Hydraulic Components Industry Development Characteristics and Technical Level Characteristics

1、Industry Development Characteristics

（1）Industry periodicity

Hydraulic components are the basic parts and components of modern industrial and technical equipment. Its downstream application industries and fields are widely distributed, including construction machinery, aerospace, metallurgical machinery, construction vehicles, agricultural machinery, mining machinery, etc. Among them, construction machinery industry is the most important downstream application industry of China's hydraulic market. The downstream industry is greatly affected by the macroeconomic boom cycle and is significantly related to the national macroeconomic development situation and the intensity of social fixed asset investment. When the macroeconomy is in the upward stage and the social investment in fixed assets is strong, the downstream industries such as construction machinery develop rapidly, and the production and sales volume of main engine increase, driving the production and sales volume of hydraulic components increase. On the contrary, when the macro-economy declines and the social investment in fixed assets shrinks, the development of downstream industries such as construction machinery slows down, and the growth of main engine sales slows down or even declines, thus affecting the production and sales of hydraulic industry. Therefore, there is a certain periodicity in the hydraulic industry.

（2）Industry regionalism

Hydraulic industry has certain regional characteristics. As the basic supporting industry of modern industry and technical equipment, the regional distribution of hydraulic enterprises tends to be close to the main engine manufacturers, so as to improvethe timeliness of supporting and reduce transportation costs. In terms of international scope, the United States, China, Japan, Germany, Italy and other industrial powers have a more developed hydraulic industry. In terms of domestic, domestic hydraulic enterprises are mainly concentrated or close to Jiangsu, Shandong, Hunan, Shanghai, Beijing and other main engine manufacturers and basic parts supporting demand is high.

（3）Industry seasonality

The downstream application industry of hydraulic industry is widely distributed, and the seasonal demand of downstream

customers presents a dynamic equilibrium relationship. On the whole, the seasonal characteristics of hydraulic industry are not

obvious. From the hydraulic industry's main downstream application industry construction machinery industry, generally speaking,summer due to hot weather operating rate is low, demand and sales are relatively less.

2、Industry Technical Level and Technical Characteristics

Hydraulic components as an important basic component, its R & D, design and manufacturing production involves materials science, structural science, thermodynamics, mechanics, automation control and other multidisciplinary knowledge and technology, precision requirements are strict, high degree of technology integration, and complex production process, high requirements for materials, processing precision, smooth operation. After years of development, the hydraulic industry of our country gradually accumulated a large number of hydraulic components manufacturing technology and technologies through independent technology research and development and introducing and digesting foreign advanced hydraulic design and manufacturing technology. At present, the hydraulic industry mainly presents the following characteristics on the technical level:

Continuous innovation to meet the requirements of energy conservation and environmental protection. Increasingly perfect environmental laws and regulations and upgrading of downstream industrial technologies require hydraulic components and partsto be more energy efficient and environmental friendly, especially to the direction of low energy consumption, low noise, low vibration, no leakage and pollution control to meet environmental requirements. The process pollution, vibration and noise, material loss, media leakage of hydraulic components and parts in the manufacturing process are always important challenges faced by our country's hydraulic industry. In the future, the hydraulic industry needs to apply more environmentally friendly manufacturing technologies to the entire life cycle of product design, process manufacturing, use and recycling.

Continuously optimize the process flow to improve the reliability of hydraulic components. The production process of hydraulic components is long and involves multistep process links. Therefore, advanced and mature technology is the key to ensure the reliability of products, but also to improve production efficiency, reduce waste and control the cost of effective means. This mature lean manufac turing process requires enterprises to experience years of process exploration, experience accumulation,continuous cultivation and optimization in years of production practice.

3、Opportunities for Industry Development

（1）Strong support from the national industrial policy

The development of hydraulic industry is synchronized with the development of national macro economy. In recent years, the economic aggregate in our country has maintained a certain growth rate on a high base level, and the level of industrialization and urbanization has been rising. From the medium and long-term trend, the profound potential of China's economic growth and the continuous progress of urbanization and industrialization provide a huge space for the long-term development of China's hydraulic industry and its related industries.

Hydraulic industry as a key industry of national economic development, its development has always been paid full attention to by the country. The state has formulated a series of industrial policies to encourage the development of the hydraulic industry and itsrelated industries, including the Standardization and Quality Improvement Plan for Equipment Manufacturing Industry, the Development Catalog of Industrial "Four Bases" (2016 edition), the Guidance Catalog of Key Products and Services for Strategic Emerging Industries (2016 edition), and the Classification of Strategic Emerging Industries (2018 edition). We will support domestic brands in growing bigger and stronger. At the same time, the implementation and promotion of "One Belt, One Road" economic strategy, national new urbanization planning, railway and urban rail transit planning, social security housing construction and other policies also further promote the develop ment of the hydraulic industry and its related industries.

（2）The downstream industry has broad market demand

Hydraulic components as the basic parts and parts of modern industrial and technical equipment, its downstream application industry and field distribution is very wide, with the continuous upgrading and optimization of hydraulic components processing technology and manufacturing process, the downstream application industry and field is also expanding. Widely distributed and expanding downstream application industries and fields provide great development space for Chinese hydraulic industry.

（3）Import substitution capacity increased

Our hydraulic industry faces relatively large trade deficit, especially the products of hydraulic pumps, hydraulic valves, hydraulic motors, hydraulic cylinders etc. Foreign hydraulic champions such as Bosch Rexroth, Parker Hannifin, Eaton and Kawasaki. Heavy Industries still occupy the high-end application market of Chinese hydraulic industry for a long time. However, the prices of their products are too high to meet the growing domestic market demand, resulting in an imbalance between supply and demand in the domestic market. In recent years, our country highly supports the development of the hydraulic industry, offering a number of encouraging policies to vigorously support the hydraulic industry; Domestic hydraulic components leading enterprise through independent technology research and development, as well as introducing, digesting foreign advanced hydraulic design and manufacturing technology, our hydraulic industry has achieved great progress in recent years.

Chinese local hydraulic enterprises are familiar with the Chinese market, and have competitive advantages in production cost

control, industrial chain management, customer service and cost performance. In the future, with the advantages of localization,

cost and other aspects as well as the continuous improvement of product manufacturing process and technical level, local

hydraulic enterprises will break the monopoly situation of foreign products, and the import substitution ability will be further

enhanced.

4、Development Trend of Chinese Hydraulic Industry

（1）Energy conservation and environmental protection have become the development trend of the industry

Increasingly perfect environmental laws and regulations and upgrading of downstream industrial technologies require hydraulic

components and parts to be more energy efficient and environmental friendly, especially to the direction of low energy consumption, low noise, low vibration, no leakage and pollution control to meet environmental requirements. The process pollution, vibration and noise, material loss, media leakage of hydraulic components and parts in the manufacturing process are always important challenges faced by our country's hydraulic industry. In the future, the hydraulic industry needs to apply more environmentally friendly manufacturing tech nologies to the entire life cycle of product design, process manufacturing, use and recycling.

In the future, the hydraulic industry will adopt new environmental protection materials, and adopt cleaner and more efficient manufac turing methods and equipment in the manufacturing process of hydraulic components, to reduce the discharge of pollutants, waste and toxic substances in the manufacturing process, and improve the efficiency of resource and energy use.

Develop special component dismantling, recycling and remanufacturing processes and production lines to improve product recyclability and remanufacturing level. To develop fluid medium which can not only meet the requirements of hydraulic system, but also make the dissipated products do no harm to the environment, and study the recycling process of fluid medium. By optimizing the structural design of hydraulic components, applying the principle of active control and reducing the pressure impact, the vibration frequency, vibration intensity and noise of hydraulic components, components and the whole hydraulic system are reduced. Through the development of pipeline connection technology, reduce the number of pipe joints, optimize the layout of the pipeline, and research and development of new sealing materials, optimize the sealing structure and finishing process, improve product sealing performance, reduce media leakage and pollution, to achieve the hydraulic industry energy conservation, environmental protection, sustainable development of the strategic requirements.

（2）Reliability is a key factor affecting the development of the industry

Hydraulic technology has been widely used in various industrial equipment. The reliability of hydraulic components is directly related to the reliability of hydraulic devices and mechanical equipment. Therefore, improving the reliability of hydraulic components is the goal of continuous improvement of hydraulic technology, and also the key factor of whether related products can win the market competition. Hydraulic industry will use new technology, new materials and electronics, sensing and other high-tech development of high integration, high power density, intelligent, electromechanical integration and light small hydraulic components, the reliability of hydraulic components put forward more stringent requirements.

Poor reliability, low stability and short service life of hydraulic components are existing in the long term, which directly affects the market competition of Chinese hydraulic components. On the one hand, many downstream host manufacturers dare not use domestic hydraulic components for a long time; On the other hand also caused our country hydraulic industry to rely on the importof the related products in a quite long period of time. Therefore, the poor reliability of hydraulic components is the main problem that restricts the development of Chinese hydraulic industry. In our country, the reliability research of the hydraulic industry startedlate, and mostly referring to the research results of the mechanical industry reliability and other related fields, reliability research is still in the initial stage. It fails to comprehensive ly consider its particularity of multifield coupling, nonlinear and complex vibration, lacks realtime reliability and fault prediction, and there is no unified reliability research standard. Therefore, how to establish an effective and comprehensive reliability study to improve the reliability of hydraulic components will be a key factor affecting the future development of the industry.

（3）Domestic hydraulic components import substitution space is broad

From the point of production value and market sales, our country has become a veritable hydraulic power, but the industry is large but not strong: Since Chinese hydraulic technology started late and the technical accumulation is relatively weak, domestic and foreign enterp rises have a certain gap in the accumulation of hydraulic technology and manufacturing experience, domestic hydraulic enterprises mainly have the problems of backward technology level, new material application ability, production concept and market processing ability. The backward state of domestic hydraulic components can not fully meet the procurement needs of host manufacturers, the latter can only rely on imports for a long time. At present, the global hydraulic industry is still dominated by Japan, the United States and Germany and other developed countries. Four foreign leading hydraulic enterprises, such as Bosch Rexroth, Parker Hannifin, Eaton and Kawasaki Heavy Industries, occupy more than 40.00% market share. The development of Chinese hydraulic industry lags behind the development of the host industry, so it cannot adapt to the development requirements of the host industry, and become the main bottleneck that restricts the development of our modern industrial and technical equipment manufacturing industry.

In recent years, our country highly supports the development of the hydraulic industry, and offers a number of encouraging policies to vigorously support the hydraulic industry. With domestic hydraulic components manufacturers gradually participating in the international market supply system, and domestic leading enterprises of hydraulic components continuously through independent technology research and development as well as introducing and digesting foreign advanced hydraulic design and manufacturing technology in recent years, our hydraulic industry has achieved great development, and gradually formed the replacement of foreign imported products.

At the same time, the domestic leading enterprises of hydraulic components will rely on regional advantages and cost-effective advant ages, gradually break the dependence of domestic host manufacturers on foreign leading enterprises of hydraulic components, market penetration will gradually increase, at the same time with cost and price advantages, the share of the international market will be further expanded. Since 2017, under the background of the growth of real estate investment and the rapid development of infrastructure investment, the main engine demand of construction machinery has shown a strong growth trend. The import amount of Chinese hydraulic components has increased, and the domestic hydraulic components products alsoshow a situation of short supply.

（4）The demand of downstream application industry is diversified, and construction machinery is still the most important application field

Hydraulic components as the basic parts and parts of modern industrial and technical equipment, its downstream application industry and field distribution is very wide, with the continuous upgrading and optimization of hydraulic components processing technology and manufacturing process, the downstream application industry and field is also expanding. From the perspective of downstream application industry and field expansion process of hydraulic components, hydraulic components also gradually developed from machine tool industry to construction machinery industry, and now almost covers all manufacturing industries.

According to the statistics of China Hydraulic Pneumatic Seal Industry Association, the main downstream application industries and fields of hydraulic components include construction machinery, aerospace, metallurgical machinery, engineering vehicles, agricultural machine ry, mining machinery, etc.

5、The challenge of industry development

（1）Macroeconomic fluctuations affect downstream demand

The development of hydraulic industry is closely related to macroeconomic trend. Hydraulic components are the basic parts and compo nents of modern industrial and technical equipment. The terminal application demand of the industry is wide, so its demand is easily affected by the economic situation. Macroeconomic growth slowdown or decline and other adverse factors will lead to a reduction in the downstream industry demand, will also lead to the hydraulic industry enterprise income fluctuations. At present, China's economic deve lopment has entered a "new normal", and the overall development has shifted from emphasizing growth rate to optimizing structure. At the same time, the impact of fluctuations in world economic development is also more obvious. In the future, with the macro-economic growth of our country from high speed to medium high speed, it may affect the scale of production and marketing of hydraulic industry, lead to the growth rate of hydraulic industry to slow down, which will directly affect the downstream related industries.

（2）The overall technological level and innovation capability of domestic enterprises need to be improved

Chinese hydraulic industry started relatively late, which has problems such as insufficient R&D investment, lack of advanced technical talents and limited innovation ability. Although the development is rapid in recent years, the independent research and development ability of domestic hydraulic enterprises is weak on the whole, there is a big gap between the core technology and the international leading hydraulic enterprises, and the added value of products is relatively low. As a whole, domestic enterprisesstill face many technical bottlenecks and process improvement space to be broken through, and there is still a large gap in the financial, human and material input of independent research and development, as well as technical standards and product design, which is not conducive to the development of new products and the transformation and upgrading of product structure.

Therefore, the overall technical level and innovation ability of domestic hydraulic enterprises are still relatively weak and need to be further improved.

（3）The scale of domestic enterprises is generally small and the degree of market concentration is low

Compared with foreign hydraulic industry, the development history of Chinese hydraulic industry is relatively short, the enterprise scale is generally small, the capital strength is relatively insufficient, the degree of market concentration is low, and there are greatgaps compared with the international competitors. In recent years, domestic leading enterprises of hydraulic components have made certain break throughs in technology and manufacturing scale through independent technology research and development,introduction and digestion of foreign advanced hydraulic design and manufacturing process, and increase capital investment in recent years, but the overall gap is still relatively obvious.

6、Barriers to industry entry

（1）Technology and talent barriers

The research, development, design and manufacturing of hydraulic components involve the knowledge and process of materials science, structure science, thermodynamics, mechanics, automation control and other disciplines. The precision is strict and the technical integra tion is high. At the same time, different hosts and even different parts of the same host may have different requirements on temperature, pressure, flow, permeability and other parameters, so hydraulic components enterprises often needto carry out product development, design and manufacturing according to the personalized needs of downstream host manufacturers. In addition, the operating environ ment of hydraulic components is often relatively complex, how to ensure the product in the open environment for a long time stable operation, how to ensure the performance, life, reliability, stability of hydraulic components, there is a high technical difficulty. This requires hydraulic components enterprises to have rich development capabilities and technical deposits, to provide more and better technical solutions for downstream host manufacturers.

Therefore, only after years of technical accumulation, training a group of R & D technicians with deep professional quality and rich experience, skilled production technology workers, and with compound professional knowledge structure and strong learning ability, can enterprises in the industry have professional R & D ability and production capacity, keep up with the needs of downstream o&M constantly R & D innovation. Achieved good development in the industry. Without a certain accumulation of technology, it is difficult for new enterprises to acquire the above capabilities and assemble and build a professional and rational talent team in a short time. Therefore, the industry new entrants into the hydraulic industry has a higher technical and talent barriers.

（2）Production process barrier

Hydraulic components as an important basic component, the production process is complex, high requirements for materials, processing accuracy, smooth operation, and many processes, management difficulty, need to have a strong production process control and process control ability, to mass production, and ensure the stability of product quality. Usually installed in the construction machinery and other main engine of hydraulic components, to withstand the impact of various factors in the complex environment of openair work for a long time, must have the ability to withstand high and low temperature, pressure, liquid erosion and penetration and mechanical vibration, the production process has strict requirements. It is mainly reflected in the following aspects: first, the force of hydraulic components in the equipment is alternating, and the load action time is relatively long, so the product's fatigue resistance and durability requirements are relatively high, the enterprise needs to accumulate production experience, and constantly optimize the production process; Second, the production enterprise needs to determine the specific process parameters according to the drawings of the downstream main engine factory, and then carry out the corresponding molddesign and development to achieve the stability and consistency of hydraulic components.

Therefore, the setting of process parameters, mold development and design need the accumulation of years of research and deve lopment and process experience of enterprises in the industry, so as to produce products with stable quality and in line with customer demand. New entrants lack the accumulation of process experience, so it is difficult to improve the production process in a short period of time. It is difficult to meet the requirements of customers on the quality and time of supply, thus forming a high barrier.

（3）Customer certification barrier

The downstream industry of hydraulic components is mainly heavy industrial equipment such as construction machinery, which requires high performance, stability and reliability of hydraulic components. The working environment of hydraulic components is more complex, usually in the complex environment of high and low temperature, high pressure, corrosion and open-air operation. In order to ensure the performance, stability and reliability of hydraulic components, downstream host manufacturers tend to be inclined to establish long-term stable business cooperation with leading enterprises with higher brand awareness and quality assurance. At the same time, the downstr eam host manufacturers for suppliers for a full range of long-term audit and screening, through the procurement management, production process, logistics control, technology research and development, cost control, safety and environmental protection and quality control and other aspects of further review, to become its qualified suppliers. Afterbecoming a qualified supplier, it is necessary to go through quota tion, development and design, process debugging, sample trial production and inspection, installation verification and other links before entering the batch supply stage.

Therefore, the hydraulic component production enterprises with good brand awareness and quality assurance have great advantages in obtaining orders from the main engine factory and establishing long-term stable cooperation. Once the hydraulic components production enterprises through the supplier certification, and establish supporting production relations, will be a long-term stable cooperation.

Therefore, the hydraulic industry has a high brand and certification barriers.

（4）Capital and scale barriers

The production of hydraulic industry not only requires continuous investment in a large number of plants, production equipment,

testing equipment and other fixed assets, but also requires a large amount of capital investment in technology research and

development and product development, with the characteristics of capital intensive.

As the downstream Oomworks put forward higher requirements on the performance, life, reliability and stability of hydraulic components, it is necessary for the hydraulic components production enterprises to continue to invest in capital, equipped with more precise production and testing equipment, establish advanced laboratories in line with the requirements of downstream works, and increase the investment in research and development. In addition, in order to ensure their own profit space, hydraulic component manufacturers need to reach a certain scale of production. On the one hand, they can use their scale advantages to enhance the bargaining power with upstream suppliers; On the other hand, the efficiency of scale is used to reduce the fixed cost of unit output allocation and reduce the production cost to a certain extent. Therefore, hydraulic components manufacturing has economies of scale effect, and to form a comparable production scale, enterprises need to invest a lot of capital, with high capital and scale barriers.

（5）Management experience barrier