In China the wire and cable industry is so essential that it relates to indispensable basic equipment for power transmission, information transmission, electromagnetic conversion, and manufacture of motors, electrical appliances and meters, closely correlated with the national economic development. The industry is reputed as the “vessel” and “nerve” of national economy.
During the “11th Five-Year Plan” period, thanks to the rapid development of national economy, the wire and cable industry has maintained a good growth momentum, with an average annual growth rate of 18.77%, far exceeding the 9% GDP growth rate, with the largest production output in the world.
In recent years, however, due to the relatively low barriers to entry, the industry has shown excess production capacity, accompanied with lower and lower concentration, and on the other side, some workshop enterprises that do not have high production level, necessary quality control and testing means have engaged in forged and fake commodity, producing counterfeiting and shoddy products by cutting corners, and have disrupted market competition order by lower sales prices. In such an industry with overcapacity, companies frequently compete for market shares with lower prices, even produce counterfeit and shoddy products, leading to disorderly market competition, affecting the healthy development of the industry, and therefore it is impossible to fully satisfy downstream companies’ demand for high-end special cables.
In order to cope with the problems existing in the industry and promote the transformation of cable industry from low-end to high-end, the industrial development in the future lies in the high-performance special wires and cables.
Special cables are a series of products with unique properties and special structures developed on the basis of ordinary wires and cables. Compared with ordinary wires and cables of a large quantity and a wide range, special cables adopt new materials, new structures, new processes or new designs, and have the characteristics of high technical content, strict use conditions, and high added value. With the continuous development of national economy, the demand areas continue to increase, and the requirements for special cable technology will inevitably continue to increase, accompanied with continuously expanded application areas. The development of special cable industry will more significantly promote the national economy.
High-performance transmission lines for aerospace, high-frequency cables for communication, watertight cables for ships, as well as environmentally friendly flame-retardant, low-smoke and halogen-free cables are important branches of special cables. With the rapid development of aerospace, communication, defense industry and rail transit in recent years, the demand for high-performance special wire and cable products will also grow rapidly.
II. Development status of high-performance special wire and cable industry in China
(1) High concentration of special cable products
There are nearly 7,000 wire and cable manufacturers in China, but the top 10 manufacturers only account for 13% of the market shares, indicative of a relatively low market concentration. From the perspective of market segments, the high-end market is characterized by high technology content, high entry barriers, and high product added value. There are few domestic companies that are capable of participating in the high-end market competition. Existing high-performance special cable manufacturers account for less than 1% of the total number of manufacturers, with a relatively high enterprise concentration. Taking the communication cables used in Beijing-Shanghai high-speed railway as an example, imported products account for more than 60% of the market share, particularly the high-tech data bus cables which are basically controlled by foreign-funded enterprises.
(2) Insufficient effective supply of high-end products
At present, China’s wire and cable industry is faced with overcapacity, oversupply and heavily dependence on import of high-end cable products. In 2009, China's imports of wire and cable products accounted for about 10% of the total amount of domestic cables, dominated by high-tech and high-value-added products that have not been mass-produced domestically. With the rapid development in communication, high-end equipment manufacturing and other industries, China’s demand for wires and cables has soared substantially and will maintain the trend in the future. The products that are in urgent need of development in the domestic market include the wires and cables for aerospace, data bus cables, marine cables, cables for locomotive and rolling stock, high-frequency cables for communications, and cables for urban railways.
(3) The market is dominated by imported products
The rapid economic development and thriving market demand in China have created a broad market demand in the high-performance special wire and cable industry. China has also substantially attracted foreign wire and cable manufacturers while creating development opportunities for domestic wire and cable companies. Raychem, Nexans, Sumitomo Electric, and Drake, etc., the world's top wire and cable manufacturers, have established joint ventures and wholly-owned enterprises in China and mostly invested in the markets with high technical barriers and high profit margins, mainly in the fields of power, communication and electrical equipment. The continuous inflow of foreign capital has seized the market of high-end special cables with higher technical requirements.
Although, at the present stage, the introduction of foreign companies and imported products can temporarily meet the demand for high-end wire and cable products in the domestic market, the high price and long delivery time of imported wire and cable products have greatly increased the R&D and manufacturing costs of China’s aerospace aircraft, and affected the development speed of high-end manufacturing to a certain extent.
(4) Strong demand for localization
In order to further strengthen industrial security, economic security and national defense security, China has shown increasingly stronger demand for localization of related products and proposed the use in preference to domestic independent brand products in national industrial policy. The industrial environment is very conducive to the development of domestic special cable companies.
Taking the aerospace industry as an example, as a leading industry in the high-end equipment manufacturing industry, China has adhered to the development mode of replacing foreign products primarilly with self-developed ones, supplemented by the introduction of foreign advanced technology. Presently, China’s “Long March” series rockets for satellite launching are all independently developed and produced, and the wires and cables used in aerospace are also provided by domestic enterprises.
III. Market outlook of China's high-performance special wire and cable industry
(I) Civil aviation
In March 2007, the Chinese government approved a plan for the design and construction of large commercial passenger aircrafts (the “Large Passenger Aircraft Plan”), a key project in the “Outline of the National Medium and Long Term Science and Technology Development Program”. According to officials, the investment in the development of large passenger aircraft is about 50-60 billion yuan. The project is developed under the concept of “project approval, two models, parallel development in both military and civilian field, and serial development.” The large passenger aircraft projects is of great significance to China's aviation industry.
In the future, there will be a huge demand for 2,000-3,000 large civil airplanes, providing a broad market space for China's civil aviation industry. In terms of the current domestic production of regional aircraft, as of May 2011, a total of 196 MA aircrafts (MA 60 and MA 600 aircraft, with a production capacity of up to 30 aircrafts/year) have been ordered and 54 delivered to users: 340 ARJ21 have been ordered as of the end of 2010, and its production capacity was expected to reach 50 aircrafts/year in 2012. Based on the amount of cable used by a regional aircraft of 100~120km, in the next 5 years, the total demand of cable is about 60,000~80,000km. After 2016, the C919 aircraft could also be commercialized, and the demand for cables in the civil aviation field could further increase. It is expected that the annual production capacity of domestic large passenger aircraft will eventually reach 150, 2,300 in total within 20 years.
In the field of civil aviation, foreign companies have dominated the main market, mainly CDT, Nexans, and Carlisle. The cables supplied are mainly polyimide tape wrapped wires. There are still very few domestic companies that can achieve mass production of such cables. Most of these companies have just successfully developed such products, still with a certain gap in quality compared with imported products. However, with the expanded production scale of regional aircraft and the continuously improved manufacturing level of special wire and cable in China, domestic cable companies in this field will continue to expand the market share.
(II) Rail transit
In 2004, the State Council deliberated and approved the “Medium and Long-term Railway Network Plan” and made new adjustments in 2008. In accordance with the newly adjusted “Medium and Long-term Railway Network Plan”, by 2020, the national railway mileage will reach 120,000 kilometers, of which more than 16,000 kilometers of passenger transport lines is planned to be constructed, and 41,000 kilometers of new lines will be constructed, with the proportion of double line railway and electrified railway more than 50% and 60% respectively, and the rail network scale in the western region more than 50,000 kilometers.
According to the latest investment plan of the Ministry of Railways, 325 billion yuan will be invested in the purchase of rolling stock during 2010-2012. There will be a huge demand for locomotive cables, communication and signal cables. During the “12th Five-Year Plan” period, an average of about 160,000-200,000 kilometers of cables will be consumed each year for railway rolling stock. It is estimated that the annual market demand for signal cables for railway communication is 70,000-100,000 kilometers.
Due to the limitation of economic strength and technical level, the construction of urban rail transit in China started relatively late. Before 2000, rail transit lines were constructed only in Beijing, Shanghai and Guangzhou. Since 21st century, urban rail transit has also entered a period of fast development with the accelerated economic development and urbanization in China. At present, more than 40 cities in China have formulated large-scale rail transit development plans, 31 urban rail transit lines are operating in 10 cities in China, with operating mileage up to 835km. It is estimated that by 2016, China will build 89 urban rail transits with a total length of 2,500km. China has entered a new stage of leapfrog development in urban rail transit and become the world's largest urban rail transit market. According to a forecast, during the “12th Five-Year Plan” period, the demand of rail transit cables for motor vehicles and trailers is about 25,000-30,000 kilometers, 15,000-20,000 kilometers of which are the annual demand of signal cables for urban rail transit.
The market of special cable for rail transit is mainly dominated by three cable companies, namely HUBER+SUHNER, Nexans and Chaohu Haixing. Among them, HUBER+SUHNER and Nexans are both the world's leading high-end special wire and cable manufacturers, and have established production bases in China. The two foreign-funded enterprises together occupy more than 90% of the market share in the rapidly developing high-speed rail field, and about 60% in the rail transit field. Chaohu Haixing is the largest rail transit cable manufacturer in China and a professional wire manufacturer designated by the Ministry of Railways, and it occupies about 35% of market share in urban rail transit and about 10% in the field of high speed rail.
Like the civil aviation, the rail transit also has to rely on imports of high-performance special cables, but fortunately, Chaohu Haixing can partially replace imports, and with the continuously expanded demand for rail transit cables and the deepening research and development in enterprises, more and more similar enterprises will come to the fore and command a place in this high-end market.
(III) Military industry
The development of military industry is not only of great significance for safeguarding homeland security and maintaining social peace, but also an experimental field for the development and application of advanced science and technology, for example, such technologies as railway transportation, air transportation, communications and satellite positioning are all first applied in the military field, and then gradually promoted to the civilian field. After profoundly recognizing that the military industry has a major role in promoting the advancement of scientific and technological strength, China has regarded the military industry as the leading industry in high-end equipment manufacturing, and maintained a gradually increased resource input year by year.
On the whole China has ten major military industry groups, involving six major fields including nuclear, aerospace, aviation, ships, weapons and military electronics, with total assets of nearly 1.5 trillion yuan, and operating income in 2010 reached 1,240.5 billion yuan. Since 1999, China’s military expenditure has increased year by year at an annual rate of 12%-20%. In the six years from 2000 to 2005, defense expenditure has doubled from 120.754 billion yuan to 247.5 billion yuan. In the 12 years from 1999 to 2010, military spending increased from 107.6 billion yuan to 533.5 billion yuan, increased by about four folds.
In 2010, China launched 19 satellites, most represented by Beidou, Tiangong, and Chang'e. This will bring a huge demand for high-performance special cables for satellites, with a total market capacity of about 100-200 million yuan. The launch vehicle, as an indispensable space vehicle for satellite launches, has to be launched more than 20 times, and the demand for high-performance special cables has reached about 90 million yuan.
In the field of military aviation, China has an insufficient number of advanced aircraft, with a large demand for third-generation aircraft by the air force. According to China's military construction and surrounding security, China will have a certain demand in the next few years for naval aviation carrier-based aircraft, advanced trainers, helicopters and other models. It is estimated that in the next 5 years, the total market demand for high-performance cables in the aviation field can reach 900 million-1.2 billion yuan.
In terms of military ships, the future development mainly lies in the construction of aircraft carrier battle groups and the modernization of old destroyers. It is estimated that the demand for high-performance cables for ships in China in the next five years will reach 350 million -500 million yuan.
In terms of military electronics, China focuses on the comprehensive construction of informatization troops, the enhanced competence in air defense, anti-missile and under complex magnetic interference, and the construction of comprehensive communication command system. The navy, army, air force and the Missile Army all have to equip and develop information technologies such as radar, communication, and electronic countermeasures, which will in turn rapidly increase the demand for high-performance special wires and cables, and the total demand will reach 900 million-1.1 billion yuan in the next five years.
The suppliers of special wire and cable for military industry can be roughly divided into three types. The first includes international leading cable companies represented by Raychem and Nexans. These companies boast glorious history, strong capital and global sales network, also show strong technical strength in basic raw material development and system design, which is the goal of domestic enterprises; the second includes state-owned military industry enterprises, mainly including traditional military cable manufacturers such as Tianjin 609 and CETC 23rd Research Institute, those manufacturers are state-sponsored with sufficient R&D expenses and strong R&D capabilities, but generally do not carry out large-scale production; the third includes private military high-performance cable manufacturers, represented by Nanjing Quanxin. Those enterprises have both R&D capabilities and comparable scale of production, and have gradually gained a relatively large market share through market competition.
Military manufacturing plays an important role in protecting national security, so it is increasingly urgent to fully realize the localization of products, which in turn provides a good opportunity for domestic military special cable companies to prosper and to launch a new horizon with rapid development as long as they are initiative and innovative in face of difficulties and hardships.
With the development of downstream industries such as communications, rail transit, aerospace, shipbuilding, and military industry, China’s demand for special wires and cables will increase rapidly, while some existing cable manufacturers with backward production processes and poor quality control will be gradually eliminated during the upgrade process. In the future, special cables such as marine cables, locomotive cables, aerospace cables, high-frequency communication cables and other high-tech cables will be the main development orientation of the cable industry. The national “12th Five-Year Plan” has clearly defined the development plan for shipbuilding, railways, aircraft, aerospace and communications and basically ascertained the types and quantities of special cables to be manufactured. The thriving market in the above-mentioned fields will soon reshuffle the industrial pattern and the wire and cable companies that meet the needs of the new era will usher in good opportunities for rapid development.
Author: Zhang Xuan (1980-), a native of Beijing, a postgraduate student at the MBA Education Center of Beijing Normal University, research direction: Business Administration.
(Editor in charge: Wang Shubai)
Author’s Unit: MBA Education Center of Beijing Normal University, Beijing, 100080
English Journal Title: ChinaHighTechnologyEnterprises
Year, Volume (Edition): 2011(22)