China’s Heavy Equipment Rental Market Thrive from Construction Boom

China’s Investing

China Remains Leader in Infrastructure Spending
Figure 1: China Remains Leader in Infrastructure Spending
Source: The Economist

Construction machinery leasing companies around the world are enjoying a comeback thanks to a boom in infrastructure projects in China. China’s infrastructure investment growth could accelerate to 7.5 % on the year in 2019[1] (refer Figure 1 above).

Beijing announced yesterday a 1.35 trillion Yuan (US $199.54 billion) special bond issuance for provincial governments’ infrastructure projects in 2018, disbursal for which is scheduled to be completed by September 2019[2]. Analyst estimates this year’s special bonds issuance could be around 2.2 trillion Yuan[3].

Premier Li Keqiang delivered the report at the annual session of the National People’s Congress that China will expand effective investment and accelerate the implementation of a number of key project. The Premier said 800 billion yuan (US $119 billion) will be invested in railway construction, 1.8 trillion yuan in road construction and waterway projects[4].

One notable infrastructure development project that China plans to construct the ambitious 6,800km worth of new railway lines to be completed in 2019, a 40 % jump from the length of tracks laid last year amid a wider push to boost infrastructure spending[5].

At least 3,200km of this target will be high-speed rail[6]. China had already invested in 4,683km worth of new rail lines last year, of which 4,100km were for high-speed rail[7]. Furthermore, construction work has already started on a number of major water conservancy projects and the planning and construction of the Sichuan-Tibet Railway will be sped up[8].

Investment is China’s Growth Engine
Figure 2: Investment is China’s Growth Engine
Source: Bloomberg

Investment’s contribution to the growth of China’s gross domestic product will rise by 0.5 % to 2.6 %. In other words, about 40 % of the year’s China’s economic growth will be generated by a new economic driver-investment[9] Investment plays a more significant role compared to consumption and net exports (refer Figure 2 above)

Hence, infrastructure facilities will continue to take a large portion of China’s GDP but the difference this time is that emphasis will be put into improving transportation infrastructure in less-developed areas across China, primarily its western region.

Thus, after a rough ride over the past couple of years, heavy machinery rental firms across the world are enjoying a comeback thanks to a rush of infrastructure projects in China.

Overview of China’s Equipment Rental Market

Since 2016, a series of favourable policies have prompted China’s industrial equipment rental industry is forecasted to develop rapidly. As of June 2017, there had been 8,218 rental and leasing enterprises in China, which conducted the transactions worth 5.6 trillion Yuan at the end of 2018[10].

Industry Equipment Rental Business to Grow
Figure 3: Industry Equipment Rental Business to Grow

In accordance with regulatory authorities, rental and leasing companies in China can be divided into rental companies, domestic-funded leasing companies and foreign-funded leasing companies; wherein, the foreign-funded rental companies accounted for as high as 96.5% of the total at the end of June 2017[11] (refer Figure 3).

China Construction Equipment (2014-2019)
Figure 4: China Construction Equipment (2014-2019)
Source: Bloomberg

With the number of nearly 8,000; but, equipment rental companies contributed 37.8% to the business volume at the end of June 2017 thanks to strong financial strength, outperforming the other two types of companies[12].

As for the region, China’s rental services are mainly available in Beijing, Tianjin, Shanghai and Guangdong which is the result of the rental advantages and policies[13] (refer Figure 4)As of the end of 2018, the combined number of financial rental companies in the four places had exceeded 80% of the country’s total[14].

In China, the funds of rental companies chiefly source from capital, bank loans, interbank borrowing (lending) and shareholders’ deposits, among which shareholders’ capital and bank loans play the leading role, reflecting relatively simple financing channels.

Volume of Business of Various Leasing Companies in China
Figure 5: Volume of Business of Various Leasing Companies in China Source: Bloomberg

China’s industrial equipment rental industry is still growing robustly (refer Figure 5). Although the sector is at its infancy, facing problems such as imperfect laws and regulations, incomplete tax policy, regional development imbalance, and monotonous financing channel, but with broad development prospects. In 2019, China’s equipment rental market is forecasted to grow.

China – India: Emerging Market for Construction Equipment


Global Industrial Equipment Market
Figure 1: Global Industrial Equipment Market
Source: Global Research Insight

The global construction equipment market size was estimated at USD 76.8 billion in 2017[1]. The market is forecasted to expand at an average of 4.8% over the period of 2018 to 2025[2]. Rising government funding for development of advanced public infrastructure specifically in the western region of China has been the main driver for this market to flourish[3].

The rapid infrastructure development in western China is anticipated to further boost the demand for construction equipment (refer Figure 1 above).

Asia: The New Market

Additionally, development of rental market for these machineries in Europe, North America and China is expected to foster global market growth while the rental market in India has got a lot of room to improve[4] (refer Figure 2 above).

In China, residential segment has been witnessing high demand for construction equipment owing to rapid pace of urbanization[5]. Urbanization triggers not only the requirement for residential space but also other infrastructures such as schools, hospitals, roads, and commercial spaces.

Thus, to cater to demand for these public infrastructures, governments spend a substantial amount on construction activities. For instance, Chinese government spent about 15% of its GDP on development of roads between 2000 and 2020[6].

Industry Overview

Industrial Equipment Market Growing
Figure 3: Industrial Equipment Market Growing
Source: Global Research Insight

Given the long lifespan and lack of regular use; most companies prefer renting out old machinery to gain profits[7]. Many companies are now exploring opportunities in rental business resulting in the global rental market to expand (refer Figure 3 above). Hence, rise in rental of used machinery is anticipated to boost overall market expansion in near future.

Market Share by Region
Figure 4: Market Share by Region
Source: Global Research Insight

Despite being one of the highly developed global regions, North America persists in high demand for large equipment followed closely by Europe and China respectively (refer Figure 7 above). It is also one of the most prominent markets for dump trucks. The region is considered to be growing horizontally – new constructions are built on new lands; unlike Europe and Japan where constructions are more vertical- in forms of skyscrapers and buildings[8].

China Gaining Prominence

Figure 5: China Recorded the Largest Sales Volume
Figure 5: China Recorded the Largest Sales Volume
Source: Global Research Insight

China, just like other nations has witnessed a steady increase in sales of heavy construction equipment from 2012 to 2016 (refer Figure 8 above). The devaluation of Chinese currency had slightly affected China’s overall demand in 2016. However, the country bounced back on track in 2017 with around 35% market share in the Asian market.

To conclude, China has a large number of manufacturing facilities for heavy construction equipment[9]. Many global companies outsource manufacturing functions to Chinese factories owing to low production and labour costs and availability of better manufacturing facilities. Being one of the most prominent markets, China is expected to witness the highest regional growth of over the forecast period[10]. Notably, other Asian countries such as India and Indonesia are fast becoming promising regional markets for construction equipment.

Brexit Proof Your Portfolio through Industrial equipment Investment


As Britain’s scheduled departure from the EU draws ever closer, the prospect of a no-deal exit becomes increasingly realistic.  This would force the UK government to make significant spending cuts while in the process undermining Prime Minister Theresa May’s promise to UK residents that public services such as NHS would now suffer rather than benefit from Brexit after October, 2019.

While the UK and EU financial markets remain cautious, investors have begun to review their portfolios in order to ensure that it remains profitable in the long-run. Investors are aware that how Brexit has continued to wreak havoc on the UK’s economic fundamentals such as its currency. The value of pound sterling continues to slide down as the pound is currently traded within a restricted and narrow range as negotiations continue[1].

Economic Growth in the UK has Gradually Declined
Figure 1: Economic Growth in the UK has Gradually Declined
Source: The Economist

When compared to other of its EU counterparts, the UK’s economy has been fairly resilient. This was evident even during the peak of the Euro sovereign debt crisis when the UK was recording positive economic growth over the period of 2012-19 but failed to sustain this growth trajectory in the long-run[2] (refer figure 1). In response to the current weak growth rates, UK policymakers were then left blaming the events surrounding Brexit for the depreciation of the pound.

UK’s Economy to Remain Sluggish

Brexit Impact on the UK’s Future Growth
Figure 2: Brexit Impact on the UK’s Future Growth
Source: The Economist
Labour Productivity Growth Slowing
Figure 3: UK’s Labour Productivity Growth Slowing
Source: Bloomberg

Brexit is officially is 3 months away but the significance it is having continues to influence global financial markets. The general consensus is that the no-deal Brexit scenario will negatively impact the UK’s future growth rates (refer Figure 2 above). At the moment, financial Industry experts remain cautious while policymakers are in a disaster prevention mode to ease the concerns of ordinary UK residents.

The arguments favoring the UK to remain as a part of the EU can’t be ignored. For example, there is research that states that in the past, investment in the British financial markets had risen by 53 % to 660 million pounds (USD $974 million), the peak of any EU member[3].

This is clear evidence that both the UK and EU financial institutions’ have mutually profited from Britain’s membership in the EU – via the “passporting” system. Basically, this system enables financial entities licensed in one EU member country to trade across borders with relative ease and with hardly regulatory hassles. Thus, by removing itself from the EU, Britain may stand to lose nearly USD $5 billion in investment over the next 5-years[4]!

The first possible scenario from the Brexit process will be an exodus of foreign banks operating in the UK. The choice to relocate from the UK will be on the grounds that it makes more economic sense to set-up an office in other EU member states as it more financially feasible. While another outcome of major concern would the disruption to businesses – especially within the financial industry and related sectors that can prove to be damaging to the UK economy that is already experiencing lower labour productivity growth (refer Figure 3).

Fear of Contagion Spreading to the US

Brexit Will Impact US Stocks and the Dollar
Figure 4: Brexit Will Impact US Stocks and the Dollar
Source: Bloomberg

The expected impact from Brexit to both the UK and EU economies is predicted to be damaging and long-lasting especially within certain sectors within the economy. Though, the extent of damage from Brexit to the UK economy is yet to be ascertained but experts forecast the impact to be equally devastating to both the US stocks and the value of the dollar[5] (refer Figure 4 above). The fear that the “contagion effect” from UK’s financial sector spreading across the Atlantic seems to be the biggest concern among investors at the moment.

The reason to fear contagion is highly likely as historically, both the UK and the US economies are closely intertwined via commerce, finance and trade[7]. The bad memories from the Euro debt saga has resulted in global financial market remaining vigilant, specifically on the outcome of the upcoming Brexit vote. There reports that suggest that most US major banks and investors’ alike will remain apprehensive over the next 2-years with the fear of the hidden risks faced by Britain when it leaves the EU[7].

Factors that Guarantee Industrial equipment Investments As Brexit Proof

In this section, we’ll look at how you can make your investment portfolio Brexit-proof by investing in hard assets such as industrial equipment that will prove to be potentially profitable while buffers your portfolio from increased market volatility following the UK’s exit from the EU.

Capital Preservation

The biggest fear among investors of impending consequences of Brexit remains that their capital invested does not evaporate with a “touch of a button”. When it comes to an asset class such as industrial equipment, investors can take comfort in knowing that there is insurance coverage on damaged or missing industrial equipment[8]. This, in turn, translates to asset safety via capital preservation.

As a part of the hard asset family, industrial equipment possess features that can be considered as “risk-free”. There are no financial assets that can be considered risk-free. Thus, if capital preservation remains your primary goal, investing in industrial equipment can be an attractive alternative that provide a nice upside to your existing portfolio.

An immediate challenge for investors to seek ways to preserve their capital. Investors have to first understand and identify which industry will be the hardest hit. The “rule of thumb” to guide investors is to first acknowledge that not all industries are created equal. This means that while some industries will be hit extremely hard by Brexit, others may cope relatively well. It’s important that investors recognize this, particularly for those seeking a safe-haven such as hard assets to preserve your capital.

A Balanced Portfolio Will Ensure Capital Preservation
A Balanced Portfolio Will Ensure Capital Preservation
Source: Thomson Reuters

Through conducting an industry research, investors will be at an advantage as they will be able to recognize which firms and industries are likely to see their share values increase post-Brexit, while identifying those that are expected to become less valuable over time[9]. The obvious benefit will be that it ensures that you not only restructure a balanced portfolio in line with the wider economic climate but optimize your chances of capital preservation (refer Figure 5 above).

Another concern is the possibility that inflationary pressure will “eat-away” the value of your investments. The problem of inflation would likely stem from the widening US trade deficit with China. The common impact of inflation is that potentially erodes the initial capital invested. Hence, the fear of inflation have prompted investors to adopt another approach – the hard asset investment strategy[10]. This strategy is prudent and safe rather than choosing risky investment such as stocks and derivatives are currently viewed as highly risky assets.

Thus, investing in hard assets such as industrial equipment is to create a protective shield to protect against inflationary pressure while ensuring capital preservation[11]. Nevertheless it’s crucial understand the underlying strength of industrial equipment investment which is tangible assets that is negatively correlated with inflation[12].

Diversification Benefits

Diversifying your portfolio will enable investors to mitigate market risk while increasing their potential returns. An asset class to choose when diversifying one’s portfolio is hard assets such as industrial equipment[1]. For instance, if a portfolio that is over-exposed to either stocks or derivatives, will result in the asset worth far less due to inflation or merely driven by speculative behavior which is non-reflective of market value[14].

Diversification Strategy Helps Optimize Portfolio Performance
Figure 6: Diversification Strategy Helps Optimize Portfolio Performance
Source: DEC Database

For an investor that intends to reduce portfolio risk arising from Britain’s decision to leave the EU, it has become a necessity to include hard assets such as industrial equipment, into your portfolio. The aim to include hard assets is first to potentially guarantee future returns while the second being the opportunity to spread-out risks between the different asset classes[15]. Furthermore, allocation of capital into hard assets such as Industrial equipment have proven profitable as it constantly outperforms other assets in terms of returns[16] (refer Figure 6 above).

Higher Returns Compared to Banks

Historical Low Bank Interest Rates
Figure 7: Historical Low Bank Interest Rates
Source: The Economist

Investing in hard assets such as Industrial equipment investment during impending Brexit, will prove to be reliable vehicle to invest in[17]. While earning higher returns compared to the low interest offered by banks (refer Figure 7 above).  Hence, one of the biggest advantage of industrial equipment investment is the fact you not only preserve “hard earned dollars” but you have successfully avoided exposing your capital to low returns the banks offer. Bottom-line is that you stay clear of various unwarranted market risks that is most likely to arise from the uncertainty currently surrounding the British financial markets due the fear of Brexit.

Industrial Equipment Help Hedge Against the Pound

As an investor, you’ll know that currencies represent a particularly volatile asset class. You may also be aware that Brexit has continued to wreak havoc on the value of the pound, while it continues to trade within a restricted and narrow range as negotiations continue[18].

The Value of the Pound is declining
Figure 8: The Value of the Pound is declining
Source: Bloomberg

The pound recently declined following reports that talks between the UK and the EU had stalled (refer Figure 8 above). Meanwhile a no-deal Brexit scenario would see its value plunge even further in the near-term (in the same way that the GBP sunk to a 30-year low [19].As an investor, it would be wise to refrain from backing the pound post-Brexit, as you instead look to hedge against this currency while favoring the USD and the EUR.


To conclude, as the impact Brexit looms dangerously over both the UK and EU economies, it has become imperative that modern investing strategies need to be adopted to ensure your portfolio remains Brexit proof. One effective strategy that investors should use is the choice of investing in hard assets such as Industrial equipment.

As discussed in this paper, investing in Industrial equipment will will provide an avenue for investors to hold on to a tangible asset with intrinsic value that they can relate to rather than losing their capital from the probable “tsunami” emerging from Brexit and then finally cascading down to global financial markets. For investors, the hidden opportunity lies solely on their decision to invest in hard assets, because once the global economies begin to recover, it will boost the demand for hard asset like Industrial equipment and lead to further appreciation of the asset value.

An Overview and Benefits of Industrial Equipment Leasing Market


Figure 1: Overview of Global Industrial Equipment Leasing Market.
Source: Global Research Insight

The global industrial construction equipment-leasing sector includes firms that provide a wide array of tangible goods including earthmoving and road building equipment, material handling and cranes and industrial machinery (refer Figure 1 above) – to customers in return for a periodic rental or lease payment).

These firms work directly with clients to help them acquire equipment on a lease basis, or else they work with equipment vendors or dealers to support the marketing of equipment to their customers under lease arrangements. Equipment lessors generally structure lease contracts to meet the specialized needs of their clients and at the end of the lease use their remarketing expertise to find new users for the previously leased equipment.

Global Industrial Equipment Leasing Market

Global Construction Equipment Market Overview
Figure 2: Global Industry Leasing Market Source: ICR Report 2017

According to the Global Equipment Leasing Association, in 2017 emerging markets leasing organizations financed USD $248 billion of a total of USD $800billion in business equipment investments[1]. The amount this industry is forecasted to generate is estimated increase by 12% in most major emerging economies such as China, Brazil and Russia over the period of 2017-24[2] (Refer Figure 2 above).

U.S. equipment rental market size from 2017 to 2021 (in billion U.S. dollars)
Figure 3: US Remains the Largest Leasing Market
Source: Bloomberg

Recent data released by Global Construction Report indicates that the percentage of capital equipment acquired through leasing in the US remains the largest at around 31% of total market share[3] (refer Figure 3 above). World Leasing Yearbook statistics indicates that leasing volume is relatively high in other markets too due to various large-scale construction projects that are underway (e.g., 23.3% in Canada, 8.7% in Japan, 15.7% for Germany, and 9.4% for the United Kingdom)[4].

China construction equipment rental market size, by, product 2014-2025 (USD Billion)
Figure 4: China’s Leasing Market Growing
Source: Bloomberg

Data released by Bank of China strongly suggests that the leasing environment in China wills become very competitive over the next two decades. For most categories of leased goods the concentration of the largest eight firms is less than 50%[5]. Earth moving, material handling and concrete and road construction equipment are the major leasing markets in China (refer Figure 4).

The long-term demand for leasing services is likely to continue to increase, but at a relatively modest and stable rate. Foreign captive leasing institutions that offer leasing as a financing option for the purchase of their own equipment could do well in China’s leasing market, as leasing offers several financial and accounting benefits that often complement bank financing[6].

Demand By Sector

Farming & Agriculture

Agriculture equipment market pie chart
Figure 5: Percentage of Agriculture Industrial Equipment Market
Source: Global Market Insight

Farming and agriculture businesses are considered to be fairly significant, contributing almost 7% to the total leasing industry (Refer Figure 5 above). Agriculture equipment is what farmers and other agriculture based businesses rely on to grow and harvest crops, as well as raise animals that we rely on for nutrition.

While not all farmers and agricultures need every type of equipment available on the market, they can use an equipment and machinery lease to acquire the large equipment and vehicular equipment that allows them to harvest fields of crops. Farmers and agriculture businesses look to set up seasonal payments when utilizing agricultural equipment leasing. This allows farmers to match up there equipment leasing payments with their incoming cash-flow.

Construction Industry

Construction equipment rental market
Figure 6: Construction Industrial Equipment Market
Source: Global Market Insight

Construction companies are commonly one of the first industries that come to mind when people think of “equipment leasing,” especially when taking into consideration the large variety of heavy equipment options available in the market today. From bulldozers to forklifts to massive cranes, a machinery lease and heavy equipment lease is almost an essential part of any construction business (refer Figure 6 above).

At most time’s machinery lease gives businesses within the construction industry the opportunity to purchase and use equipment that would normally be well outside of the scope of their budget. Construction companies like the machinery lease process of being able to easily obtain construction equipment for an affordable price. Construction equipment leasing helps speed up the process when it comes to acquiring upgraded construction equipment. When you lease machinery, you get to have affordable monthly payments that fit your budget.

Towing Industry

Equipment leasing is another popular option in the towing industry. Towing vehicles can be considered a form of equipment to a business, as they allow them to help or relocate vehicles during accidents, for government purposes, to transport high end vehicles, and more. A tow truck lease is a great way to start or expand a business within the towing industry.

Shipping and Transportation Industry

Equipment finance in the transportation industry
Figure 7: Percentage of Transportation Industrial Equipment Market Source: Global Market Insight

Shipping and transportation is a must-have industry in our nation, as they allow us all to enjoy the benefit of ordering products online or getting custom-made products sent directly to our doorstep or office. Business owners can use equipment leasing to purchase different types of shipping vehicles that will improve the bottom line of their business and increase profits as the demands of their customers increase (refer Figure 7).

A machinery lease can help business owners that need to buy mezzanines, fork lifts, conveyors and racking equipment for their warehouses to offer faster shipping options to their customers. Equipment leasing gives the shipping and transportation industry the opportunity to expand and improve their fleet of delivery vehicles and equipment for inside their warehouse.

Benefits of Equipment Leasing

You can lease almost anything

A machinery lease can help business owners that need to buy mezzanines, fork lifts, conveyors and racking equipment for their warehouses to offer faster shipping options to their customers. Equipment leasing gives the shipping and transportation industry the opportunity to expand and improve their fleet of delivery vehicles and equipment for inside their warehouse.

Immediate access to the equipment your business needs

Rather than having to wait for adequate savings or the profit to roll in, leasing equipment means it can arrive at your door within days. You can also get a much higher standard of equipment than you might otherwise be able to afford if you purchased it outright.

Get your budget under control

Leasing is good for future budgeting, because you can make fixed monthly payments, known as a ‘flat rate’, and sometimes negotiate repayments that are fixed to your income. If you know what’s going out of your business in the future, it will help you manage your cash-flow — which can be crucial for success.

A lender for every kind of equipment

Lenders usually specialise in different forms of leasing, such as finance leasing, lease rental, contract hire and operating leases — and they’re all slightly different. It can depend on the equipment being loaned out (e.g. hard assets such as plant machinery, and soft assets like office equipment), and what you decide to do at the end of the lease agreement. For example, a finance lease means you won’t own the equipment at the end of the period, and you’ll choose to return it or continue the lease.

Leasing and repairs

Certain types of business equipment lease come with easy maintenance — that is, the finance company will pay for repairs and any spare parts for the equipment. Contract hire (a type of operating lease), often used for vehicles, is a good example of this. After all, the finance company has incentive to provide this, because you agree the equipment value at the end of the agreement. In this way, the item also holds its value better than if you bought it outright.

Free up other finance options

Particularly true for longer-term leases, it may add up and be more expensive than buying the equipment outright, so it’s important to bear this in mind. However, since the finance is secured on the asset, it’s not like a traditional business loan, so you might still be able to borrow money for another business purpose.

Easy to Upgrade

There are different options to suit different businesses. Some businesses choose to return their industrial equipment back to the supplier at the end of the lease agreement, after the equipment has served its purpose. Others may choose to purchase it outright at the end of the period, or upgrade to an updated version. On the other hand, if you want to exit the lease soon after you’ve signed, it can be difficult to get out, so make sure it’s equipment that your company will need for the duration of the lease.

Not a fixed asset

Generally, when you lease a piece of kit, you don’t own the title of the asset, and therefore it won’t go on your balance sheet. This can be both a good or bad thing, depending on your situation. It’s a positive because it can be tax efficient, but it might be a negative if you don’t have any fixed assets in the business — because this won’t help your case for future business finance.

Suitable for new, growing, or established firms

Equipment leasing is an efficient way for new-start businesses to get hold of the tools they need. You may need to be VAT registered and, if your business is a start-up, you’ll need to provide a credible personal guarantee to the lender[7]. Once you’re set up and the business is making suitable profits, you may then have the opportunity to own the asset after the lease period.