June 30, 2012      

?The future is already here ? it’s just not very evenly distributed.?
?William Gibson

When will the KUKA robots at the Mercedes plant in Beijing be replaced by indigenous, Chinese-built robots of equal quality and performance, that are easily programmed, are much cheaper, and offer tax incentives enough to make CFOs grin from ear to ear? Probably, just after Great Wall Motors proudly marches its army of Chinese robots into production.

“China is the fastest growing market in robotics, and by 2014 it will top the global market.” International Federation of Robotics.

Robots everywhere are key to industrial success, not just in China, but to all manufacturing from food, to electronics to durable goods to heavy industry. They are not luxury items but must-have critical national assets for any country?s economic survival and hoped-for prosperity.

The opportunity for China to manufacture its own, indigenous robots?and even export them to places like India?has never been better.

Robots in china2

Reminiscent of colonial powers cutting up China?s geography, foreign robot manufacturers are now staking out claims to China?s industrial robot markets. It rankles the Chinese more than the West can ever truly understand, and like foreign colonies before them, the window is closing on foreign robot manufacturers?even though some have just arrived to set up shop.

Total reliance on foreign robot manufacturers, but not for long.

“You don’t have to be an expert to see the (quality) gap between Chinese cars and those made by companies like Audi and Volkswagen,” said Li Shaohui, who oversees automatic control engineering for Great Wall Motors. “To beat those competitors we have no choice but to use a higher level of equipment and technology.”

That exact sentiment is echoed throughout every segment of Chinese manufacturing. And not just in high-visibility industries like automobiles but also in places like the UBase factory in Ningbo City which makes refrigerators, freezers, stoves and washing machines? Common and utilitarian, but important stuff nonetheless. Right now the situation in China means total reliance on foreign robot manufacturers, but not for long.

China will probably never have the innovation style and dash of Western countries, as, for example, in the latest MIT discovery of the first all-carbon photovoltaic cells (from Carbon 60 fullerenes) that will make China?s world-leading silicon solar panel industry obsolete.

China?s brand of innovation, what it calls indigenous innovation, mostly comes down to hard work and access to Western technology. Beijing requires foreign manufacturers in China to operate in joint ventures, in hopes their Chinese partners will learn and grow.

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Before making a deal for a joint venture, the Chinese insist on a willingness to transfer technology to China and employ Chinese in upper management. Indigenous innovation is part IP technology transfer, part scrutiny from a joint venture partners and part being industrious enough to cobble it all together into a viable product.

They’ve done it with computers, computer chips, supercomputers, aircraft and avionics, right on down to using Russian engineering for the recent national high-tech triumph of Jing Haipeng and his Shenzhou-9 space mates.

Along the way, Made in China is already transforming its reputation, as Made in Japan did before it, into a manufacturer of high-quality domestic goods capable of supporting a flourishing export market.

Just recently, ?China Telecom successfully entered the UK mobile communications market for 2013 as well as the French mobile communications market; China Telecom will continue in 2014 with entry into Germany, Italy and the mobile communications market in Spain.?

The economics that brought about Great Wall Motors (now with exports up 42%), in response to foreign hegemony in motor vehicles, may bring about Great Wall Robots. Foreign automakers still dominate but Zh?ngguo, Middle Nation, is watching closely as it is with robots.

The timing couldn?t be better for a homegrown, big-time robotics manufacturing effort, which may happen sooner than anyone thinks.

The social and economic ingredients are already in place.

For the first time in its history there are more people in China?s cities 690 million (twice the population of the U.S.) than in the countryside 680 million. That critical and ongoing shift means lots of city folks will be needing lots of durable goods like automobiles, stoves and refrigerators, all of which means lots of manufacturing is going on everywhere, with lots of opportunity for industrial robots to lend a metal arm or two to the cause.

Although the Chinese economy has tumbled from 11.9 percent growth (1Q2010) to just under 8 percent in 2012, it?s still a corker of an economy with a GDP of $5T. The economies of its BRIC brethren are wobbly, at best; Europe?s economy is, well, Euro-grim; and the U.S. economy, battered and bruised, is trying to pull off a Rocky Balboa, but needs time.

The following news dispatches amply demonstrate the impact of robots on China?s manufacturing sectors, and more importantly, the dawningly inescapable realization by the Chinese just how important these machines really are.

News dispatch #1: Reuters from Baoding, China?

The giant orange robotic arms that swiftly weld together car frames at the Great Wall Motors factory in Baoding might seem like the perfect answer to China’s fast-rising labor costs – they don’t ask for a raise, get injured or go on strike.

For Great Wall, a private sector Chinese car maker that employs 50,000 workers, the Swiss robots and other machinery that line its bright factory floor produce more than cost savings. The company hopes they will help it build cars good enough to compete with the global auto makers.

“You don’t have to be an expert to see the (quality) gap between Chinese cars and those made by companies like Audi and Volkswagen,” said Li Shaohui, who oversees automatic control engineering for the company. “To beat those competitors we have no choice but to use a higher level of equipment and technology.”

From car plants to microchip foundries, China’s industrial sector increasingly runs by machine.

China is growing far faster than Japan did at a comparable stage of development

According to Nomura, 28 per cent of factory machines in China use numerical controls – one measure of automation. That may be far lower than Japan’s 83 per cent, but China is growing far faster than Japan did at a comparable stage of development, says Ge Wenjie, a machinery analyst with Nomura.

One of the biggest could be Foxconn Technology Group, maker of products for tech giant Apple, which is talking of plans to put a million robots in its factories.

The army of cheap laborers that made China a manufacturing powerhouse is neither as vast as once thought nor as cheap as it was.

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In response, manufacturers have been spending heavily on machines that will both make them more productive and let them churn out higher quality goods.

That change will pose a growing challenge for the US, European and Japanese industrial companies not used to competing with Chinese firms in the high-end segments of their markets.

In other words, China may soon be known less for cheap Christmas toys and more for high-end medical equipment, luxury cars and jet engines.

“You will see foreign players facing more and more pressure from leading local manufacturers upgrading their products, their quality and their scale,” said Raymond Tsang, a China-based partner with consultancy Bain.

Great Wall has seen some early success with it own efforts to take on the global brands. The company’s solidly built Haval SUV and cheerfully named Wingle pickup truck have gained a foothold in Australia, where they sell for about half the price of comparable Japanese models.

Four of its models became the first Chinese cars to pass Europe’s safety and emissions requirements, though they aren’t yet on sale there.

The cost of a robot

Automation doesn’t come cheap. A factory floor robot of the kind in Great Wall’s plant costs about $50,000 according to Ge of Nomura, and a production line might easily have 100 of them. There is also the cost of downtime, when machines need to be maintained or adjusted to handle new products.

For years, low wages meant automation was simply not worth the expense. A company didn’t need to buy a packaging machine when it was cheaper to hire a room full of workers to do the same thing.

But steady cost rises are tilting the balance in favor of machines. Last year, urban labor costs in China increased 12.3 per cent in inflation-adjusted terms for private companies, which face a worsening labor shortage.

“Everyone is doing this because there’s tremendous competition in China and the cost of raw materials is going up and wages are going up,” said Andy Rothman, an economist with CLSA in Hong Kong. “So really, the only way that most companies can survive is to raise productivity and the best way to do that here is to add a little bit more equipment.”

Demand for higher quality

The demand for higher quality also weighs in favor of automation. An engine block built by a worker positioning the drill by hand won’t be as good – or sell for as much money – as one fashioned by machine.

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“The big driver (for automation) is quality and consistency, especially for high tech,” said Bain’s Tsang. “For Chinese players to compete globally, they have to reach certain standards and be certified by their customers – automation is necessary to improve the quality.”

The government sees that too. It has made industrial upgrading one of the key priorities of its latest five year plan, alongside rebalancing the economy toward greater domestic consumption. That has led Beijing to pour billions of dollars into strategic industries like clean energy and high-speed rail and to encourage imports of advanced machinery.

Still, it will be years before the lonely, fully automated production lines of high-end Japanese manufacturers are common in China. Its workforce remains huge and, even with inflation, dramatically cheaper than Japan’s or Germany’s.

“In China, we’ll see things become much more automated than they are now, but I don’t think it will ever be like Japan. There are just too many people in China,” said Ge.

Among companies making the big shift to automation is Foxconn, whose chairman Terry Gou said last summer the firm would put up to 1 million robots in its massive Chinese factories over three years.

In Foxconn’s case, the step follows not just rising labor costs but also a string of worker suicides and allegations of poor working conditions.
More productive

Surging demand for automation is a boon for makers of such equipment as sensors, frequency converters, conveyor belts, pneumatic systems.
Mitsubishi Electric Corp, which like Switzerland’s ABB Ltd, Japan’s Fanuc and others, supplies such devices to China, sees sales there rising from 60 billion yen in 2011 to 100 billion yen by 2015, according to Masaki Shiroshita, president of Mitsubishi Electric Automation (China), Ltd.

The trend will also affect the broader economy. Despite China’s manufacturing prowess, its productivity is strikingly low. The average US worker in a goods-producing job produces $84,580 worth of exports compared with just $5,228 for a Chinese worker, according to consulting firm High Frequency Economics.

That gap – a ratio of 16 to 1 – is partly explained by the higher-value items made in US factories, but also by the heavy application of capital and technology.

“Automation and mechanization is an incredibly important driver of productivity increase,” said Louis Kuijs, an economist with the Fung Global Institute in Hong Kong. “There is huge scope for China to get more productivity out of its workers by doing this upgrading.”

News dispatch #2: CNN from Beijing, China?

Rising wages in China feeding a boom in the robotics industry

Rising wages in China may be squeezing the profits of many manufacturers — but they are also feeding a boom in the robotics industry.
Wages in China’s cities rose 12.4% last year, while in rural areas they were boosted by 21.9%, according to figures from China’s National Bureau of Statistics.

While that may be good for workers, manufacturers are softening the blow to their balance sheets by turning to robotics — which are cheaper, faster and deliver high quality.

“China will be the biggest robotic market, so it is important to be here.”

China is the fastest growing market in robotics, and by 2014 it will top the global market, according to the International Federation of Robotics.

One company seeking to tap this demand is German-based KUKA Robotics, which is setting up a regional hub in the country. “With the increase in the wages we can see a big automation wave coming,” said Till Reuter, chief executive of KUKA Robotics.

“China is the market that is still growing, and growing at a fast pace compared to Europe and the U.S., ” he said. “China will be the biggest robotic market, so it is important to be here.”

The auto industry, for example, is becoming increasingly reliant on robotics. China is the world’s largest auto market and European car manufacturers are setting up facilities in the region, all of which will be reliant on robotics.

BMW opened a new plant in Shenyang last month and Volkswagen plans to double its capacity to four million cars by 2018, by investing in three new plants in Yizheng, Foshan and Ningbo and upgrading existing ones in Changchun, Nanjing and Chengdu.

China’s robotics industry still lags that in other countries. In Japan, for example, there are 306 robots working per 10,000 people while in China there are currently only 15.

KUKA plans to capture the potential by producing more efficient models that will continue to drive down costs for manufacturers.

Our advantage is innovation, we need to keep it alive and work towards the next generation

Till Reuter, chief executive of KUKA Robotics, “Our advantage is innovation,” said Reuter, “we need to keep it alive and work towards the next generation. It gives us an advantage in China, but also in the rest of the world.”

As China’s robotics industry catches up with others, the country’s manufacturers are also looking at ever newer ways to improve.

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