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Xugong goes with the wind

By Zhang Qi (China Daily)
Updated: 2008-06-13 09:50

Xuzhou Construction Machinery Group (XCMG), the country's largest manufacturer of heavy construction machinery, plans to make an initial investment of 500 million yuan ($72.34 million) to diversify into wind turbine production at a time when crude oil price is going through the roof.

Wang Min, president of the Jiangsu-based company, said revenue from this new line of business will amount to about 10 billion yuan a year in three to five years. He declined to elaborate on the investment, saying the company was yet to make a final decision on the project.

A woman takes photos in front of the wind power facilities in Qingdao, Shandong province. [China Daily]

But according to an XCMG official who asked not to be named, a new factory will be built for the fabrication of wind turbines with capacity of 1.5 mW to 2 mW. Production is expected to commence in the latter half of 2009, he said.

The official also said Xugong (as XCMG is also called) is considering licensing the wind turbine technology from US-based engineering company Windtec and Germany-based Aerodyn for around 100 million yuan.

XCMG's new venture could benefit from the Jiangsu government's efforts to promote wind farms to cut down the dependence on coal and oil to feed the province's huge industrial sector.

Xugong has a joint venture with Germany's ThyssenKrupp Technologies Group to manufacture specialized large-diameter slewing bearings that are a major component of, among other things, wind turbines. Nearly all major wind turbine producers in China buy the bearings from Xugong's joint venture.

For that reason, diversification into wind turbine production is a logical step in the company's expansion, the official said. The project is also in line with Xugong's ambition to step up the manufacturing of whole heavy machinery equipment rather than component parts, he said.

Wang recently announced Xugong will exit its joint venture with US heavy equipment maker Caterpillar to set up its own excavation machinery unit with an investment of 200 million yuan. He has also said Xugong will take over a national heavy truck manufacturer by the end of this year, but hasn't disclosed the company's name.

China plans to triple its wind power capacity over the next two years from 6,000 mW to 20,000 mW, said Song Yanqin, deputy director of research management and international collaboration division of China's Energy Research Institute.

Statistics indicate the Chinese turbine industry has now caught on, accounting for 56 percent of the newly installed wind turbines in 2007. This is vastly different from the situation a year before, when foreign manufacturers dominated the market.

"China's wind turbine producer Xinjiang Goldwind is leading the market with a capacity of 780 kW. But since the 1.5 mW variety will soon dominate the market, the industry might be restructured," said Shao Yukai, an energy analyst with Shanghai-based Xingye Securities.

"This means if Xugong acquires an edge in producing 1.5 mW units, the restructuring would be an opportunity for the company. But the dominance of the four leading Chinese wind turbine producers - Goldwind, Huarui, Dongfang Electricity and Yunda - won't be easily altered. It may take more than three years for Xugong to break into the top league in the wind turbine industry," Shao said.