz