Dirty Clash of China’s Heavy Equipment Heavies

11.06.2013 15:32

Dirty Clash of China’s Heavy Equipment Heavies

Rival machinery manufacturers Sany and Zoomlion have been fighting an ugly battle that just got uglier

By staff reporters Zhang Boling and Yu Ning

(Beijing) – The dramatic fall of a media mercenary has exposed a quiet, dirty war for clients, government favors and respectability between two of the world’s largest heavy-equipment manufacturers. It’s a years-long war that’s been largely hidden from the public eye, on a battlefield littered with charges and counter-charges of espionage, slander and back-door deals in the Hunan Province city of Changsha, home base for rivals Zoomlion Heavy Industry Science & Technology Development Co. Ltd. and Sany Heavy Industry Co. Ltd.That these two companies have been at each other’s throats was never entirely clear. No one knows, for example, who posted on the Internet false financial reports about Sany that scared investors two years ago and sank the company’s bid for an initial public offering. Some blamed Zoomlion, but investigators following orders for a probe from then premier Wen Jiabao found nothing wrong.
The recent downfall of journalist Chen Yongzhou, however, changed everything. Widely reported across China was news that Chen, a reporter for the Guangzhou-based newspaper New Express, had been detained by Changsha police October 18 for allegedly writing lies about Zoomlion’s finances in exchange for money.
Chen then confessed on national television that he had indeed penned a series of stories whose aim was to intentionally slander Zoomlion. He also said that he had pocketed 50,000 yuan after the stories were published between September 29, 2012 and August 8, 2013 in New Express.
Chen’s detention-center interview appeared on a state-run CCTV news show on October 26. Without directly mentioning Sany, he claimed an unidentified middleman had arranged the deal. A close-up shot of Chen’s signed confession was aired during the interview, and clearly written on the page was Sany’s name.
Authorities have refused additional information about Chen. But looking back at the recent history of Sany-Zoomlion relations over the past few years, it’s apparent that the journalist had put himself on the front lines of a battle between Sany and Zoomlion. And the war seems far from over.
Negative Publicity
Police started investigating Chen on September 9, the day Zoomlion officials filed a complaint against the reporter. The criminal case was officially opened a week later.
Specifically, Chen has been charged with damaging a corporation’s reputation in connection with 10 of his articles published between September 2012 and June 2013. He faces up to two years in prison. No date has been announced for his trial.
But Zoomlion has also accused Chen of writing letters in June to the Hong Kong Stock Exchange and the Hong Kong Securities and Futures Commission, accusing the company of fraud. He submitted a similar complaint in July to the China Securities Regulatory Commission. Additional slander from Chen, claims Zoomlion, was posted online on his Sina Weibo microblog.
Company officials say Chen failed to seek their comments before writing. “Chen has never contacted with Zoomlion for any of his reports,” said Gao Hui, Zoomlion’s assistant to the chairman.
Police and Zoomlion officials have not publicly accused Sany of any involvement in the Chen case, nor have they commented on the signed confession with its Sany citation.
Nevertheless, the CCTV report and confession may have sealed the reporter’s fate.
Chen admitted writing only one of the 10 articles published, with the middleman handing him the other nine stories which he then submitted to his editors at New Express.
The confession silenced critics of Chen’s arrest, including some who had questioned the Changsha police department’s handling of the case. And New Express immediately stopped campaigning for their reporter’s release.
The Administration of Press, Publication, Radio and Television of Guangdong, a government agency that regulates journalists in the province, revoked Chen’s license to practice journalism November 1. Around the same time, New Express’ owner, Yangcheng Daily Group, sacked the newspaper’s chief and deputy chief editors.

The Chen incident is certainly not the first time Zoomlion has claimed being victimized by the media. For example, the firm’s founder and chairman, Zhan Chunxin, said the company was defamed in a November 2012 article appearing in the Beijing-based magazine Global Entrepreneur.
Several Sany senior executives, including Chairman Liang Wengen, were interviewed for the story, which described how the company had been for years a target of business espionage, bribery and defamation. The story pinned some of the blame on Zoomlion.
Zoomlion took another publicity hit on January 8 with a story in Hong Kong’s Ming Pao Daily News, which claimed the company had inflated its profit report. The company’s stock is traded on the Hong Kong Stock Exchange.
Similarly negative news about Zoomlion’s financial reporting appeared in later months in New Express and the Shanghai National Business Daily newspaper.
On May 29, Zoomlion claimed these reports “were part of a reputation-bashing plot hatched by its rival.”
Cross-Town Rivals
Although based in the same city, Zoomlion and Sany are not happy neighbors.
Sany got its start as a welding products factory in the Hunan city of Lianyuan that Liang and three partners launched in 1989. Five years later, Sany was formed and started manufacturing heavy equipment. By 2003, the year Sany stock started trading on the Shanghai bourse, the company had grown to become the world’s sixth-largest maker of concrete pumping machinery.
In 2012, Sany reported 53.2 billion yuan in sales and a 5.8 billion yuan net profit.
Zoomlion was formed through the restructuring of a government agency called the Changsha Construction Machinery Research Institute, a branch of what was then called the Ministry of Construction, in 1992.
Zhan had served as the institute’s deputy director. Zoomlion listed in 2000 on the Shanghai Stock Exchange and 10 years later on the Hong Kong bourse, becoming China’s only dual-listed heavy equipment maker.
In 2012, Zoomlion reported 48 billion yuan in sales and a 7.3 billion yuan in net profit.
These Hunan neighbor-companies have long competed against another state-owned giant, Jiangsu Province-based XCMG, which was the undisputed king of the country’s heavy equipment sector until about seven years ago. In 2003, for example, XCMG reported sales that were 1.6 times greater than of Sany’s and that exceeded Zoomlion’s by 2.97 times.
Sany and Zoomlion trained their sights on XCMG, and thus between themselves maintained peaceful, cross-town relationship. Changsha officials once encouraged the companies to form a joint venture, but the effort failed.
Most of the competition between Zoomlion and Sany before 2006 was limited to concrete machinery. But the friction afterward gradually increased to encompass all products, from mining trucks to cranes and bulldozers.
“There were constantly conflicts between us, since there are thousands salesmen competing for orders,” Sany President Xiang Wenbo said.
Xiang said Sany warmed to the idea of a joint venture, but its rival rejected it.
Zhan explained by saying: “It’s unrealistic. How can we calculate the sales? And how to share the profits?”
The scene changed dramatically in 2006, when XCMG launched a restructuring in hopes of attracting new investors. U.S.-based Carlyle Group bid for but failed to win a stake in the company. The overhaul was part of a nationwide, government campaign aimed at reforming state-owned enterprises.
Sany’s Xiang used his personal blog to repeatedly criticize the proposed deal with Carlyle, warning that foreigners would monopolize China’s heavy equipment sector. XCMG later scrapped its restructuring, and soon started losing business to Sany and Zoomlion.
Since then, Sany and Zoomlion have pushed past XCMG to become the nation’s largest and second-largest heavy equipment makers by sales.
Moreover, Zoomlion cut its provincial government ownership stake to 59.7.Minority holders are Hony Capital, a subsidiary of Lenovo Group, with a 23.8 percent stake, and the company’s management and employees, which together control 12.56 percent.
Zoomlion also reorganized by creating separate divisions for cranes, concrete machines and road-building equipment and other four other businesses.
Revenues and profits climbed significantly at Zoomlion as well as Sany between 2005 and 2007. But with the fast growth came fiercer competition.
As the rivalry heated up, Zoomlion indirectly accused Sany of playing unfair by sending text messages to hundreds of customers warning them of potential dangers after a Zoomlion concrete pump failed in August 2006, with a breaking pumpstand. Sany never responded.
Sany’s clients were similarly warned in April 2007 after one of the company’s pumps failed at a German trade show. Sany blamed the rival for the warnings.
Animosity grew after Zoomlion acquired the world’s third-largest concrete machinery maker, Compagnia Italiana Forme Acciaio in September 2007, along with its advanced technology.
Hong Xiaoming, financial director of Zoomlion, said the CIFA purchase helped his company cut costs and rise to first place in the Chinese market for concrete machines, which generated 40 billion in combined revenue for Zoomlion in 2011 and 2012. About 30 billion yuan of that amount came from products tied to CIFA technology, Hong said.
Sany also bid for CIFA and offered a higher price than Zoomlion’s. But Xiang said “the (Chinese) government helped” the rival win.

Zoomlion said it nabbed the deal by winning approval for an overseas acquisition from the National Development and Reform Commission (NDRC), the country’s top economic planner.
“Sany offered 650 million euros and we offered 420 million,” said an investment consultant who worked for Zoomlion. “But we better understand the international acquisition rules and got NDRC’s approval first, which meant Sany would lose the right to make a purchase.
Relations between Sany and Zoomlion deteriorated rapidly, with executives from each side accusing the other of improper practices during the CIFA bidding.
Similar quarrels erupted in 2012, when the companies started battling for a German heavy machinery company, Putzmeister Group. Zoomlion got NDRC’s approval, but Xiang publicly questioned the deal.
“Putzmeister met with five companies” from China interested in a takeover, Xiang said at that time. “Why did only Zoomlion receive approval?”
A Zoomlion statement said Zhan met Putzmeister’s CEO in Hong Kong on December 21, 2011, and asked for NDRC approval the next day. Approval was granted December 30.
But then the Hunan government stepped in, and Zoomlion eventually let Sany win the prize. Provincial officials had decided “it’s Sany’s turn now,” said a Zoomlion executive.
Sany, with partner CITIC PE Advisors (Hong Kong) Ltd., bought Putzmeister for 360 million euros.
Cloak and Dagger
The friction turned a dark corner in 2009 when, according to Changsha city court documents, Sany employee Wen Cheng paid a Zoomlion sales manager named Zhang Jun some 25,000 yuan for access to information about the company’s clients.
Zoomlion uncovered the game and reported the men to police. Wen was detained but later released, while Zhang was convicted and sentenced to a year in jail with reprieve.
The plot thickened later when Xiang claimed the business espionage case was faked by Zoomlion to discredit Sany, and that Wen had actually worked for Zoomlion.
Another bizarre incident was the June 2010 attempted kidnapping of Liang’s son, Liang Zaizhong. Sany told police Zoomlion was behind the crime, but investigators later rejected that conclusion.
Sany was financially rocked in 2011 by Internet reports that its executives had bribed government officials – claims that appeared just before a planned IPO on the Hong Kong exchange. The company sought to raise HK$ 30 billion but the bad publicity was “an attack that made Sany’s listing plan fail,” said Xiang.
Sany complained to police. The Changsha public security bureau later issued a statement saying the claim of Sany’s involvement in bribery lacked evidence.
The premier got involved, demanding further investigation. The Hunan provincial Communist Party discipline watchdog launched an investigation into three Zoomlion employees.
But the employees were later released. And a few months later, the Hunan government told regulators in Beijing and Hong Kong that they had found no sign of criminal activity targeting Sany.
Zhan said he was astonished to hear that some blamed Zoomlion for the IPO-busting Internet reports.
Yet Sany’s failure coincided with Zoomlion’s burst of business.
Zoomlion’s share of the country’s concrete machinery market, for example, increased to 48 percent in the fourth quarter 2011, up from 25 percent in 2007. Sany’s share slid to 42 percent in 2011 from 70 percent in 2007.
Analysts started worrying that Sany might face liquidity risks. But Zoomlion has had plenty of cash, following a private placement in Shanghai in 2009 that raised 5.5 million yuan and its 2010 IPO in Hong Kong.
Sany and Zoomlion sparred again in November 2012 after Liang announced a plan to move Sany’s headquarters to Beijing. The plan would involve moving some headquarters staffers, while the company’s production and business departments would stay in Hunan.
“We had discussed a relocation with (Hunan) provincial officials two years earlier,” said Xiang. “In our eyes, Hunan does not have an environment for fair competition, and Sany has to move.”
Moreover, Sany officials say Hunan police and the judicial system favor Zoomlion because Zhan is a member of the provincial party standing committee, which gives him connections to high-level officials. Zhan, in a counter-attack, says those statements were defamatory.
In fact, the Hunan government has supported Sany and Zoomlion with financing, land and policies. Company reports say Sany received a 937 million government subsidy in 2011 and 577 million yuan the following year. Zoomlion’s subsidies for those years were were 86.9 million yuan and 212 million yuan.
Will the conflict ever end? Zhan thinks the answer will depend on whether the companies can adapt to serve a more diverse business environment and better focus their attention on corporate ethics.
Xiang, however, thinks the market will have the final say. “When Sany is bigger than Zoomlion, this competitive pattern will no longer exist,” he said.