China Aggregates Association president Hu Youyi delivered a keynote presentation for the 8th China Internationla Aggregates Conference which took place on December 6-7, 2023 in Shanghai China. 

Presentation: Current International and Domestic Economic Situation and Sustainable Development of Aggregates Industry

Abstract:

Currently, the world is undergoing profound changes with downward pressure on the world economy increasing each day. Countries around the globe are facing multiple challenges, and instability and uncertainty factors have increased significantly. Enterprises are facing many problems that are becoming more and more complex. The global aggregates producing and equipment industries in various countries has also undergone rapid changes.

The aggregates and equipment industry is highly correlated with the macroeconomic prosperity, infrastructure construction and real estate investment, and is highly cyclical. Future macroeconomic trends, national macroeconomic policies, industrial policies, etc. will have an important impact on housing construction, transportation, urban construction, investment in infrastructure projects such as water conservancy and hydropower, and the investment of quarry resources.

At present, the aggregates producing industries in developed countries have experienced decades of growth, and the aggregates industry in developing countries has experienced nearly ten years of growth. As the world economy moving downwards, the global aggregates industries are facing challenges of overcapacity and short market demand, making companies difficult to survive. The global aggregates industry has entered a period of profound adjustment. Volume reduction and optimization, intensive and efficient, green, low-carbon and high-quality development are the main directions in the future, and the transformation to sustainable development is imminent.

In this world, change is absolute and invariance is relative. The situation is changing, policies are changing, industries are changing, and companies are changing. In the background of the global economic downturn and increasingly fierce competition among sand, gravel producing and equipment suppliers, companies must not only look up to the stars, but also look down to the ground, so as to grasp the trend of the development. Companies need to understand the current economic situation, knowing strengths and weaknesses, and find certainty amidst uncertainty, in this way they can survive and do well in business.

The keynote speech is divided into the following five aspects:

First, Current International and Domestic Economic Situation

1. The current international economic situation report introduces the International Monetary Fund (IMF) three forecasts for global economic growth in 2023 and 2024 and global mid- and long-term growth in April, July, and October 2023, including Economic growth forecasts for advanced, emerging market and developing economies. The IMF believes that the Asia-Pacific region will contribute about 70% to global economic growth, becoming the world's most dynamic major region in 2023, and China's contribution to global economic growth will reach about 34.9%.

The report introduces the GDP growth and import and export situation of the world's major developed and developing countries or regions in 2023; housing prices, sales, and new housing starts in the United States, the United Kingdom, and France; manufacturing PMI changes in the United States, the Eurozone, Germany, and other countries and regions; GDP forecast for 190 countries in 2023, etc., the performance increases and decreases of the world's largest shipping companies.

The IMF believes that the current pace of global growth is still very slow, far lower than the average level of 3.8% in the two decades before the epidemic. The world economy faces multiple downside risks and growth remains weak. Global economic activity is losing momentum and medium-term growth prospects have weakened further.

2. Current Domestic Economic Situation

The Political Bureau of the CPC Central Committee held a meeting on July 24, 2023, to analyze the new difficulties and challenges faced by the current economic operation: insufficient domestic demand, operating difficulties for some enterprises, many hidden risks in key areas, international environment is complex and severe. China's economy has strong resilience and potential for development, and its long-term positive fundamentals have not changed.

The report introduces Chinese national and local GDP growth in the first three quarters of 2023; the national fixed asset investment from January to October 2023, including manufacturing investment, infrastructure investment, real estate investment, commercial housing sales area, and new housing starts , growth rate of construction and completed area, real estate development investment in the eastern, central, western and northeastern regions, real estate development prosperity index, industrial added value above designated size, industrial producer price, manufacturing purchasing managers index, construction industry business activity index, operating income and profits of industrial enterprises, market prices of important means of production in the field of construction materials and non-metallic circulation, etc.; import and export trade, including China and ASEAN, the EU and the United States, Japan, Russia and countries along the “Belt and Road” and regional import and export conditions, etc.

Since the beginning of this year, the world economic recovery has been sluggish. Under the complex and severe external environment, China's economic growth has been significantly faster than that of the world's major developed economies. As various policies and measures to expand domestic demand come into effect, the potential of domestic demand continues to be released, market demand gradually recovers, investment continues to grow, and the economy is expected to continue to recover.

Second, operation status of aggregates, construction machinery, steel, cement and concrete industries

The largest quantities of construction machinery, steel, cement, sand, gravel and concrete are used in infrastructure projects such as buildings, roads, bridges, water conservancy and hydropower. The report introduces the economic operation of China's construction machinery, steel, cement and concrete industries from January to October in 2023. It focuses on the economic operation of the national aggregates industry from January to October in 2023, including the national aggregates production, the prices of natural sand and machine-made sand and gravel, the distribution of existing aggregates mines in various provinces, municipalities and autonomous regions, and the distribution of newly established aggregates mineral rights, construction and planning of aggregates mines of giant leading companies, the supply and demand of aggregates mines in various regions, aggregates prices in coastal areas, import and export volumes of natural sand, machine-made sand, and gravel, operating rates and capacity utilization rates of aggregates producing enterprise. The report predicts future aggregates production and price trends, to let the participants clearly understand the dynamics of aggregates and related industries, accurately grasp market trends, and adjust corporate business strategies in a timely manner.

Third, Market demand for aggregates

Investment in infrastructure construction such as buildings, roads, bridges, water conservancy and hydropower is positively correlated with demand for aggregates. The increase of the former leads to the increase of the later.

The report introduces the investment in infrastructure construction in the United States, Italy, the European Union, Syria, Ukraine and other countries and regions along the “Belt and Road”.

The report focuses on China's housing and infrastructure construction. In 2022, the added value of the construction industry accounts for 6.9% of GDP, the added value of the real estate industry accounts for 6.1% of GDP, and the two pillars accounts for 13%. Stabilizing the two "pillars" is of great significance to stabilizing the domestic economic market.

The Central Financial Work Conference proposed to speed up the construction of "three major projects" such as affordable housing. The report specifically introduces the main content, quantity and area of the construction of the "Three Major Projects", as well as real estate-related policies.

The urbanization rate is expected to reach 70% in 2030, and the urban population will increase to about 980 million people. It is estimated that the area of new real estate construction in the future will reach 1 billion to 1.2 billion square meters.

The report also focuses on the specific investment areas of China's fiscal 1 trillion treasury bonds and 2.7 trillion special bonds in the fourth quarter of this year; the number and amount of key project investment in various regions in 2023; the major infrastructure projects and investment amounts involved in the Report on the Draft National Economic and Social Development Plan for 2023; the status of new water conservancy projects and major infrastructure projects across the country; detailed data related to sand, gravel and equipment in the renovation of old urban communities and the new round of rural highway construction and renovation.

China's airports, highways, and railways have a lower per capita ratio than developed countries, and high-intensity construction will still be required in the future. To reach the urbanization rate of 80%, it is estimated that it will take about 15 years to get the urbanization rate increased by one percentage point per year. At present, the demand is mainly for rigid and improved housing and infrastructure construction.

If there is a construction site, there will be aggregates, and if there is a project, aggregates will be needed. There is a big market for aggregates and the related equipment industry.

Fourth, Green, low-carbon and high-quality development of the aggregates industry

To achieve the goal of "carbon neutrality" in 2060 is quite a heavy task for us. For the aggregates and equipment industries, the major measures to achieve "carbon peak" and "carbon neutrality" are: transform from fossil fuel to clean and low-carbon energy, reducing carbon dioxide emissions; and afforestation, increasing "carbon sink capacity."

The report introduces the paths and measures for the green, low-carbon and high-quality development of the aggregates and equipment industry.

4.1 Measures for “carbon peak and carbon neutrality” in the aggregates and equipment industry

The aggregates industry is a resource-based industry and is not an industry with high energy consumption and high emissions. Its characteristics are: large-scale mining, large-scale crushing and screening, large-scale transportation, physical processing, no chemical changes, and no use of coal. The second characteristic is that mining requires destroying vegetation and reducing carbon sink capacity. In terms of "carbon peak", it mainly involves energy saving and emission reduction in mining, processing, transportation and other links, as well as the comprehensive utilization of mining resources. In terms of "carbon neutrality", it mainly involves the restoration of mines and surrounding environments, restoration of mine ecological environments, etc., to increase carbon sink capabilities.

The report introduces the top ten measures for "carbon peak and carbon neutrality" in the aggregates producing and equipment industry.

1. Adjust and optimize the industrial structure;
2. Adjust and optimize product structure;
3. Increase efforts in scientific and technological research;
4. Use high-efficiency, low-carbon, low-pollution, and low-energy consumption process technologies and equipment;
5. Use new clean energy;
6. Comprehensive utilization of solid waste;

…

10. Extend the industrial chain and build a quarry ecological industrial park - Aggregate 4.0+ to form a model of integrated development of the first, second and third industries and increase new momentum for the aggregates industry.

"Carbon peak and carbon neutrality" involves every industry, and our industry must reduce carbon emissions, increase carbon sink capabilities, and contribute to "carbon peak and carbon neutrality" goal!

4.2 High-quality development of the aggregates and equipment industry

The report pointed out that the high-quality development means we have to shift our priority from quantity and speed to quality and efficiency. It is the transformation to sustainable development. High-quality development must implement new development concepts—innovation, coordination, green, openness, and sharing. It must take the real economy, especially the manufacturing industry a priority.

High-quality development is a new change in the economic development stage. It is an economic form based on the original development with better quality, higher efficiency, better benefits, updated structure, and more harmonious with the environment and resources.

In the past ten years, China's infrastructure construction such as buildings, roads, and bridges has become larger and larger. Machine-made sand and gravel and crushed rock have become the main source of supply, accounting for more than 80%. It is an emerging industry and new product for large-scale processing and transportation. China promotes high-quality development, and the aggregates and equipment industries must follow high-quality path.

The report analyzes the connotation of high-quality development; elaborates on the paths and measures for the sand, gravel and equipment industry to achieve green, low-carbon, safe and high-quality development from many aspects, and provides a comprehensive and professional guidance for the high-quality development of aggregates and equipment enterprises.

The report introduces the path and main measures for the high-quality development of the aggregates and equipment industry:

1. Policies and specifications of aggregates and equipment industry;
2. Industry and corporate standards;
3. Scientific and technological innovation in aggregates and equipment;
4. Layout and structure of the aggregates and equipment industry;
5. Enterprise profits, after-sales service, etc.
6. Comprehensive utilization of resources - make the best use of resources;
7. Optimize and stabilize the industrial chain and supply chain;
8. Build a modern industrial system;
9. Coordinated regional development;
10. Ecological environment protection;
11. Aggregates industry culture;

…

The report points out that the economy is composed of industries, and industries are composed of enterprises. Only with high-quality development of enterprises can there be high-quality development of industries, and finally, to achieve high-quality development of the national economy.

The report particularly emphasizes that if an enterprise wants to develop with high quality, it must rely on innovation, and innovation must be supported by high-quality talents and employees. It is necessary to strengthen talent training, introduce high-quality talents, prepare talent reserves, and form a talent pool.

Fifth, Future development trends of aggregates and equipment industry

Three years after the outbreak of the COVID-19, it has had a great impact on economic and social development. At the beginning of the year, the company set ambitious goals and wanted to go big! Now 11 months have passed, many companies are far behind their goals, and many people feel anxious and uneasy. Will the recovery spring of the sand and gravel aggregate and equipment industry come again?

The economy is in recession and demand is shrinking. In the past, there was high-speed growth, but now there is competition among stocks. There are difficulties but there is also hope.

The difficulty is: in a market with no incremental growth, companies have to fight for market share, and competition became more intense.

The hope is that the country will adjust its real estate policy and vigorously promote infrastructure construction, and there are still growth space for aggregates and equipment demand.

Over the past ten years, China's machine-made aggregates industry has undergone major changes. It is no longer the simple crushing and screening of the past, but a large-scale modern material processing industry. As large enterprises continue to enter the market and large mines/quarries continue to increase, the industry and market are gradually maturing and competition is intensifying.

The report introduces the four cycles of development of the aggregates and equipment industry, namely prosperity-recession-recovery-growth. In the early days, the competition between aggregates production and equipment companies was a competition between companies with simple, extensive mode and intensive mode, between environmentally friendly and non-environmentally friendly companies. With the state government promote green development, simple, extensive, and non-environmentally friendly companies were eliminated.

After more than ten years of transformation, upgrading and rapid development, at present, aggregates and equipment companies have entered a new round of competition: competition based on advanced concepts, industrial chain models and continuous innovation. Companies with low-quality development will be eliminated. Companies with high-priced mineral rights, high production line construction costs, poor product quality, many by-products, and high transportation costs will also be eliminated.

The report introduces the ten major risks that aggregates and equipment companies will face:

1. The risk of companies acquiring mining rights at high prices in the early stage;
2. The risk of unreasonable quarrying design and layout and unscientific equipment selection;
3. Risks of out-of-town selling of aggregates;
4. The risk of new aggregates quarry being built in areas with densely populated quarries;
5. Risks caused by inaccurate predictions of aggregates consumption and price trends for new enterprises;
6. The risk of cross-border quarry management managers not understanding the rules of quarry operations;
7. Risks caused by early investment feasibility reports;
8. The risks brought by the large-scale release of aggregates mining rights in various places;
9. Risks of over-expansion in new factories built by equipment companies;

…

The report pointed out that the economic downturn has caused the production and price of aggregates to fall. As large-scale quarries continue to be built and put into operation, overcapacity has occurred in many regions, prices dropped sharply, and even costs surpass product revenue. Production cost is a key factor in enterprise competition. No enterprise can survive and grow for a long time with high costs. The report specifically points out the difficulties that companies will encounter, and proposed corresponding response strategies and implementation paths.

The report introduces the future development trends of the aggregates and equipment industry. At present, the aggregates and equipment industry has entered a period of fierce competition. The survival and growth of enterprises in the future will depend on efficient management and comprehensive benefits, as well as continuous innovation. Only enterprises with comparative advantages can survive in the end.

When the economy goes down, what do companies rely on? We must rely on innovation and conservative management. The era of extensive and rapid expansion is over, and high-quality development will become the main theme and core task. The future development model is very different from the past. Reduction and optimization, intensive and efficient, continuous innovation, meeting and creating new needs, green, low-carbon and high-quality development are the direction of the future.

In the current complex and severe situation of macroeconomics, industrial cycles, etc., the most important thing for a company is to formulate a strategy; the more difficult it is, the more time and energy must be spent on researching strategies. Strategy is the direction, tactics are the approach, and excellent management cannot replace strategy. Strategy is a matter of life and death for an enterprise.

The report points out that in difficult times, enterprises must not only compete, but also strengthen cooperation, maintain market order, avoid vicious competition, and overcome difficulties together.