China’s Robot Revolution

In 2011, U.S. president Barack Obama announced a $500-million program to bring jobs back to the U.S. from China by fostering co-robots that could work alongside people to "enhance the productivity of these workers by three- or four-fold." Unfazed by this challenge, China's government started subsidizing robot manufacturing to beat the U.S. at its own game.

That strategy is working, according to the editor of The Robot Report, Frank Tobe, who cites International Federation of Robotics (IFR) data showing China now buys one-third of the world's robots to streamline its own manufacturing, and has helped over 500 companies and startups transition into the manufacturing of robots and robot components, and developing artificial intelligence (AI).

Calling for 'a robot revolution', Chinese president Xi Jinping initiated the 'Made in China 2025' program to gather more than 1,000 robot makers into a new association, the Chinese Robotics Industry Alliance (CRIA), which aims to help China use robotics and automation to become a high-tech manufacturing country like the U.S., according to Tobe. He explains a five-year robot plan China launched in April 2016 "focuses on automating key sectors of the economy, including car manufacturing, electronics, home appliances, logistics, and food production. At the same time, the government wants to increase the share of in-country-produced robots to more than 50% by 2020; up from 31% last year."

The most profitable robot sectors are not consumer-level vacuum cleaners or lawn mowers, but heavy industrial equipment that pays little heed to the people around it, unlike the co-robots proposed by Obama to safely work alongside U.S. workers.

Analysts Michael W. Parker and Alberto Moel at global investment manager Alliance Bernstein say China is investing more than $3 billion a year in robots to keep from losing its manufacturing base to lower-cost developing nations. Yet even in China, workers are being replaced by robots for their increased productivity, according to Investors Business Daily (Foxconn, which assembles the iPhone there, replaced 60,000 workers with robots at one facility last year, and aims to continue the trend in all its manufacturing sites).

IFR measures jobs in another way—the reduced production costs when using robots, for example in the U.S. automotive industry, resulted in better market prices more competitive with foreign cars, thus increasing demand, which triggered more jobs overall (2.3%) in expanded U.S. automotive manufacturing facilities.

The organization also claims industrial robotics manufacturing is dominated by European and Japanese makers, despite China's seemingly vast homegrown industry. IFR acknowledges that the strongest growth drivers for the industrial robotics segment are in China, but predicts that by 2019 some 40% of the worldwide market volume of industrial robots will be still be sold in the EU, followed by China, Japan, and the U.S.

China only appears to be destined to "take over" the industrial robot industry, according to Dan Kara, Research Director, Robotics and Automation at ABI Research, Oyster Bay, NY. In reality, Kara says, China is still a developing nation whose breakneck speed of development makes its analysis complex and fraught with conflicting indicators.

"Manufacturing worldwide is an approximately $10-trillion market, with China the largest manufacturing nation, surpassing the United States in 2010," said Kara. "Manufacturing accounts for 30% of China's GDP [gross domestic product], compared to 12% in the U.S. The amazing thing is that in 1990, China's manufacturing market accounted for just 3% of its GDP. To support that unparalleled growth, China tapped its enormous base of inexpensive labor, but today it is actually running short of cheap laborers, as a sizable middle class has arisen and labor costs have risen accordingly. That's why China purchased 30% of the world's industrial robots in 2016—to increase manufacturing productivity while addressing rising labor costs."

Kara points out that China is in a situation similar to that of Japan when it started producing transistor radios in the mid-20^th century; its goods were cheap and widely consumed in America, but were of such low quality they were considered almost disposable. Likewise, China wants to shirk the stigma of manufacturing only low-quality, inexpensive products; thus, its purchasing of high-precision robots from the EU, Japan and the U.S.

"China has reached the Lewis Turning Point, named after the noted Nobel Prize-winning economist Arthur Lewis, where the unlimited supply of cheap labor in less-developed countries dries up as industrialization takes hold. To offset rising labor costs, successful countries typically respond by turning to automation technologies such as robotics and the manufacturing of higher value goods using educated, skilled labor," said Kara.

Chinese officials are aware of the trend, Kara said; hence the Chinese government's Made in China 2025 program, in which the country is spending roughly $1.3 billion on developing its own home-grown automation industries, "It is also the reason why Chinese appliance manufacturer Midea acquired Kuka, a German manufacturer of industrial robots. Domestically produced industrial robots are still not comparable to the best European and Japanese systems. The challenge for Midea, and other Chinese companies acquiring automation companies, is whether they can reduce the price of their manufacturing equipment enough to meet the demands of domestic manufacturers."

In the face of acquisitions and an increasing emphasis on domestically produced industrial robots, the top worldwide industrial robot manufacturers are hedging their bets. For example, ABB Ltd. (Switzerland), one of the top five robot makers worldwide—along with Fanuc Corp. (Japan), Yaskawa Electric Corp. (Japan), Kawasaki Heavy Industries Ltd. (Japan), and Kuka AG (Germany/China), according to Markets and Markets—have production facilities in both China and the U.S. While China has a reputation for building cheap knock-offs of anything manufactured there, the U.S. does not. Also, China's top robotics companies, according to Tobe—Midea Group (Foshan), HollySys (Beijing), E-Deodar Robot Equipment (Ningbo), Siasun Robot & Automation (Shenyang), and Estun Automation (Nanjing)—have virtually no off-shore sales or operations yet (except Midea, through its purchase of Kuka).

Kara explained that the U.S., EU, and Japan have other advantages over China with respect to industrial robotics and advanced manufacturing. "For example, the cost of power in the U.S. is low and continues to drop, and automation lessens China's labor cost advantages. In Europe and the U.S., there are also efforts underway to have manufacturing operations that have been outsourced to Asia (primarily China) return to the country of origin. The practice, known as reshoring, has been driven by a variety of factors including rising offshore labor rates and the hidden costs of offshore manufacturing such as longer delivery cycles, weak quality control, time zone differences, intellectual property theft, increasing shipping costs, and more."

Kara observed that investment into robotics research and technologies is also very strong. "If you add up the investments made by VCs (venture capitalists),  American Made 2.0, the National Robotics Initiative 2.0, the Defense Advanced Research Projects Agency (DARPA), and state-by-state robot funding in the tens of millions per state, the total easily exceeds China's $1.3 billion," said Kara.

According to Tobe, China is determined to produce 150,000 industrial robots by 2020, 260,000 by 2025, and 400,000 by 2030, generating $88 billion over the next decade. China's "stated goal," according to Tobe, is to overtake the U.S., Germany, and Japan in robotic manufacturing sophistication by 2049, the 100th anniversary of the Communist takeover there.

R. Colin Johnson is a Kyoto Prize Fellow who ​​has worked as a technology journalist ​for two decades.