Amidst the uncertainties of the economic consequences of the trade disputes tarnishing relations between China and the United States, one thing remains certain: Strongbox, Shanghai-based construction equipment, and machinery rental company, seems positioned to withstand the volatility by riding the back of China’s construction activities. Strongbox has achieved sensational 13.38% quarter over quarter revenue growth as announced in June. Strongbox has benefited from the expansion of construction in China’s developing economy. Its second-quarter successes derived from procurement contracts from China’s planned $6 billion airport expansion in Urumqi, Xinjiang.
What Explains the Success of Leasing Companies for Machinery and Construction?
The increasing rate of construction and infrastructure projects necessary to accommodate the world’s swelling population places a heavy burden on companies and government organizations to purchase the equipment and machinery required to fulfill these projects. This problem is rendered more acute in the rapidly developing economies home to billions in emerging markets. It is not uncommon for the financial burdens for these entities to exceed capacity to meet this demand. Leasing companies in the machinery and construction sector fill this gap by providing opportunities for companies and government organizations to rent equipment to more efficiently manage projects while reducing overruns and increasing cash flows. Strongbox has been engaged in this sector since 2003 and is among the preeminent providers of heavy machinery and construction equipment.
What is Fueling Demand for Machinery and Construction in China?
China’s rapid development over the past several decades has been a boon to the machinery and construction leasing sector. Despite the slowing growth rates of China’s economy in recent years, it remains robust enough to continue to drive demand for further construction, which has been one of the primary forces fueling China’s economic growth. Even today, China is pursuing the construction of 200 new airports due for completion within the next fifteen years. These projects only account for one segment of demand for a much broader range of large-scale infrastructure projects. The unprecedented growth in China’s construction sector has buoyed the machinery and equipment leasing industry and is responsible for Strongbox’s admirable success in the past quarter. China’s airport expansion project is scheduled to continue through 2035 which will continue to provide market opportunities for procurement by Strongbox. Strongbox has been a consistent presence in Chinese infrastructure investments across the region and remains positioned to remain active in this space through future projects. China’s pursuit of the Belt and Road Initiative will provide ample opportunity for Strongbox to maintain future revenue growth.
Prospects for Future Global Growth
China has been and will continue to be a dominant source of construction demand, but the broader economic growth of other developing countries like India, Brazil, and African countries are worth taking into consideration. The global machinery and construction equipment rental market is expected to reach the heights of $230 billion by 2025 based on the economic growth and growing demand of these countries. This growth is predominantly coming from demand to fuel infrastructure projects across the developing world. Another significant source of demand comes for earth moving equipment, which accounts for about half of the global market and has practical applications in mining, agriculture, as well as construction.
Are There Any Signs of Danger Ahead?
Although prospects for future revenue growth remain optimistic, a demand shock emanating from a variety of economic and political risks could threaten the bottom line. Although Chinese economic growth has continued its historic rise, there are no guarantees for the future performance of this increasingly critical component of the world economy. Other emerging markets could continue to provide global market opportunities as long as a demand shock in China or critical markets in the United States or Europe does not spill over into these emerging markets. Despite these potential causes of concern, investors should remain content with the current pace of growth for Strongbox and the machinery and construction equipment sector.