Table of Contents
Manufacturing upgrading is accelerating .......................................3
Equipment sector to significantly outperform material and labour-intensive sectors ...............3
Reason #1: China¡¯s accelerating wage inflation to raise demand for machinery......................5
Reason #2: China¡¯s technological competence has risen to a level that can compete with
Japan, South Korea and Germany on machinery......................................................................6

Reason #3: China¡¯s costs are much lower than G3 competitors and falling due to labour
productivity growth...................................................................................................................7

Reason #4: Huge domestic market and localization policy allow China to benefit the most
from economies of scale..........................................................................................................9

Reason #5: The Chinese ¡°Marshall Plan¡± to speed up equipment exports............................11
China is replicating Japan¡¯s upgrading experience in the 1960s-70s, but on a much bigger
scale........................................................................................................................................12

Materials and labour-intensive sectors to decelerate..............................................................14
Seven equipment sectors...............................................................16
Coal mining machinery............................................................................................................16
Construction machinery..........................................................................................................19
Rail vehicles and equipment...................................................................................................23
Power equipment...................................................................................................................26
Shipbuilding ............................................................................................................................30
Medical equipment.................................................................................................................32
Telco equipment.....................................................................................................................34
How to benefit from ¡°upgrading¡± .................................................36
A ¡°China equipment basket¡±..................................................................................................36
Buy ¡°equipment¡±, sell ¡°material- and labour-intensive¡± companies ......................................37
Buy Chinese equipment makers, sell global underperformers................................................39