Industry Update:

The Secretary General of China Construction Machinery Industry Association revealed that the '12th Five-Year Plan' for the construction machinery industry has already been submitted to relevant government departments and will be released in July. We believe that the release of the industry's '12th Five-Year Plan' will indicate the direction of development for the next five years and enhance market confidence in the long-term growth prospects of the industry.

1) The industry as a whole is expected to maintain stable growth: By the end of the '12th Five-Year Plan,' which is 2015, the sales revenue of the construction machinery industry is expected to reach 900 billion yuan, with a compound annual growth rate of 17%. Exports are expected to reach $26 billion, accounting for nearly 20% of sales revenue. Although the growth rate during the '12th Five-Year Plan' period has significantly slowed compared to the 21.3% and 28.1% growth rates during 2001-2005 and 2006-2010, respectively, we believe that after a decade of peak growth, the market has been concerned about saturation and the difficulty of achieving growth in the construction machinery market. However, the introduction of the '12th Five-Year Plan' will to some extent enhance market confidence in the long-term growth prospects of the industry.

2) Different product growth rates will show significant differences: Among the 12 products surveyed by the industry association, tower cranes and concrete machinery (represented by concrete pump trucks and concrete mixing and transport trucks) are expected to achieve a compound annual growth rate of more than 15% in the next five years due to the increase in popularity. Wheeled cranes, crawler cranes, bulldozers, and pavers are expected to achieve stable growth with a compound annual growth rate of more than 10% in the next five years, while road rollers, loaders, and excavators will experience a low growth rate due to the extensive increase in market holdings and replacement effects, with an average compound annual growth rate maintaining a single-digit increase.

3) The development of core components will be taken to new heights: The lag in the development of key basic components is a bottleneck that limits China's long-term competitiveness in the construction machinery industry. In the past ten years, market demand has been strong, and companies have focused on the rapid expansion of engine capacity to meet market demand, while the development of key components and basic processes has lagged behind for a long time. We believe that with the intensification of industry competition during the '12th Five-Year Plan' period, the development of core components will be taken to new heights, with the government as a leading force, industry associations leading the way, and leading companies working together to achieve a qualitative leap.

4) Industry reorganization and mergers and acquisitions are expected to accelerate: With the new round of production capacity expansion since 2010, excess capacity may become a key factor hindering market development in the latter half of the '12th Five-Year Plan.' In the next five years, leading companies in the industry are expected to use their own advantages to expand their product lines and market layouts through mergers and acquisitions, eliminate backward and low-level duplicate construction through market competition mechanisms, and significantly improve the industry concentration.