Other Industries

Industry on the rise?

Elevator inquiry uncovers fake products – but foreign firms still prospering

Chinese attendants wait outside the hall where U.S. Deputy Secretary of State James Steinberg is speaking with Chinese Vice President Xi JinPing in Beijing

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As far as sales pitches go, the technical director of the Congzhi Elevator Parts Factory still has a lot to learn. Xinhua has reported that the executive – who it says is surnamed Wu and is based in Foshan in Guangdong – has been explaining why shoddy lifts aren’t difficult to make in the following terms: “The industry has high entry barriers because of the need for appropriate qualifications. But actually the manufacturing techniques are very simple. It’s not like producing cars, which need to look different from one another. All elevators look the same, so they’re very easy to fake.”

Such words won’t have been musak to the ears of the authorities, who arrested Wu and 11 other suspects in a crackdown against the gangs behind the counterfeit elevator trade.

The arrests followed a six-month investigation prompted by a tip-off from a hotel in Jingzhou City in Hubei, which suspected it had been sold a badly-made elevator.

The crackdown also led to the seizure of 30,0000 counterfeit elevator parts and more than 10,000 documents and packaging materials marked with fake trademarks.

The review is now being widened into a national campaign under the auspices of the Ministry of Public Security.

Xinhua reports that 100 sets of “shoddy” elevators have been seized in the provinces of Hubei, Guangdong, Fujian and in the municipality of Chongqing. Worryingly, many of the installation companies have used fake Western brand names, with Dongguan Siemens Elevator, Dongguan Samsung Elevator and Liuzhou Fuji Elevator on the list of impostors.

China has had many counterfeiting scandals over the years, but the potential for falling from a great height or being trapped in a confined space quickens the pulse as far as any anxiety about unsafe elevators is concerned. Or as Jingzhou city police officer, Zhou Yang told Xinhua of the counterfeit manufacturers: “After looking at the elevators made by them, I feel really scared just thinking about the ones we normally ride.”

Cnhubei.com lists a few of the elevator accidents of recent years. Most notorious was the death of 19 people in Wuhan in 2012 when a lift at a construction site suddenly plummeted 100 feet. An investigation discovered that two of the four bolts, which should have held the elevator car in place were missing, while the two remaining bolts had failed because the elevator had been overloaded.

An architecture student at Huaqiao University in Xiamen was crushed to death in September when he became trapped in the doorframe after the elevator he was entering suddenly jolted upwards. A gruesome video of the incident later became one of the most widely shared items on social media in China.

As Xinhua points out, it is difficult to tell whether an elevator meets the required safety standards. Congzhi’s Wu has also admitted that his factory adjusted the quality of materials depending on the prices that customers were willing to pay. Typical shortcuts included using refurbished rails, non-standard screws and thinner sheets of steel.

In order to boost margins, Congzhi would also pass off its products as recognised Western brands. It did so by getting hold of copies of the original qualification certificates and forging them.

A second problem is maintenance, or rather the lack of it. According to an article in China Daily, inadequate servicing is the cause of up to 80% of accidents. “Regular maintenance costs about Rmb10,000 ($1,625), but some companies charge only a third of that, which isn’t enough for the cost of a conscientious upkeep,” warns Xu Ronggen, secretary-general of the Beijing Chamber of Elevator Commerce. Wang Shigui from Beijing Urban Construction Huiyou Installation Engineering adds that migrant workers with little training often carry out the bulk of the maintenance tasks.

In fact, elevator manufacturing is one of the industries where foreign companies continue to dominate in China, with foreign brands accounting for 80% of the market. For the leaders (America’s Otis, Finland’s Kone, Switzerland’s Schindler and Germany’s ThyssenKrupp), China’s urbanisation drive has provided a lucrative income source. China accounts for about 60% of global elevator sales and revenues grew at a compound annual growth rate (CAGR) of 22.5% between 2003 and 2013, according to ResearchInChina.

Otis installed its first elevator into Shanghai’s Peace Hotel in 1907. Today, its Chinese sales account for about one fifth of its worldwide total. Last year, it also established Xizi Otis in Chongqing to build the new Gen2 line elevator, an energy-saver which doesn’t need a machine room.

Its local president Alan Cheung tells China Daily, “We chose Chongqing as our second production base in line with the government’s long-term policy to develop the interior and western areas rather than just the coastal cities.”

ThyssenKrupp also reported its first net profit in three years after a restructuring, which led it to boost its Chinese operations. The German group has been targeting Asia in a bid to close the gap with its competitors. Sales there now account for 25% of its total, up from 14% in 2010, although it is targeting 33% within the next few years.

EBIT margins for its ‘Elevator Technology’ business have risen from 10.3% in 2010 to 12% in the third quarter of 2014, ThyssenKrupp says, although this still falls some way short of Otis on 21%.

Elevator maintenance tends to be a higher margin business than installation, although some analysts wonder whether China holds the same promise as other markets because of customer propensity to switch from one supplier to another.

They also question whether manufacturers will reap the same revenue growth in the next decade as they have in the last, now that urbanisation is switching to smaller tier-three and tier-four cities.

All the major elevator brands have been promoting technological breakthroughs as key selling points. Buildings account for 40% of global energy demand, with elevators making up 10% of a building’s electricity consumption. So creating sustainable cities will be partially dependent on the technology that the elevator companies can offer. Kone, for example, has developed an “ultrarope” which has doubled the length of a single elevator line from 500 metres to 1km. ThyssenKrupp has also announced what it described as the “holy grail of the elevator industry”, unveiling the world’s first cable-free lift. It will be powered by magnets (using ThyssenKrupp’s Maglev technology), and this will allow elevators to move both vertically and horizontally through buildings. The Multi, as it is known, also permits multiple cabs to use the same elevator shaft. In practical terms, that should mean that lifts will arrive more quickly, meaning less waiting time.

ThyssenKrupp will trial the technology in a building in Germany that is expected to be completed in 2016. However, at 5 metres per second the Multi still won’t be the fastest lift on offer. Two quicker elevators are due to be installed in China. Next year, Mitsubishi Electric will install an elevator in the 121-storey Shanghai Tower, which can travel at 18 metres per second. But the Financial Times says Hitachi, another Japanese firm, is planning a lift that travels at a rate of 20 metres a second for the Guangzhou CTF Finance Centre (see WiC259) in 2016. Apparently, passengers will be able to zoom up to the 95th floor in just 43 seconds.

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