Why robot sales in China will survive slowdown in car production

Since 2013, China has been the world’s leading robot market. China now accounts for almost a quarter of all the industrial robots installed globally – more than in any other country. In 2017, robot sales to China increased by 59% over the previous year, accounting for 36% of global sales of industrial robots.

The International Federation of Robotics (IFR) predicts that China will be the main market driving a 14% global annual average increase in sales of industrial robots to 2021. In 2021, China will account for almost half of all new sales of industrial robots and over one third of all installed industrial robots globally. Over 1.3 million robots will be in operation in China at this point.

Concerns over a slowdown in automotive production and sales in China – and more recently, a dip in overall manufacturing demand – have raised the question of whether China’s robot market will achieve this forecast. The Chinese Robot Industry Alliance believes that it will. Here are four reasons why:

1. The development of the Chinese robot market does not primarily depend on the automotive industry

Industrial robot growth has historically been driven heavily by sales to the automotive industry. But that is longer the case. First, the automotive market is relatively saturated. There are over 500 robots per 10,000 employees in China’s automotive manufacturing sector. This compares with less than 50 robots per 10,000 employees in other manufacturing sectors. Since 2016, the electrical and electronics sector has bought more industrial robots than the automotive industry, and this sector continues to boom, with double-digit growth in high-end electronics in 2018.

The strength of China’s manufacturing industry is its high degree of diversification. The automotive industry accounts for only 7.5% of China’s manufacturing sales. In fact, over 100 different manufacturing industries in China use robots and most of them have only just begun to automate, for example leather and fur manufacturing, wood processing, machinery and equipment repair, pipeline transportation and furniture manufacturing. There are also promising new markets that the Chinese government has prioritised for development, such as medical devices.

2. Rising wages and labour shortages are making robots economically viable, even for small businesses

Around 84% of China’s manufacturing companies are small businesses. These companies had little incentive to automate while labour costs were low. But that has changed. The average manufacturing wage increased by over 57% between 2010 and 2017 in China – versus an increase of around 15% in US over that time. Meanwhile, China’s working age population is shrinking – by 46 million between 2011 and 2018 according to China’s National Bureau of Statistics. Competition for qualified workers is fierce in a wide range of sectors. The Zhaopin CIER index, which tracks the number of applications for job openings, showed that there were over 20 times more open positions for machine operators than applicants in 2018. Companies in prime manufacturing centres where wages are high can generally recoup the capital cost of investments in robots within less than two years. An increase in robot adoption is not associated in China with fears of robots taking jobs. To date, manufacturing employment has increased alongside automation. Manufacturing employment increased by an average of 15% annually between 2012 and 2016, The number of robots per 10,000 workers tripled over that period. CRIA recently carried out research which showed that only 2.2% of robots installed in China replaced workers who left their jobs, while the growth in robot companies and the demand for workers to operate and maintain robots has increased employment.

3. ‘Made in China 2025’ will drive robot market growth

The Chinese government’s ‘Made in China 2025’ policy aims at improving the competitiveness of Chinese companies though automation. As part of the strategy to achieve this, the government’s Robotic Industry Development Plan gives a target robot density (the number of robots per 10,000 workers) of 150 by 2020. Meeting that target would mean the adoption of more than 250,000 robots. CRIA forecasts new sales of 625,000 by the end of 2020, meaning this target will be easily met.

4. Strong focus on domestic market

In addition to improving the competitiveness and productivity of traditional manufacturing sectors, the Chinese government also wants to move up the manufacturing value chain away from commoditised components towards semi- or fully-finished products, including those in promising new sectors such as electric vehicles and medical devices, for which there is strong domestic as well as foreign demand. In many of these sectors, robots are critical to ensure quality and increased productivity. The government also includes industrial robots in the list of sectors in which it would like to see increased domestic production. Robot manufacturers want 70% of the robots supplied in China to come from Chinese robot manufacturers by 2025. This is a steep target given that in 2017, only one quarter of industrial robots sold in China were made by Chinese robot manufacturers. However, Chinese robot manufacturers have the advantage of being close to the market and understanding the needs of sectors that are only just starting to automate, such as sanitary ware and furniture manufacturing. In order to ensure a place high up the value-chain, Chinese robot manufacturers will need to offer expertise in the range of technologies driving robot development and not just produce base robotic hardware. Many are forging close links with universities and research organisations in order to secure expertise in areas such as robot software, vision technologies, sensors and artificial intelligence.

Impact of a trade war

Opinion is divided on the impact of trade tensions between the US and China on the robotics sector. Direct trade in robots is unlikely to be significantly affected, since Chinese robot manufacturers are primarily focused on the domestic market. The Chinese government has not announced any levies against imports of robots from abroad. In any case, most large International robot manufacturers supplying the Chinese market produce in China.

A broader question is whether Chinese manufacturing sectors that are reliant on exports to the US will reduce capital investments – including in robots – while they wait to see how discussions between China and the US progress. China’s electronics sector, for example, exported about 48% of production to the US in 2017. The evidence from both the Caixan purchasing managers’ index, which tracks activity among private light-industry manufacturers in China, and, the Chinese National Bureau of Statistics’ PMI, which tracks heavy industry, points to cautious optimism from the sector. Both indices went over the important 50 threshhold (which marks the cut-off between growth and recession in manufacturing) in March for the first time in months.

Given the breadth of China’s manufacturing sectors, and the strong focus of improving the productivity of the domestic economy, CRIA believes that trade discussions will have limited, and short-term, impact on the rapid growth of China’s robot market. A more pressing concern is the impact a more general global economic slowdown will have on China’s manufacturing sector. This is hard to predict, in part because it depends on the government’s response. But the combination of the government’s focus on automation with the ongoing increase in manufacturing wages and labour shortages imply that even with some economic contraction, the prospects for China’s robot market remain positive.

Picture: © CRIA