Caterpillar scents big opportunity in Silk Road initiative

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Updated Tue, 11 Nov 2014 16:52:40 GMT

Caterpillar Inc, the world’s largest heavy machinery maker, is anticipating slower expansion in China but it is hoping to tap potential opportunities in Beijing’s ambitious Silk Road initiative which is expected to create a new wave of infrastructure development along the ancient trading route.

China has set up a $40 billion fund to finance infrastructure projects, including transportation, utilities and telecommunication in countries along the land-based and maritime Silk Roads that connect Asia and Europe, an initiative that could prove beneficial to Caterpillar, the company’s chief executive Douglas Oberhelman said on Sunday.

Though the construction equipment industry has been going through a torrid time in China with poor sales, Oberhelman appeared to be at ease with the slowing of the world’s second-largest economy, saying that the company is adapting to it.

Oberhelman said he does not anticipate any shrinking in Caterpillar’s China assets, but admitted that the company would witness a slower rate of expansion.

“The period between 2008 and 2012 was one of unprecedented growth and it will not be repeated again,” he said on the sidelines of the Asia-Pacific Economic Cooperation forum in Beijing on Sunday.

Industry-wide sales of construction machinery in China fell about 10 percent from a year earlier in the first eight months of this year, according to the United States-based Caterpillar.

But Oberhelman remains upbeat about the prospect of Chinese economy, which he believes is capable of maintaining a 7 percent growth. He said the company would continue to bet on infrastructure growth in China as it is still the largest construction market in the world.

“Any economy that grows by about 7 percent would automatically require investment in infrastructure,” he said, noting that Caterpillar would continue to expand cost-effective strategies for Chinese clients.

Caterpillar posted better-than-expected earnings in the third quarter of this year thanks to its cost reduction strategies and strong market demand for its railway locomotives.

While some analysts see a potential threat to Caterpillar’s business from falling oil prices, Oberhelman maintained his projection for the company’s performance to be “flat and slightly up” in 2015.

Oberhelman said 2014 was a complicated period for business and the weak recovery of the global economy made free and open trade tough.

He said that Caterpillar supported the regional trade initiatives underway including the Trans-Pacific Partnership and the Free Trade Area of the Asia-Pacific as the company has benefited from a more liberalized and fair.