How Does the Market Change Faced with the Coming of the New Policy

Affected by many factors including the changing-over between the National II standard and the National III standard, adjustment of allowance for agricultural machinery and the decrease of the purchasing power etc., the development features that rarely occur in recent years occur in the 2016 tractor market. The development features are as follows: on one hand, small increase occurs in the economic benefit index of the tractor and the increase range slows down; on the other hand, the sales volume of tractors decreases and the demand structure changes.

The economic benefit runs steadily and the increase range slows down.

Since beginning of 2016, China’s tractor industry has shown following features, that is, the economic benefit increases steadily; the increase range slows down; increase range of many key indexes is lower than the average increase range of the agricultural machinery industry.

According to the statistics, by the end of August, there are 6 indexes showing the increase with the different degrees in 7 key indexes of the tractor, in which, achieved main business income has been 44.991 billion yuan, the year-on-year growth of which is 2.88% and is 4.11% lower than the average increase range of the agricultural machinery industry; compared with the same period in 2015, the increase speed decreases by 1.4%; the achieved total profit has been 1.658 billion yuan, the year-on-year growth of which is 2.85% and is 5.45% lower than the average increase range of the agricultural machinery industry; compared with the same period in 2015, the increase speed significantly decreases by 8.3%.

Influenced by changing-over between the National II standard and the National III standard and allowance for agricultural machinery, the receivables increase to 8.705 billion yuan, the year-on-year growth of which is 4.06% and which largely increases by 13.73% compared with the same period in 2015. This phenomenon reflects that with the enlarging of the enterprise’s market share, its management risk increases correspondingly under the new policy.

Main economic indexes list of the tractor industrial enterprises from 2014 to August, 2016 (accumulation) Unit: 100 million yuan/%

The market share decreases slightly and the demand structure adjusts increasingly

The total quantities of the tractors decrease slightly and there is a different development feature for different varieties in 2016. According to the market survey, the accumulated sales volume of all different models of tractors is 1036 thousand sets in the first 8 months, the year-on-year decrease of which is 7.83%. Among all tractors having been sold, the sales volume of the large and middle-sized tractors and the small tractors respectively is 261 thousand sets and 775 thousand sets, year-on-year decrease of which respectively is 11.53% and 6.51%.

There are many factors resulting in the decrease of the whole tractor market in 2016.

Firstly, the rigid demand decreases. China’s tractor market has already entered the period of saturation.

Secondly, it is affected by the changing-over between the National II standard and the National III standard. The configuration of the National III standard engine is still in the market introduction stage, thus a series of problems related to the technical maturity, performance stability, after-sales service, diesel oil adaptive to the National III standard and increase of price etc. occur, thereby impacting the consumers’ confidence.

Thirdly, the allowance for agricultural machinery reduces, which has many outstanding forms of expression. The first one is that the consumers do not dare to purchase the tractors because they are afraid not to get the allowance when the huge limit for National III standard emission is coming in 2016; the second one is that the allowance funds for one tractor decrease and the price of the National III standard tractor increases, thus the purchasing cost enlarges; the third one is that some areas pursue the method of living beyond their means for a long time in the aspect of the allowance for agricultural machinery. But the previous policy is canceled due to the new policy of National III standard in 2016, thus, the allowance deficit occurs and thereby resulting in the insufficient amount.

Fourthly, the purchasing power decreases. In 2015, the grain price decreases largely, which affects the incomes of the consumers.

Fifthly, it is due to the adjustment of the market demand structure. The trend of the large scale of the tractor market has continued for many years, thus the decrease in quantity has become an inevitable demand.

Sixthly, the decrease of marginal benefit of investment impacts the consumers’ confidence.

By making a general survey of the 2016 tractor market, markets of large, middle and small models of tractors show the different development features, the obvious forms of expression of which are as follows.

Firstly, demands for the large-sized tractors increase and demands for the middle-sized and the small-sized tractors decrease.

Secondly, for the middle-sized tractors, the increase is less than decrease. The mainstream power is 29 kW (40 hp).

Thirdly, the large-sized tractors increase slightly and mainstream tractor decreases.

The mainstream areas become more and the regional concentration ratio decreases

China’s large and middle-sized tractors areas are mainly located in northeast China, northwest China and north China (three-north areas). After many years’ development, markets in the mainstream areas are saturated gradually and they are difficult to bear the sales volume of nearly 400 thousand sets of large and middle-sized tractors every year. As a result, the mainstream areas have changed quietly in recent years.

In 2016, the change of the regional market is that the market concentration degree of the mainstream areas decreases, which is resulted from the long-term development of the large and middle-sized tractor markets. According to the market survey, the accumulated sales volume of the first 11 mainstream area markets of the large and middle-sized tractors are 184.5 thousand sets, the year-on-year decrease of which is 15.3%; and its proportion accounts for 70.7%, which decreases by 3.2% compared with the same period in 2014. In contrast, the accumulated sales volume of the non-mainstream areas is 76.5 thousand sets, the year-on-year decrease of which is 0.8%.

The competition pattern is stable and “three musketeers” guide the market

After the fierce market competition in recent years, China’s large and middle-sized tractors markets have the stable competition pattern. China YTO, Lovol Heavy Industry Co., Ltd. and Changzhou Dongfeng gradually become the “three musketeers” of the large and middle-sized tractors markets, the market share of which accounts for nearly 60%. From the perspective of the sales status of the first 8 months in 2016, year-on-year decrease of these three enterprises respectively reaches up to a double-digit value in terms of sales, but the total sales volume of these three enterprises is still more than a half of the total sales volumes of all enterprises. According to the market survey, by the end of August, the accumulated sales volume of these three enterprises is 135.7 thousand sets, the year-on-year decrease is 12.62%; and the proportion is 51.99%, which decreases by 0.65% compared with the same period in 2015.

From the perspective of the mainstream brands, the accumulated sales volume of the first 5 mainstream brands is 167.9 thousand sets, the year-on-year decrease of which is 15.67%; and its proportion accounts for 64.33%, which decreases by 3.16% compared with the same period in 2015. In terms of the sales volume of various brands, Shandong Shifeng becomes the only one brand with the increase of sales volume in the top 5 brands and its accumulated sales volume is 21.5 thousand sets, the year-on-year increase of which is 9.14%; and its proportion accounts for 8.24%, which increases by 1.56% compared with the same period in 2015. John Deere experiences the largest decrease range, the year-on-year decrease of which is 55.6%; and its proportion accounts for 4.1%, which decreases by 4.07% compared with the same period in 2015.

The bearish factors are intensive, thus the large and middle-sized tractors market may decrease slightly.

In future 4 months, the market of the large and middle-sized tractors is not optimistic and the bearish factors are intensive still. The adverse influences on the large and middle-sized tractor market in first half year will continue to affect the market in the second half year. These adverse influences are mainly as follows:

Firstly, the agricultural machinery market has the development rule of “golden September and silver October”, but the market of the large and middle-sized tractors has already been saturated. Firstly, according to statistics, China’s tractor-ploughing level has reached 80.4% in 2015, which determines that the main engine of China’s tractor market comes from upgrade and the rigid demand is weak; Secondly, the changing-over between the National II standard and the National III standard will become the important factor to restrict the market increase. The consumers’ wait-and-see attitude reflects that they lack the purchasing confidence; Thirdly, the key point of the allowance for agricultural machinery will focus on the corn harvester and the large-sized agricultural machinery in the second half year, which will have the bearish influences on the tractor market; Fourthly, the allowance funds for one tractor decrease, which has the negative impact on consumers’ purchase; Fifthly, the allowance funds in tractor market of some main areas are insufficient heavily in 2016; in the meantime, the allowance is tilting towards the subsoiler, straw returning machine and large-sized compound operation machines further, thus the market thrust of the tractor is weak.

Based on above analysis, we can judge that the tractor market may decrease slightly in 2016 and it is predicted that the sales volume of the whole year will be about 1700 thousand sets in 2016, the year-on-year decrease of which is 7%～8%. In all tractors sold in the whole year of 2016, the predicated sales volume of the large and middle-sized tractors will be kept at about 500 thousand sets, the decrease range of which is nearly 5%. The sales volume of middle-sized tractors with the power of 18～74 kW (25～100 hp) may decrease by about 8% and the sales volume of large-sized tractors with the power above 74 kW (100 hp) may slightly increase with the increase range of 3%.