Caterpillar announces $100 million investment in China; expects increasing sales

China is happening, and nowhere is this more evident than in the booming construction and infrastructure sector. Even the very few doubters would have been swayed by the excellent show put up during the Beijing Olympics when the country's excellence was up for display.

Expectedly, Caterpillar Inc. expects record sales this year as booming demand for construction and mining equipment in China and other emerging economies offsets weakness in its home US market, its chairman James Owens said today.

Moreover, it announced plans to invest "just north of" $100 million to triple production capacity at its Shandong unit over three years, and will also spend $20 million to build the first phase of a research and development centre in Wuxi. The company is the world's biggest producer of construction and mining equipment and a major supplier of power-generation equipment.

"Our manufacturing operations in Asia have been running at capacity to satisfy demand in China," Owens said. "Our outlook for sales and revenues this year still reflects another record year of growth in sales and revenues to Caterpillar and, for that matter, for earnings." Tom Bluth, vice president of Caterpillar's Asia Pacific operations, seconded his opinion.

Caterpillar, based in Peoria, Illinois, expects sales in China to top $2 billion this year, helping to push global sales to just over $50 billion. The company has seen sales surge as China, India, Russia, Southeast Asia and Middle Eastern countries expand their oil, gas and mineral industries to supply a global commodities boom.

The expansion of Shandong SEM Machinery Co., which manufactures wheel loaders, will begin in 2009, Caterpillar said in a statement, while employee count will increase from 1,700 to 3,000 in the next five years.

It didn't specify the current or increased production capacity. Caterpillar purchased a 40-per cent stake in SEM in 2005, and bought the remaining shares earlier this year. Caterpillar didn't give financial details of the deal.

The Wuxi centre will be built in phases, with the first phase to be completed by the end of 2009, Caterpillar's statement said.

Bluth said that Caterpillar is in talks with Xuzhou Construction Machinery Group regarding potential changes in their partnership. A state-run Chinese newspaper reported in June that Xuzhou Construction was planning to sell its minority stake in the venture with Caterpillar.

"There likely will be changes," Bluth said, adding that specifics may be available in the next couple of months. "We're still going to have some degree of a partnership."

Caterpillar owns about 85 per cent of Caterpillar Xuzhou Ltd., which primarily makes hydraulic excavators. Xuzhou Construction owns the remainder.