China Needs More Factory Robots. Can It Build Its Own?
Local production of industrial robots is rising, but Japanese and European makers still have a role
The abundance of cheap labor was once a reason why seemingly everything is made in China. But with rising wages and an aging population, industrial robots are increasingly common on the country’s factory floors. Now, China wants to produce those robots, too.
Being the world’s factory, it is natural that China is by far the largest market for industrial robots. The country installed more than half of all industrial robots globally in 2022, according to the International Federation of Robotics.
There are reasons why factory automation should continue to rise over the long run. China’s population is aging, and together with its ambitions to move up the manufacturing value chain, more automated factories seem to be the answer. On a per-employee basis, China’s industrial robot penetration still lags behind advanced manufacturing economies such as South Korea, Germany and Japan.
And outside of China, the drive for reshoring manufacturing in developed countries with higher wages could also drive demand for factory automation.
Nonetheless, the factory-automation market has been in a downturn over the past year or so. This is partly due to an over-investment hangover in China in sectors such as batteries and solar panels. Manufacturing capacity for these green-energy products has surged in China: they accounted for 15% to 25% of total demand for factory-automation equipment in the middle of last year, according to Bernstein.
Operating profit for seven Japanese companies related to factory automation dropped 10% in the second quarter from a year earlier, according to Morgan Stanley. But there have been signs of green shoots lately as many of these companies have also reported increasing orders growth. Fanuc, which makes industrial robots, saw orders increase 14% last quarter compared with the previous one.
A broader recovery in capital investment in China would benefit these companies given the size of the market. But increasingly, China is also becoming a source of competition. In the first half of this year, Chinese producers held more than half of the industrial robot market in the country, according to research firm MIR Databank. That compares with around 36% for the whole of 2022.
Japanese and European companies such as Fanuc and Switzerland’s ABB used to dominate the field, but Chinese companies such as Shenzhen Inovance Technology and Estun Automation are catching up. In particular, Chinese companies have rapidly gained share in collaborative robots, or cobots, which are designed to work alongside humans.
Importantly though, foreign companies still dominate some of the higher-end products. For example, Fanuc is still the market leader in computer numerical control systems, which basically work like the brains of machine tools.
Both the long-term demand trend and a budding short-term recovery should benefit companies with technology leadership like Fanuc. Its stock has suffered in the past few years: it is still down around 20% from its peak in 2021. China is a significant market, accounting for 23% of its sales last quarter, but it also has a strong presence in the Americas and Europe.
Ultimately, China is a big enough market for both local and foreign automation providers to thrive there. But only if the Chinese economy can get back on its feet.
Write to Jacky Wong at jacky.wong@wsj.comCopyright ©2024 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8