Editor’s Note: For many Western robotics companies, China is an exciting frontier, with eager investors and markets ripe for automation. However, industrial automation businesses are wary about intellectual property protection, international trade tensions, and technology maturity. The growing Chinese robotics industry offers suppliers and multinational manufacturers significant opportunities, but they must first understand the environment and how to navigate it.
This article is part of a series by Georg Stieler, managing director of STM Stieler Asian investments, who will be speaking at RoboBusiness 2018 in Santa Clara, Calif. He will be participating in a keynote panel on global robotics. (Robotics Business Review produces RoboBusiness.)
In this installment, we look at an overview of the Chinese robotics industry and how the country’s technology sector is developing. Future articles will look at the rate of automation growth and risks for foreign companies.
What’s the state of the Chinese robotics industry?
China has been the world’s biggest market for industrial robots since 2013. Partly driven by massive subsidies, the number of companies in this sector increased from around 300 to around 5,000 companies in the past six years. Good relations between executives and government officials were often were more important than technological competence when successfully applying for subsidies.
Many companies in this field are empty shells without any technological know-how. The are caught in a vicious cycle of barely differentiable products and low profit margins.
In order to deal with this problem, the Chinese government issued a policy guideline declaring that robot producers below 50 million RMB ($7.23 million U.S.) and a production of less than 2,000 units per year are supposed to leave the market in the midterm.
According to these criteria, we currently see around 10 potentially competitive Chinese makers of industrial robots, including Siasun, Efort, GSK, Estun, STS, and Greatoo. In the past few years, they were continuously able to increase their market share, first and foremost in simple applications such loading and unloading, and gradually in bending and welding applications.
Alibaba’s and JD.com’s homegrown developments of robots in the logistics sector are also noteworthy.
When talking about the robotics industry in China, note that the major industrial automation providers — ABB, KUKA, Yaskawa, and Kawasaki, among others — plan to double their production capacities there. Engineers trained by these companies are in high demand.
Do Chinese robotics companies cater primarily the local market?
Yes. The Chinese robot market has been the most dynamic in the world for the past few years. Hence, domestic producers focused primarily on their domestic market.
Even leading producers export less than 10% of their production. Occasionally, some of them have exhibited at some European fairs. However, there was no consistent strategic pattern recognizable.
Might a serious competitor emerge against established foreign players?
In 2016, Midea Group announced its acquisition of KUKA. Since then, KUKA’s “center of gravity,” in terms of projected sales and management, has shifted from Europe toward China, so one could ask whether it should not already be considered a Chinese robotics company.
I do not expect robot producers that originated in China to get a foothold in the European or North American market in the foreseeable future. Besides lagging behind from a technological point of view, there exist considerable reservations within the industry regarding issues like trust and data security.
Is a similar play to “Nokia out, Huawei in” possible? Huawei has been probably the most successful Chinese company internationally, so far. Against cut-throat domestic competition, it first conquered sectors that seemed unattractive to leading Western telecommunication outfitters.
Later, Huawei successfully leveraged its strong domestic position to decimate its international competitors. Nowadays, it sets international standards, such as for narrow-band IoT or 5G network technology.
Regarding robots, I cannot see comparable potential within the domestic companies at the moment. Moreover, I doubt that European authorities would again entrust a company like Huawei with such an important role in their telecommunication infrastructure or manufacturing.
What’s going on with AI in China?
With more than 750 million users, China has the biggest connected Internet market of the world. The country has more than 100 cities with more than 1 million inhabitants, and at the same time great inefficiencies in traditional industries. Together with relatively loose data security guidelines — at least until now — this environment represents the ideal basis for the emergence of new digital business models.
The huge amounts of data generated here are an essential advantage for machine learning and artificial intelligence. Chinese companies have taken advantage of the progress in this sector and are now leading in digital face and voice recognition, while DiDi Chuxing is the biggest ride-hailing provider in the world.
The next step is using this data for the development of autonomous driving systems and intelligent traffic-flow management.
AI and robotics are among the key technologies in the Chinese government’s economic strategies. According to Beijing, the country is supposed to catch up to the U.S. in this field by 2025 and become the world leader in AI by 2030. Even if large parts of these announcements often do not become reality in the end, China’s intentions are clear.
Last year, China reportedly surpassed the U.S. in terms of investments in AI research for the first time.
What’s drawing automation to China?
In a multitude of industries, we can observe a phenomenon called “China gravity” today: 30% of worldwide automobile production takes place in China. For refrigerators, this share accumulates to 50%, and for smartphones and computers, it’s over 80%.
The country has the largest base of installed machine tools and industrial robots. Hence, most of the data from these kinds of equipment is produced there — and has to be processed within the country, according to current legislation. This is one reason why Siemens established the headquarters for the development of its autonomous robot systems there.
So far, traditional Chinese robotics producers are less visible in the field of AI. However, we are observing some interesting approaches by startups.
We are currently working with a Shanghai-based robot software company called Motus Operandi. It has developed a method to optimize the trajectory of robot arms.
In initial tests with leading carmakers and automotive suppliers, Motus Operandi achieved a productivity increase of up to 15% because of shorter cycle times, as well as energy savings of up to 42%.
Another interesting example is Dorabot, which develops autonomous robot systems for express logistics and e-commerce inventory. The company is backed by Kai Fu Lee, a renowned venture capitalist and one of the most prominent supporters of AI in China.
In January, Chinese search engine giant Baidu invested in startup Aqrose, a developer of machine vision and machine learning solutions for industrial automation.
Some acquisitions are still being made abroad as part of China’s AI push. Baidu acquired U.S.-based facial-recognition startup Xperception last year. Tencent, the company behind the multifunctional app WeChat, invested in Canadian AI robotics startup Kindred.