Why China is focused on a robotic future

11 May 2022

The Chinese government has identified industrial robots as crucial to the country’s economic strategy, using its 14th Five-Year Plan to announce that China will be a key source of global robotics innovation by 2025. 

Research analyst Daisy Zhang, part of Macquarie’s Asia Equity Research team, says that while some of the impetus for this announcement comes from a desire to break the current reliance on expensive imported robots by building domestic capability, there are deeper economic factors at play. 

China is breaking the current reliance on expensive imported robots by building domestic capability

Robots are vital to China’s high- tech manufacturing sector, which will grow in importance over the coming years. But they could also be an effective tool for addressing many of the structural issues the economy is likely to face, specifically when it comes to an ageing population."

Daisy Zhang
Asia Equity Research team, Macquarie Capital

China’s robotics sector today

For almost a decade now, China has been the world’s largest market for robotics.  In 2020 alone, it installed 140,500 robots, accounting for as much as 44 per cent of all installations globally.2  More importantly, the sector is expected to grow at a capitalised annual growth rate (CAGR) of 20 per cent in the five years to 2025. As a result, in 2020, robotics manufacturing density reached 246 units per 10,000 people, or almost twice the global average3.  

Market size of industrial robots in China - 2017-2025E

Source: MIR, Macquarie Research, April 2022

Proportionally, these robots are being used to perform handling operations (42 per cent), electronics (37 per cent), welding (21 per cent) and automotive tasks (16 per cent). And, to date, the majority of the robots carrying out these operations have been imported ones. In 2019, China sourced around 71 per cent of new robots from foreign suppliers - most notably Japan, the Republic of Korea, Europe and the United States.4  

China's source of robots

Source: MIR, Macquarie Research, April 2022

China’s Ministry of Industry and Information Technology says that it will become the most robot-intensive country in the world by 2025. To achieve this, it will establish three to five robotics industry zones and double the intensity of robot manufacturing. In doing so, it will develop robots to work on tasks across 52 nominated industries, ranging from traditional fields such as automotive construction through to new areas such as health and medicine.5  

Why a domestic robotics industry matters so much

Zhang says that as well as fill a hole in the labour force, robots will also play a central role in powering China’s expansion of emerging industries and, potentially, new industries of their own. 

China’s focus on developing a homegrown robotics sector is part of an overall push to become the world’s tech leader, with digital innovation receiving priority under the most recent Five-Year Plan. It is also consistent with the government’s stated policy of ‘dual circulation’, which will see China attempt to reduce reliance on overseas markets while fostering domestic consumption.6

But there is even more to its robotics focus than that, according to Zhang.

"China’s population is growing older, which means there will be fewer workers available to perform those tasks that need to be done to keep the economy going. Robots will be needed as labour supplementation, stepping in to fill that gap while improving efficiencies in the labour market."

In many ways, the scale of this challenge will be unprecedented, given how rapidly China is ageing. The effects of longer life expectancy, increased wealth and the one- child policy mean that between 1970 and 2020 the country’s median age doubled from 19.2 to 38.4. While this is still well below some developed countries such as Japan (48.6), Germany (46.5) and Italy (46.5), it is already higher than both the United States (38.1) and Australia (37.0)7.  

The rate of China’s ageing is so rapid that projections indicate that by 2050, China’s median age will be 48, placing close to 40 per cent of the country’s population - or some 330 million people - over the retirement age of 65.8,9  To put that into perspective, even Japan, currently home to the world’s oldest population, has well under 30 per cent of its people over this age.

Performing the four Ds and more 

Zhang says that as well as fill a hole in the labour force, robots will also play a central role in powering China’s expansion of emerging industries and, potentially, new industries of their own. 

"China is placing a lot of emphasis on smart manufacturing, and this is another key focus of the current Five-Year Plan. Many emerging technologies, such as new energy and lithium batteries, will require robotics." she says.

In 2021, the demand for industrial robots from lithium battery, warehouse logistics, and photovoltaic industries recorded 131 per cent, 103 per cent, and 51 per cent year-on-year growth respectively. The demand from these emerging industries is expected to remain stronger than in traditional industries, such as automotive and 3C (computer, communication, and consumer electronics). 

"There are also a whole range of jobs which we call the four D’s - dirty, dangerous, dull and dedicated tasks - which still need to be done and are much better performed by robots than humans. We expect to see growing demand from these sectors too," Zhang says.

Zhang argues that Chinese-manufactured robots could also start to supplant imported robots in areas in which they’re already used, especially as they are likely to come at a significantly cheaper price than overseas-built ones.  

"We put the price advantage of China’s robots at 20 to 30 per cent,” she explains. “When combined with fast product delivery and quick after-sales response, we expect the market share of domestic robot producers to rise significantly"

Obstacles in the path 

Despite the positive outlook for China’s robotics industry, there are some challenges. The government itself notes in the 14th Five Year Plan that it must ‘overcome supply and demand imbalances and supply chain stability’. It also cites ‘a lack of technology accumulation, a weak industrial foundation and insufficient high-end supplies,’ as obstacles in its path.10 

On top of this, the domestic robotics industry as it currently stands is fragmented. The largest domestic producer, Etsun, enjoys just a 4.2 per cent market share. In this environment, picking winners can be difficult, although Zhang says that there are some companies that already enjoy a competitive advantage.

“Etsun is an established player and currently the seventh-largest supplier of robots in China. It is also one of the few domestic industrial robot suppliers with an integrated supply chain. The company is targeting a production volume of 50,000 units by 2025, up from 11,000 units in 2021.” 

“Leader Harmonious Drive System is also another key player, which is China’s largest domestic harmonic speed reducer manufacturer, a critical component in industrial robots, it has a 20 per cent market share in China. 

“Due to high technical requirement and the R&D investment required, most robot manufacturers procure speed reducers from external vendors, instead of seeking production in-house.  

“While the speed reducer sector has been dominated by Japanese suppliers in the global and domestic market, we now see an enormous potential with continuous investment and R&D in this space.” 

An unstoppable force 

Despite these obstacles, Zhang observes that the robotisation of China is an "inevitable trend driven by substitution and strong demand from emerging industries,” and one that will come to define China’s economy over the next decades. 

“The continuous increase in the industrial robot industry chain has lowered the capital threshold for enterprises to carry out automation transportation. We will see more and more businesses installing robots. Increasingly, these will be Chinese made.” 

“With this momentum, we have really entered a new era of technology transformation as robots are used to meet customers’ needs for a higher quality and comprehensive service.”