Image source: Internet

Looking back to 2016, China National Chemical Corporation (ChemChina) completed the acquisition of Germany's KraussMaffei Group (KM) in a lightning-fast manner. This transaction, valued at 925 million euros, not only set a record for the largest Chinese investment in Germany at the time but also marked the first time China had control over top-tier technology resources in the global rubber and plastics machinery industry. At that time, the market share of KM's three century-old brands (KraussMaffei, Berstorff, and Netstal) reached as high as 35%, with their technical reserves in the high-end injection molding machine sector capable of reshaping the industry landscape.

But this "snake swallowing an elephant" style acquisition soon revealed hidden reefs. In 2018, KraussMaffei acquired 100% of the shares of Equipment Luxembourg at a high premium of 6.062 billion yuan, officially injecting KM Group into the listed company system. Ironically, starting from 2019, this enterprise that carried the ambitions of China's high-end equipment industry fell into a continuous loss quagmire. Data shows that the cumulative losses from 2020 to 2022 exceeded 3 billion yuan, and the gross profit margin of the plastic machinery business plummeted from a peak of 25% to less than 10%.

Image source: AI generated

On the surface, the decline in performance is attributed to the impact of the pandemic and industry cycle fluctuations. However, a deeper analysis reveals that the core issue lies in three major strategic misjudgments during the merger and integration:

1. Technology Conversion Trap: The 187 years of technological accumulation by the KM Group did not effectively feed back into the domestic equipment manufacturing system, instead forming a 'technology island';

2. Market Synergy Failure: There was a mismatch between high-end European equipment and mid-range Chinese market demand, making it difficult for the overseas R&D system and local production system to work in synergy;

3. Management Cost Black Hole: Maintaining the German R&D team and global marketing network led to a long-term management expense ratio as high as 18%, far exceeding the industry average.

More importantly, after the merger and restructuring of Sinochem Group and ChemChina, the new strategic positioning required KRAUSSMAFFEI to focus on national strategic needs. When in 2023, the State-owned Assets Supervision and Administration Commission (SASAC) listed high-end equipment manufacturing as one of the three core functions of central enterprises, this company, which bears the mission of domestication of chemical equipment, no longer had the luxury to continue battling in the overly commercialized plastic machinery sector.

Krauss's decision to cut off its arm is not merely a simple stop-loss, but an active choice based on national strategy:

1. Business Focus: After divesting 80% of its revenue from the plastic machinery business, it concentrates resources on developing chemical equipment (reactor technology) and rubber machinery (tire building machines). The localization rate in these two areas is less than 30%, which directly affects the safety of the petrochemical industry;

2. Technology Reengineering: Utilizing the 9.24% stake retained by the KM Group to build a technological cooperation channel, integrating German precision manufacturing capabilities with China's manufacturing system;

3. Capital Restructuring: Completing the off-balance sheet of assets through a debt-to-equity swap of 478 million euros, reducing the debt-to-asset ratio from 82% to 65%, creating room for subsequent capital operations.

It is worth noting that Sinochem Equipment has already begun setting up a research and development center in Qingdao. It is currently tackling the technology for a one-million-ton ethylene cracker, directly challenging the monopoly position of the US company Lummus. This strategic shift echoes the assertion of German Industry 4.0 expert Hermann Simon: "The future competition in the equipment manufacturing industry will be a competition of the efficiency of national industrial systems."

Krauss's transformation reflects the strategic awakening of Made in China: as the buying spree of acquisitions fades, true industrial upgrading must be built upon a self-controlled and independent technological system. Sinochem Equipment's bet on the chemical equipment sector is precisely the key battlefield for solving the 'bottleneck' problems — currently, 90% of high-end reaction equipment in China relies on imports, and such equipment directly determines the level of a country's chemical industry.

What is noteworthy is that Krones, the German company taking over the KM Group, has become a hidden champion through deep specialization in liquid packaging equipment. This seems to suggest that Chinese equipment companies are learning the essence of Germany's 'hidden champions': rather than fighting fiercely in a red ocean market, it is better to establish irreplaceability in strategic areas.

Standing at a new starting point, the value of Sinochem Equipment can no longer be simply measured by financial statements. When this company, with its central state-owned enterprise (SOE) heritage, increases its R&D investment intensity to 7% (on par with the average level of German hidden champions), and when the intelligent production line at the Qingdao base begins to output pressure vessels with completely independent intellectual property rights, China's high-end equipment manufacturing industry may be brewing a silent revolution. This transformation, which began as a desperate bid for survival, will ultimately inject new genes into the sinews and bones of Made in China.