December 01, 2013      


“Let China sleep, for when she awakens, she will shake the world.”
— Napoleon

Are China’s prestige, treasury and people at risk?

BANGKOK — We’re more than halfway through China’s 12th Five-Year Plan (2011-2015). So why is that important, and what’s it got to do with Shanghai “expressing” itself into China’s global robot metropolis by 2020? Lots!

Robotics and the tao of five-year plans

First off, for the previous 55 years and eleven five-year plans that preceded it, none ever contained robotics as part of a major thrust or even as an area of interest for the People’s Republic. Now, suddenly, robotics is very important and Shanghai is at the center of it all.

shanghai expo

Since five-year plans have been the country’s principal way of rallying itself to commit to, undertake and accomplish vital national projects ever since the days of Mao Zedong, robotics, showing its face for the first time ever in this the 12th iteration, means that robotics has been elevated to a critical industry focus that will get plenty of party attention, influence and money.

Such attention is what made China’s space-flight programs, like the 15-day Shenzhou 10 flight to the Tiangong space laboratory, or its domestic automobile manufacturing triumph or even this November’s “Sharp Sword” stealth drone flight, so successful, so impressive and so unprecedented.

The 12th Five-Year plan is equally ambitious for robotics. According to Wang Weiming, a deputy director at the Ministry of Industry and Information Technology, the intelligent equipment sector, of which robotics is part, has planned for overall revenue to surpass $162B by 2015, with a compound growth rate of 25 percent.

Wang adds that 30 percent of that increase has been targeted for production by homegrown industries. However, with barely 8 percent of China’s robots currently produced by indigenous Chinese manufacturers, a 22 percent jump before 2015 (24 months distant) seems an unreasonable expectation.

The more likely scenario is for the next and 13th Five-Year Plan (2015-2020) to again include robotics, which would have a better chance of reaching the targeted 30 percent, maybe more.

The Shanghai connection

Wu Lei, vice chairman of the Shanghai Municipal Commission of Economy and Information, which plans the city’s industrial development future, said Shanghai needs to accelerate its industrial restructuring “to take the lead in innovation and economic transformation.”

As for numbers, Wu sized Shanghai’s robotics industry at $3.25 billion by 2015, plus another $800 million in key components manufacturing.

“The size will reach $9.75 billion to $13 billion by 2020, when the city is built into a global center for technical development and high-end manufacturing of industrial and service robots,” he said.

tech park shanghai

Shanghai isn’t alone as a center for robotics, there are six others nationwide, including Beijing, Guangzhou, Liaoning (2017) and Chengdu, but nothing compares to the prominence being accorded to this former Paris of the Orient that Wu tabs not as a national center but rather as a global robotics giant. And his $13 billion 2020 sizing, if realized, will certainly be worthy of the crown of tops in global robotics.

The International Federation of Robotics (IFR) seems to agree as to China?s burgeoning growth: its stats put China as overtaking Japan as the world’s top consumer of industrial robotics by 2014. The IFR is forecasting China to become the world’s largest robotics market by 2015, accounting for 16.9 percent of the global total.

With the IFR projecting global robot sales to top the $29 billion mark by 2018, Shanghai’s lofty vision of eventually owning one-third to half of these global billions is aggressive to say the least.

However, that’s precisely what five-year plans are for: to provide the overwhelming push in money, influence and power to an opportunity at hand that might otherwise be squandered.

As added influence, a headline splashed across a recent (Nov. 13, 2013) front page of the Financial Times: “China pledge of big reforms cements era of market forces,” heralded news coming from the third plenum of the party’s 18th Central Committee that could well be the necessary oomph that Chinese robotics and its five-year plan need.

FT reported that the president [Xi Jinping] and premier [Li Keqiang] are preparing to unleash market forces as never before in the world’s second-largest economy. Unleashing most anything from an economy that’s growing at a rate nearly three times the global average would be a mega event.

A fraction of that national attention could make all the difference for Chinese robotics.

The trouble with Chinese robots

With the Wild West quickly galloping East for what’s shaping up to be the largest robot roundup in history, Wang Weiming’s dream of Chinese robots copping 30 percent of the action would appear to be a lock. Unfortunately for China, its robots just can’t compete technically or in durability with foreign machines.

robots arriving in china

They are cheaper by far, but the foreign competition is far out ahead with high-quality, technically superior and innovative robotics. KUKA, ABB, Fanuc, Staubli, Yaskawa-Shougang (joint venture) are already at the table and ready. ABB has settled one of its two global manufacturing bases in Shanghai, while KUKA has a new manufacturing facility under construction.

The Chinese realize their predicament and will now attempt to catch up to the competition, if they can. “Foreign companies have obvious advantages in the Chinese market,” Wang said.

A killer disadvantage for China, he admits, comes with the huge disparity between the reliability of domestically made robots at 8,000 hours as opposed to the 50,000 to 80,000 hours for foreign robots.

That ten times the reliability figure makes for a harsh reality in the marketplace, as Xu Fang, head of research for Siasun, China’s largest domestic robotics manufacturer, acknowledges as being only 8 percent.

Eventually, adds Wang, the situation will change for robotics, “just as we have seen in the home appliance and machinery sectors.”

The only time that the Chinese low-price robot has a chance is if the domestic manufacturer has an insider’s edge like Guangzhou-based GSK CNC Equipment. After seven years of development, GSK now boasts its own line of robots, but, according to Li Boji, the company’s head of robotics, GSK’s robots aren’t up to the quality of foreign competitors.

However, since some 80 percent of China’s machine tools industry uses digital control systems made by GSK, the company owns a distinct advantage to make robot sales almost anywhere in China. GSK sold 1,000 robots this year and is forecasting 10,000 by 2015.

Mostly however, China relies heavily on imports. According to the IFR, from 2006 to 2011, the number of industrial robots sold in China annually quadrupled. In 2011, they increased 62 percent year-on-year to 38,000 (23 percent of the global total of 166,028), with foreign manufacturers commanding better than 80 percent of those sales. That’s a whopping 30,000+ units sold by foreigners.

According to Sun Zhiqiang, a managing director of the Risong Group, a Guangzhou automation integrator, China has yet to reach international standards in critical robot technologies and techniques, lagging behind in bearings, reducers, casting and software development.

The patent situation looks equally grim. Zhao Jie, vice director at Harbin University’s State Key Lab of Robotics and Systems admits that Japan holds all the key patents for robot control, sensor and actuator technologies.

Maybe the most disheartening rejection of domestic robots — undoubtedly shared by countless other of his compatriots — comes from Risong’s Sun, who simply takes a purely business view that he’d pay more for a robot from ABB or KUKA than buy for much less from Chinese manufacturers.

Paying more, he says, “you acquire technologies 30 years ahead. It’s an easy choice to make.”

The trouble with the Chinese

Aside from the fact that they have to or else, which is the bottom-line reality of robotics automation in China, there are three principal reasons that jump to the fore as drivers of China’s new commitment to robotics.

1. Disappearing jobs

It is now cheaper to hire a robot to do a job than it is to hire the formerly low-cost Chinese worker. The Chinese average wage back in 2000 was roughly $.72 per hour.

PBS reports that from 2000 to 2010, average wages in China’s Yangtze Delta, a manufacturing hotbed, jumped from $.72 an hour to $8.62. Former World Bank chief economist Justin Lin predicts that the average monthly wage in China’s manufacturing sector may rise to nearly $1,000 by the end of this decade up from $350 in 2010.

The increase is caused, in part, says Lin, by yuan appreciation and government policies intended to boost personal income, like annual state-mandated raises of 20 percent.

In 2008, China had 100 million of its people in manufacturing; people, not automation, fueled China?s surging manufacturing engine. Now with the rapidly rising salaries of factory workers, China could lose tens of millions of those manufacturing jobs to South East Asia or Mexico.

In the balance hang the former employers of these millions, few of which have sufficiently automated their operations to replace the productivity.

Some analysts say that robots may prove to be the solution: “As Chinese employment costs rise, we can expect more use of robotics to maintain competitiveness,” the IFR reported in February of 2013.

Agreeing is Sun Chi, China economist with Daiwa Capital Markets, who says productivity will rise with the adoption of robots as companies employ fewer staff.

That will help China to retain some manufacturing businesses that might have otherwise flowed to cheaper countries. Meanwhile, employees who see their incomes rise will boost demand for services, bolstering sectors such as catering and retail, Sun says.

2. The race to automate

In the vacuum left from disappearing low-cost jobs, Chinese industry is faced with the challenge of modernizing and automating its production facilities, while maintaining productivity and increasing product quality. Robots are fast becoming the obvious alternative.

expo robot ride

A situation made pleasantly more obvious because, according to Ron Potter, director of robotic technologies at Factory Automation Systems, the average cost to operate an industrial robot is $0.30 per hour.

Consequently, businesses of all shapes and sizes are scrambling to replace human workers with industrial robots. The steel, automobile, machinery, shipbuilding, pharmaceutical, electronics and food industries will be the target sectors for robotics applications, Wu says, adding that large State-owned enterprises will take the lead.

Liu Yilian, marketing chief for Shanghai-Fanuc (joint venture), says the types of businesses using robots are also changing.

“Previously more than 60 percent of demand came from the auto industry in China with the rest from other sectors. Now the trend has just reversed,” Liu says.

More and more orders are now being placed by firms in industries such as food and beverage, machine tools, electronics, plastics, molding, transportation, engine manufacturing, metal processing, composite materials and die-casting, she says.

Qu Daokui, president of Saisun, said “China is now at the stage of industrial transformation. To achieve the goal, China has to gradually change from labor-intensive style to a more sustainable and innovative development. Robots play a crucial role in supporting the process. It helps Chinese enterprises to reduce cost and increase efficiency and competitiveness.”

Such a transformation represents a sea change for China, with Shanghai the centerpiece in that roiling sea. Besides incentives offered in investment, land prices, talent attraction, and research and development, Shanghai also will try to encourage factories to increase the use of high-tech robotics.

Much anticipated was the debut this past September of Shanghai?s free-trade zone (FTZ). The Bangkok Post (November 29, 2013) reported that 38 overseas companies had signed on to the FTZ, with more than one-third of the companies from Hong Kong, six from the U.S., six from Japan and four from Singapore.

More will sign on, reckons the Post, when and if China introduces promised key financial reforms, like free capital flows and interest rate liberalization.

Dai Haibo, deputy head of the FTZ’s management committee (as well as director of the Shanghai Commission of Economy and Information Technology), advises patience, “It’s a normal process.”

3. Rapidly changing numbers: the old and the middle class

Just like everywhere else in the developed world, China?s people are getting older.

A 2011 census conducted by the National Bureau of Statistics projected that the working-age population, here in 2013, is beginning to decline, and that the pace of that decline will accelerate after 2020. The combination of those declines in workers plus the rise in labor costs for those still working signals an even greater need for robots in the workplace.

Because of this aging population, forecasts say that China will have 40 million fewer workers in the 20-30 age bracket compared to ten years ago.

Wang Tianmiao, head of the expert panel under the State High-Tech Development Plan, says that the workplace is already changing. In China’s eastern regions, he said, “industrial robots are already cheaper than workers.” Going fast or already gone are the days of inexhaustible human labor. Robots will fill the gap.

Much later than most everywhere else in the developed world, China’s people are also getting richer.

chinese middle class couple

That new look for China is its middle class, 139 million strong, which is larger than the entire population of Japan.

And it’s getting stronger: China?s middle class is growing at the rate of 50 million per year according to Cody Willard of MarketWatch, which is nothing short of crazy sounding and astronomical, except maybe when you consider that the base from which it is sprouting is 1.5 billion.

The United Nations tabs middle class as a class of people no longer living for subsistence alone, which, obviously, consists of a wide swath of income levels.

Nevertheless, that middle class is a mega-size consumer force that is getting use to quality products at reasonable prices, and will demand more of the same in the future. Ergo, China will have not only a huge export business on its hands but also an equally huge home market for its domestic robots to service, unless it remains a bit player in the coming robot revolution.

The people of China’s middle class will be the irresistible force that compels the 12th and 13th Five-Year Plans to consistently meet the present and future needs of the rising middle class way of life.

To that point, I am writing this article at the Asia Hotel in downtown Bangkok; a hotel normally trafficked by Asian business people, many of whom are from China, but still, mostly business people from around Asia doing business in Bangkok and its environs. Well, that’s how it was three years ago when I last stayed here.

Not any longer!

The times have changed. The Asia Hotel is now filled to the brim with Chinese middle-class tourists: families with rambunctious kids, college students, middle-aged couples, groups of friends, singles seeking adventure, clutches of relatives exploring world-famous Thai hospitality, its food and awesome beaches.

These people are happy, proud and feeling their oats. They are now part of the flow, and they like it a whole lot!

In short, the Chinese middle class is out of a bottle that they will never ever return to again. Back home, China has a big job on its hands: it now needs to sustain and grow this middle class that it has created.

Necessary to get that job done will be robots. Maybe, Chinese robots will take part, maybe not.

One thing is clear: The Shanghai Express is on the move with or without China.