Shrinking profits hobble wage increases

China vowed to bulge its people's wallet, but that's not an easy task as its enterprises struggled to make profits. It came after Sany Heavy Industry Co. Ltd., a leading construction equipment maker and one of China's most successful private companies, announced a stock option incentives plan for its 2,533 core staff. Sany President Xiang Wenbo tweeted the incentives plan at his Weibo, a Twitter-like social networking service in China, immediately grabbing an online accolade. "Sany incentives are to help our staff to achieve success. Large shareholders are not included in the plan this time," Xiang tweeted. It echoed the pledge made by Hu Jintao in his report to the 18th National Congress of the Communist Party of China (CPC) to double the per capita income of Chinese by 2020 while maintaining the economic momentum. Sany Heavy (600031), listed in the Shanghai Stock Exchange, will take out 2.35 percent of its total stock capital as incentives. However,the company's less-than-spectacular profits complicated the plan. Sany's net profits dropped nearly 60 percent to 114 million U.S. dollars in the third quarter of the year. The stock options cannot be exercised unless the company's net profits grow by 10 percent annually over the next three years, the corporate press release said. Sany's profits, like those of many companies, have largely come on the back of China's drive to build up a large amount of infrastructure. It brought Liang Wengen, chair of the board of Sany Group, the mother company of Sany Heavy, one of the richest in China. Liang was elected as one of the 27 CPC delegates to the 18th National Congress from the private sector, an emerging slate that is gaining more influence in the country. With China's economy slowing down amid a global recession, however, private companies like Sany found it more difficult in making money. Liang said in a press conference on Saturday, "Sany does have problems in achieving this year's target." China's purchasing managers index (PMI), a primary gauge of industrial production, struggled to pass the 50-percent boom-bust mark in October. Meanwhile, contracting overseas demand has heavily impacted exporters in coastal areas. Minister of Commerce Chen Deming said Friday that China is not likely to meet its 10-percent growth target for foreign trade this year. Chen's statement was not good news for hundreds of millions of job hunters, as small- and medium-sized enterprises tend to offer the most jobs. China's two-fold target of increasing incomes may prove to be a significant challenge, as rapid wage increases may hurt the job market. In his report, Hu also vowed to "increase opportunities for young people, especially university graduates and rural migrant labor force." The latest U.S. move to bringing jobs, particularly in the manufacturing sector, back to the U.S. poses an extra threat to China's job market. Long Xingyuan, chair of the board of Qinchuan Machine Tool Group, said he noticed the transfer after his recent visit to the U.S. "U.S. manufacturing is picking up," Long said. "It has rung a bell for us." Since the recovering global economy offers big machinery manufacturers more chances, Sany is also turning to the overseas market for more profits. Sany acquired German industrial giant Putzmeister in January. A joint venture between Sany and an Austrian company Palfinger was established on Sept. 4 in Salzburg, Austria. "Our overseas revenue may account for 15 percent of the total this year," Liang said. "We hope it jump to 40 to 50 percent in five years." Nonetheless, the company's business expansion did not run smoothly. U.S. President Barack Obama issued an order in October to prevent Ralls Corp., which is controlled by Sany Group, from purchasing four wind farms in Oregon, citing national security risks. Sany decided to sue Obama. "On Nov. 28," Xiang tweeted, "I invite you to see the court decision." "China is facing overcapacity in the manufacturing sector, as external demand has shrunk," Zhang Ping, head of the National Development and Reform Commission, said at a press conference on Saturday. Economist Xu Xiaonian commented at Weibo, "Overcapacity caused by excessive investment threatens robust development of the equipment manufacturing sector, which is closely linked with capital investment." Xiang said recently at an industry forum that "some domestic competitors have carried out a radical 'suicide sale' policy to clear their stockpile, severely undermining their earnings." The Chinese government is implementing microeconomic control measures to stabilize the economic growth. "We're confident that this year's growth target can be realized," Zhang said. "China's potential of development is still tremendous," Liang said, adding that Sany puts five percent of its annual sales revenues into research and development. A netizen "Xiaoyinzi" tweeted at Weibo, "Sany grows with China. Its staff become rich with Sany."