China robotics outlook: A state of the industry 2019

The Robot Report
China robotics outlook: A state of the industry 2019

The China robotics market poses challenges but is too big to ignore. Source: Georg Stieler

China is one of the world’s largest economies, with a gross domestic product of about $14 trillion and a purchasing-power parity of $25 trillion, according to various estimates. By comparison, the U.S. has a GDP of more than $21 trillion and a PPP of $20 trillion. Some analysts argue that China has already overtaken the U.S. in some sectors, even as slowdowns in trade and automotive manufacturing affect the China robotics scene.

Just as robotics developers need to understand their users, so too do startups and established suppliers need to watch the ever-shifting global market, as well as political considerations. Chinese companies installed 154,000 robots in 2018, compared with Japan’s 55,200 and the U.S.’s 40,400, according to the International Federation of Robotics (IFR).

However, China’s robot density, or the number of robots per 10,000 human employees, remains far behind that of other countries at 140. In comparison, the U.S. had 217, Japan 327, South Korea 774, and Singapore 831 robots per 10,000 workers.

robot density

Countries with the most automation in manufacturing industries. Source: IFR

For analysis from Asia, The Robot Report spoke with Georg Stieler, managing director for Asia at international consulting firm STM Stieler. He updated his insights from February and looked at the prospects for the Chinese robotics market and industry. This is Part 1 of Stieler’s observations, and Part 2 will be posted tomorrow.

Digging into the China robotics slowdown

What are the main factors in the slowdown in Chinese manufacturing?

Stieler: In their official statements, robot makers are blaming the trade frictions between the U.S. and China for the downturn, which led to weak situation in the major sales markets automotive and 3C [computers, communications, and consumer electronics].

Looking at the demand for robots in particular, we should not underestimate the exaggerations in the market created by vast subsidies for robots in China since 2016, however. According to financial firm Sinolink Securities, subsidies were responsible for 44% of net profits for the 53 listed China robotics companies last year.

In a wider context, we cannot ignore the fact that China’s economy is facing serious structural challenges. After the 2008 crisis, China launched a far-reaching stimulus operation that carried the world economy into a recovery. Between 2009 and 2017, the country accounted for over 50% of all capital investments in major economies, but also more than 60% of all the new money/debt created.

However, this massive debt stimulus turned increasingly unproductive, and the country has been in a productivity stagnation since 2011. To counterbalance the slump in 2015, the Chinese government let the shadow-banking sector grow threefold, probably the biggest debt-stimulus operation in economic history. China started to scale back its lending spree in late summer 2017, which started to slow the global economy.

The tax breaks of President Trump carried the world economy in 2018, but China’s growth was already sputtering. In Q1 2019, the state of the Chinese economy caused Beijing to issue massive additional stimulus, including around $320 billion for infrastructure projects and over $300 billion worth of tax cuts.

According to calculations by financial advisory firm AppleTree Capital, there are now almost 10 units of credit required to generate one unit of GDP — more than six times as much as 10 years ago. And even though China is doing this, its economy keeps slowing. Companies and investors should brace for a future in which China will not provide the growth it did during the last decade.

While automation sales are still increasing, how significant is this slowdown to foreign and China robotics producers?

Stieler: For the segment of industrial robots, we expect a decline of 3% to 5% compared with 2018. Foreign manufacturers were hit harder by the slowdown due to their higher exposure to the automotive industry.

Small and medium-sized enterprises with a lower degree of automation and lower quality requirements prefer to use cheaper domestic products, such as arc-welding solutions from Honyen or metal-bending solutions from Estun.

We are now seeing five-axis robots for applications in the electronics industry for the equivalent of $3,900 U.S. The cheapest welding robots are now starting at just over $5,500. Even though they are using domestic core components for these cheap robots, it is hard to comprehend how this is economically viable.

Also, it remains to be seen how sustainable this will be. There were reports that Honyen, the China robotics manufacturer with the fastest growth in H1 2019, failed to pay some of its salaries in Q3. For now, foreign manufacturers have to adapt to this. For example, FANUC sells 30% below the Japanese price level in China.

China is actively developing its domestic production capabilities. How do they compare with those of other countries or regions?

Stieler: Since many have been built just recently, some of them are relatively new. Already in 2017, the Chinese Ministry for Industry and Information Technology warned of overcapacities in the robotics industry. As mentioned before already, there is still new capacity being built up. Domestic companies are often inexperienced in demand planning and efficient supply-chain-management.

While its leadership is clear in telecommunications and other areas, who are the big robotics rivals in China versus the rest of the world?

Stieler: The most important Chinese manufacturers of industrial robots, according to units sold in the first three quarters of 2019, were Honyen, Siasun, Estun, Efort, STEP, Huashu, STS, GSK. However, their sales are still low when compared to their large international competitors. FANUC sold 3.5 times as many robots in China alone during that period.

What are some of the more productive partnerships between Chinese and foreign companies?

Stieler: I can’t comment on KUKA, because it is a client. In general, we can observe that joining helps with strong Chinese trade partners helps.

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Areas of China robotics interest

There’s a difference between quality and quantity. China is the world’s biggest market, but is it the best, and if so, for what kinds of robots?

Stieler: Multinational robotics and automation companies have declared that they not only want to apply their state-of-the-art technologies in China, but they also want to further develop them here. For example, ABB laid the foundation stone for the group’s most modern robot factory in Shanghai in September. Supported by cloud, artificial intelligence and other cutting-edge technologies, robots are supposed to build robots there from 2021 onwards. It is a political gain both for the city of Shanghai, as well as for ABB.

However, the willingness of most Chinese buyers to invest in the most advanced technologies is limited. Even though rising labor costs are an automation driver, they are still low compared with the U,S, or Europe.

Except for a few exceptions, the vast majority of companies are still leaning on conventional workflows and do not embrace digital transformation. This make it difficult to sell complex automation solutions. Even Dorabot, one of the most promising China robotics startups, is doing most of its business overseas. Vendors of robotics and automation technology need to invest in education their customers, as well as in their local partners.

Another challenge for digital services is the Chinese cybersecurity law, which was adopted in 2016 and is gradually taking shape. Part of the law is a plan designed to give the Chinese government full access to all data in networks and on servers in the country. Trade secrets become completely transparent in the worst case. This can threaten the entire existence of companies.

In addition, data-based service providers must work with local cloud providers. For foreign companies, the environment is not particularly attractive for the use, nor for the offer of digital services.

Cobots and AMRs in China

How popular are collaborative robot arms in China?

Stieler: According to our estimations, there have been around 5,100 cobots sold in Q1-Q3 2019. This is around 20% more than last year. Thus, cobots are certainly a growth segment.

Major sales markets are 3C, automotive parts, scientific research, and mechanical processing. Domestic vendors with more cost-effective products are catching up on sales, especially AUBO. Their products are popular among clients with low budgets in the 3C and automotive industries.

What about autonomous mobile robots and mobile manipulators?

Stieler: We have seen a lot of investment into AGVs [automated guided vehicles]. Geek+ seems the most interesting to us. With $250 million, the company is the best-funded logistics robot startup in the world.

Mobile manipulators — cobots combined with autonomous platforms — have entered the pilot phase. These solutions are mainly applied in the handling between workstations. The estimated price from vendors such as Geek+ is around 400,000 to 600,000 RMB [$56,000 to $85,000] — including an AGV, a cobot, and systems integration — getting closer to an expected return on investment within two years.

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