For industrial robot makers in China missed targets are the new normal, but they’re still raising the bar for 2016

Companies are holding out hope that government stimulus measures will kick in and the economy pick up to persuade cautious buyers to stop delaying their investment plans

PUBLISHED : Monday, 21 December, 2015, 8:00am
UPDATED : Monday, 21 December, 2015, 8:00am

Manufacturers of industrial robots in China are feeling the pinch from the economic slowdown but many are still raising their targets for 2016 despite expectations of another challenging year ahead.

Missed sales targets have become the norm this year. For many firms, these now seem overly ambitious even though they were at least partly motivated by the central government’s three-year stimulus campaign to boost the sector.

GSK CNC Equipment, one of the top players in this sector based in the provincial capital of Guangzhou, sold 550 industrial robots in 2014 priced from 100,000 yuan (US$15,425) to 1 million yuan.

It targeted sales of 1,100 units this year and 2,000 in 2016, two targets that now look somewhere between remote and impossible, according to sales manager Hu Haifeng.

“We’ve only sold around 800 units this year,” he said.

READ MORE: ‘The manufacturing boom in Guangdong is over’: Industrial robot makers the latest to get swallowed up by China’s economic slowdown

Industry insiders say missed targets are now commonplace.

Guangdong Jaten Robot & Automation, another leading player based in the province, predicted earlier that its annual output would reach 160 million yuan in 2015, marking a dramatic jump from 70 million yuan in 2014, but now 90 million yuan sounds more realistic, said saleswoman Huang Qiwen.

A wave of optimism at the start of the year began to peter out as one potential client after another got cold feet and failed to place orders as they postponed their investment plans, said Huang.

Despite the inclement business environment, both companies are keeping the bar high for 2016 with the goal of doubling their numbers from this year, they said.

“We have to try and reach that goal at any cost,” said Huang, sounding a note of desperation.

Such aggressive mindsets are framed against a strong government push for increased automation in the workplace to offset rapidly rising wages and labour shortages while chasing innovation.

This has become one of the buzzwords of the year in China’s business circles, especially among technology companies, since Premier Li Keqiang placed it - along with his internet plus policy - at the centrepiece of his economic policies.

In March, the provincial government of Guangdong announced that it would invest 943 billion yuan to replace manual workers with robots within three years.

READ MORE: China aims for ‘new industrial revolution’, but is it ready for one? Analysts say no

According to the 2015-2017 action plan published by the local authority, Guangdong will push for the use of robots in 1,950 companies, starting with industries like automobiles, home appliances, textiles, electronics and the manufacturing of construction materials.

The local authorities say they understand the challenges the industry is facing but that the show must still go on, suggesting there are no plans to put the brakes on their plans.

“We know many enterprises have failed to meet their sales targets because of the economic slowdown, as a lot of manufacturing factories have postponed or scaled back their plans to replace workers with robots,” said Zhang Qingyun, deputy director of the bureau in charge of economy and information technology in the city of Foshan, a manufacturing hub in Guangdong.

“But this won’t stop us from fulfilling our three-year strategy.”

In June, Foshan set a goal of making at least 345 of the city’s industrial enterprises fully or partially automated by 2017. Each one has annual revenue in excess of 20 million yuan. So far, about 64 have begin replacing humans with robots, according to reports.

“In the coming few years, the government will shore up their confidence by introducing more capital and policies to support the robot-for-worker project.” Zhang said.

On the other hand, owners of manufacturing factories, especially small- and medium -sized ones, are becoming more cautious and lowering their robotics budgets, industry pundits say.

In the last few months, a locksmith company based in the prefecture-level city of Baise in Guangxi province has made several trips to Guangdong to attend robotics exhibitions and conferences. But the company, which asked that its name not be used, is reluctant to commit to change.

“I’m thinking of replacing 20 workers with robots,” said Su Jiajin, a representative of the company, which has a total workforce of about 100 workers.

“A worker costs us about 30,000 yuan a year in salary and benefits, so if a robot can replace two people, it needs to cost 60,000 yuan or less,” he added.

“I can’t afford those priced above 100,000 yuan per unit. Our business has been subpar this year, so we’re treading very carefully in terms of investing in new equipment.”

Wang Shang, who runs a company in Guangdong that supplies leather goods, said the entire industry knows that greater automation is inevitable.

“We all know we should use robotics because of the soaring labour costs. But we won’t be overly aggressive in investing, no matter how great the government propaganda becomes. We also know the future can be quite uncertain,” Wang said.

“Many bosses at my level don’t want those high-end, expensive robots. We need ones that are easy to use and maintain,” he added.

As such, industrial robots in the 60,000 yuan to 100,000 yuan price range have become the most popular on the mainland. This has sparked something of a price war.

“The price of many of Jaten’s automated guided vehicles (AGVs) ranges from 100,000 yuan to 200,000 yuan,” Huang said.

“But many of our competitors, especially smaller ones, are selling their versions for upwards of 30,000 yuan,” he added.

“They just operate at the lower scale of the quality spectrum and depend on imported components. Their quality is not as good as ours, but their prices are more attractive.”

This spells bad news for future improvement as those companies that are splashing out on research and development will now be less inclined to do so, pundits say.

Huang said his company invests 4 per cent of revenue in R&D each year. Hu gave the figure 8 per cent.

“Being able to produce cost- effective hardware is one of the key advantages of China’s robot manufacturers,” said Hu.

“A high-end polishing robot made in Japan, for example, costs around a million yuan. We can cut that price tag in half,” he added.

“But we still have to import the core components. When it comes to materials, almost all of the high-quality steel you see in high-end devices is made in Japan.”

The problem is that, even at 500,000 yuan, a polishing robot would not be affordable for most Chinese factories, especially given their current financial straits.

“We’re constantly seeking technological breakthroughs to lower the cost even more,” said Hu.

“Mainland China is still the world’s biggest market in this field. In the Pearl River Delta region alone, there are over 180,000 labourers hired just to do polishing.”

And in China, perhaps concentrated in Guangdong, there are plenty of companies hoping to sell 90,000 robots to replace them.