KONE's Elevator Modernization Business Driven by China's Sovereign Debt Policy

📌 Background

China possesses a massive elevator inventory with an aging profile, as a large number of elevators over 15 years old enter the replacement window. In 2026, the government extended the 'Two New' policy (large-scale equipment renewal and trade-in of consumer goods) and utilized sovereign debt funds to support 'elevator renewal' projects, converting previously budget-constrained renovation demand into subsidized, high-certainty orders. Leveraging its premium brand and nationwide maintenance network, KONE has penetrated this policy-driven market, establishing Modernization as a high-margin pillar alongside its maintenance business.

👤 Target Customers

Owners of old residential communities and public buildings, property management companies, and urban renewal project entities. Actual payments are covered by a combination of self-raised funds from owners and government sovereign debt subsidies, with KONE collecting project fees based on modernization contracts.

💰 Revenue Streams

1) Modernization accounts for approximately 20% of KONE's sales, and together with the service business, contributes over 90% of the group's profits; 2) Elevator renewal projects generate revenue from equipment and installation fees, with completed units integrated into the maintenance subscription system to create recurring revenue; 3) Sovereign debt subsidies reduce the financial burden on owners and accelerate contract signing and volume growth.

🧮 Cost Structure

Renovation involves elevator equipment manufacturing, on-site dismantling, installation, and labor, as well as upfront investments in inspection, assessment, solution design, and government approvals, alongside fixed operating costs for the nationwide channel and maintenance network.

🛡️ Moat

The global installed base and nationwide maintenance network provide a competitive advantage in accessing renovation leads; energy-saving technologies like the EcoDisc motor lower post-renovation energy consumption and increase solution premiums; and the experience gained from being a first-mover in sovereign debt projects regarding policy alignment and construction approval is difficult to replicate quickly.

🔑 Keys to Success

• Closely follow the pace of the 'Two New' policy and sovereign debt projects to secure local subsidy-backed orders
• Leverage existing maintenance contracts to identify renovation intent and achieve closed-loop lead conversion
• Standardize modernization solutions to dilute construction costs and shorten delivery cycles

⚠️ Risks

• Demand decline due to the phasing out of government subsidies or delays in fund allocation
• Profit margin compression due to low-price competition from local manufacturers
• Safety and compliance risks associated with on-site construction of old elevators

🏢 Cases

• KONE successfully launched its first batch of sovereign debt-supported elevator renewal projects across multiple provinces and cities, with signed contracts exceeding 3,000 units (2026, KONE China)

📊 SWOT Analysis