Industrial robots on display in a Shanghai expo in China

A few years ago, Chinese robotics market was dominated by foreign industry leaders. Today, China is the largest robotics market and about to become the leader in robotics production.

The emerging robotics industry is booming in China. The move to advanced technology is aligned with the government plan – ‘Made in China 2025 – to upgrade China’s manufacturing base. In turn, the development plan for the robotics, issued in April, seeks to accelerate Chinese robotics with breakthrough products in 2016-20.

Nevertheless, critics argue that the emergence of the robotics is sustained mainly by subsidies doled out by local governments.

What is the role of Chinese robotics in the global industry and will it survive on its own?

Dramatic expansion of Chinese robotics

China’s robotics boom is often explained by rising costs and aging demographics. Yet, the latter are only part of the big picture. In the mainland, the robotics boom has been fueled by several forces, including demographics (growing engineering talent, declining factory-age work force, aging work force), increasing costs (rising wages, costs of training and housing), and favorable financing (low-cost loans, factory incentives, investment by foreign tech giants that manufacture in China, including Foxconn and Apple)

Furthermore, the boom has been driven by government policies (central government encouragement, local government mandates, tax credits), rising quality requirements (ramping of auto makers for export), and the emergence of early adopters in China (expansive middle class with disposable income, more capital–intensive companies).

Not so long ago, the robotics markets were in Japan, the US, Germany, South Korea and China, with a combined share of 70 percent. By 2014, robotics sales soared in China, which became largest market of industrial robots with a share of 25% of the global total. Yet, sales remained dominated by foreign giants, such as the Swedish-Swiss ABB, the Japanese FANUC and Yasukawa Electric, and the German KUKA.

Last year, Japan still dominated the manufacturing of global industrial robots, with some 60% of the global total. But by the end of the current year, China hopes to overtake Japan, while Chinese robotics pioneers, including Shenyang Siasun, Ningbo Techmation’s subsidiary E-Deodar, have been scaling up fast. China is about to triple the annual production of robots in manufacturing to 100,000 in five years, and sell over $4.6 billion worth of service robots by 2020, thanks to surging demand in healthcare, education and entertainment.

In addition to industrial robotics, service robotics hold great potential as well, including almost 50 mainly new Chinese companies, such as Shenzhen DJI Innovations which projected sales of $1 billion of its devices in 2015.

Toward advanced manufacturing

In spring, China’s growing robot industry turned to acquisitions, which heralds efforts at consolidation, as evidenced by the acquisition of the Michigan-based Paslin by Wanfeng Technology, Siasun’s planned acquisitions, and Chinese venture funds’ investments in robotic ventures in Russia, Israel and Silicon Valley.

Due to its huge population, China still has a long way to go. The density of robots in the mainland is still relatively low – about 36 per 10,000 manufacturing workers – relative to current robotics leaders, including Germany (292), Japan (314) and South Korea (478). Chinese robotics has potential to grow 5-10 times in the medium-term.

Critics say that subsidies can contribute to the rise of inefficient robotics companies. The argument is not invalid but misses the point. If China did not try to scale up its industrial capacity in promising emerging industries, it would remain just a buyer and dominated by foreign companies, while profits would continue to flow out from the country. That was the case in mobile networks and smartphones until the rise of Chinese industry pioneers, from Lenovo and Huawei to Xiaomi.

That, however, requires innovation, which has accelerated fast since the early 2000s. Today, R&D as share of the economy exceeds 2% and is higher than in Europe. In cutting-edge megacities, such as Shenzhen, the ratio is closer to 4% - almost as high as that of South Korea or Israel, the world’s R&D leaders.