Chapter 5: Case Studies
5.2 Industrial Robotics and Automation
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deploys available industrial policy levers and control over the vast PRC market (subsidies, procurement, technology transfers, state backed M&A etc.) in making globalization work for the benefit of its overarching focus on national strengthening and development embodied by the possession of a leading indigenous IC industry.
Going forward, several issues will likely challenge future development of domestic IC capacity:
overcapacity exacerbated by extensive state and local subsidization of domestic IC producers; structural impediments toward innovation resulting from both a top-down centralized approach and the fragmented nature of China’s innovation system; cybersecurity and excessive protectionism, particularly in response to mounting regime insecurity in the face of external and non-traditional security threats; and, finally, tension with key trading partners leading to restrictions on access to global markets and technology.215
However, given the extensive reliance on foreign branded chip to power China’s overall electronics export sector - coupled with the need to promote domestic upgrading through outbound M&A - it’s unlikely China will suddenly drive out external IC providers, instead leveraging control over the domestic market and extensive state fiscal resources to gradually build up indigenous alternatives.
5.2 Industrial Robotics and Automation
The connection between China’s development of a robotics industry and overall industrial modernization comes across clearly in a 2014 speech given by Xi Jinping on innovation-driven development:
Robots are dubbed “the pearls in the crown of the manufacturing industry.” A country’s achievement in robotics research, development, manufacturing and application is an important yardstick with which to measure its level of scientific and technological innovation and high-end manufacturing.
Major robot-producing companies and countries have stepped up their efforts to gain advantages in
215 Ernst, 2015
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terms of technology and markets.
I couldn’t help but wondering: China will be the largest robot market in the world, yet can its technology and manufacturing capability sustain it through the competition? We should make better robots and seize bigger market shares.216
To that end, the development of industrial robots can be seen as imperative to China’s broader goal of becoming the world leader in industrial manufacturing. As the Mercator Institute puts it in a recent report on Made in China 2025, “political support and public focus on robotics are stronger than for any other
manufacturing technology.”217
State of the Market:
According to the International Federation of Robotics (IFR), China currently possess the largest operational stock of industrial robots in the world. The overall market size for industrial robotic in China today is estimated at 30 billion USD with roughly 90,000 industrial robots installed between 2010 and 2015.
Growth in the Chinese market has been substantial: annual sales increased by 27 percent in 2016. The IFR estimates future growth of between 15 – 20 percent annually between 2017 and 2020. According to IFR President Joe Gemma, “there has never been such a dynamic rise in such a short period of time in any other market.”218
Domestic producers represent a growing minority of the overall market within the country. Chinese
producers saw growth of approximately 120 percent through the sale of robots to the electronics industry in 2016. However, in spite of this significant growth, the majority of industrial robots are imported from
216 Xi, Governance of China
217 MERICS, Made in China 2025.
218 “Robots: China Breaks Historic Records in Automation.” IFR. 2017. < https://ifr.org/ifr-press-releases/news/robots-china-breaks-historic-records-in-automation>
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abroad. Increasingly, Chinese firms are turning overseas to bolster technical competence and develop greater international brand awareness. In 2017, Chinese home appliance maker Midea successfully won approval for a deal to buy out German robotics maker Kuka. The deal was widely interpreted both within China and internationally as signaling the emergence of China as a major player in the international robotics market.219
Policy Goals and Tools:
A number of structural factors are seen as reinforcing China’s emphasis on automation: the aging population and shrinking workforce, rising labor costs, and heightened foreign competition from low-skilled
manufacturing in developing economies. China is attempting a fundamental restructuring of its economic model geared toward services and higher productivity. Robotic prowess forms an integral component of this transition.
Several key policy documents outline the importance of developing an indigenous robotics industry. For example, the Robotics Industry Development Plan (2016-2020) aspires for the production of roughly 100,000 domestically branded industrial robots by the year 2020. The “Made in China 2025 Technology Roadmap” similarly sets out a hard target for indigenous production: calling for 80% of the domestic market to be captured by domestic producers by the year 2025 and 50% by 2020.220 Accordingly, China seeks to enter the top ten nations for automation per capita by 2020.
At the national level, an Advanced Manufacturing Fund has been set up with roughly 20 billion CNY to be put partially in service of robotics development. The fund is overseen by the State Development and Investment Corporation with financial support from both the national government and the Industrial and Commercial Bank of China.
219 Edward Tse. “Midea’s Move for German Robot Maker Kuka may be a turning point for Chinese Manufacturing.” SCMP. <
http://www.scmp.com/comment/insight-opinion/article/2006054/mideas-move-german-robot-maker-kuka-may-be-turning-point>
220MERICS, Made in China 2025
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Perhaps most notable has been the extent in which national level targeting filters down to local and provincial level initiatives. As one example, Guangdong Province, a hub of Chinese high-tech
manufacturing, is offering over 100 billion USD in subsidies to thousands of local companies including those involved in the production of industrial robots.221 According to the MERICS report, “local governments have opened or are planning to open nearly 40 parks for the development of the robotics industry” wherein “MERICS identified concrete robotics subsidy pledges in 21 cities and 5 provinces for promoting industrial robotics at a total value of nearly 40 billion CNY.”222 Local government targets for robotics production vastly exceed the projected size of the domestic market. According to a recent CNBC report, UBTECH, a Shenzhen-based robotics company signed an agreement in April with Kunming City guaranteeing the company fiscal support for the further development of robotics and AI.223
Going Forward: Opportunities and Challenges
Estimates regarding the future growth of the overall Chinese market, as well as the position of Chinese domestic producers, are quite bullish. Chinese firms are perceived as rapidly catching-up with foreign competitors in the lower end of the market like loading robots. It’s widely believed Chinese domestics will, over time, develop significant competency in the production of six-axis robots, core components, and welding.
However, a number of challenges confront Chinese producers going forward. The principal industry concern is extensive state promotion leading to substantial production overcapacity. The disparity between the
projected size of the domestic robotics market and local level production targets runs the risk of creating a massive supply glut with potentially dire ramifications for domestic firms operating in the market.224 Secondly, as Zi Yang of the Jamestown Foundation pointed out to CNBC, an array of structural constraints
221 Andrew Zaleski. “China’s Blueprint to Crush the US Robotics Industry.” CNBC. September, 2017. <
https://www.cnbc.com/2017/09/06/chinas-blueprint-to-crush-the-us-robotics-industry.html>
222 MERICS, Made in China 2025
223 Andrew Zaleski, CNBC
224 MERICS, Made in China 2025
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to domestic innovation will continually hamper progress in robotics. In this regard, subsidization, weak IPR rights, government interference may lead to a focus on “quantity over quality.”225 Given the existing technology gap between domestic and international producers, particularly in areas like robotic
programming and higher end “smart” robots, it’s unlikely China will wall off its domestic market from MNCs. Similar to the IC sector, China will continually rely on overseas M&A and foreign partnerships as a means of overcoming structural constraints on domestic innovation in the robotics sector.
5.3 Artificial Intelligence (AI)
The potential ramifications for national AI development are significant and multi-faceted; AI is widely seen as one of the most transformative areas for technical progress of the 21st century. According to a report prepared for the Harvard Belfer Center, AI development holds the potential for fundamentally reshaping three critical areas: military superiority, informational superiority, and economic superiority.226 Put another way, AI holds the potential for fundamentally altering the existing international balance of military and economic power, as well as transforming how humans being communicate and access data.
Public interest in AI has spiked in recent years on account of “four key drivers” of rapid progress: significant improvements in computing performance; larger overall data sets conducive to machine learning; advances in overall machine learning techniques through the development of more sophisticated algorithms; and a substantial rise in private investment, particularly among leading technology companies.227 So far, most progress is occurring in the field of “narrow AI” with meaningful progress in “General AI” (AI more closely resembling a human brain) seen as still over a decade away. A report on the future of AI prepared for the White House in 2016 categorizes “Narrow AI” as AI “which addresses specific application areas such as
225 Zaleski, CNBC
226 Greg Allen and Taniel Chan. “Artificial Intelligence and National Security.” Harvard Belfer Center. July, 2017.
227 “Preparing for the Future of Artificial Intelligence.” Executive Office of the President National Science and Technology Council.
<https://obamawhitehouse.archives.gov/sites/default/files/whitehouse_files/microsites/ostp/NSTC/preparing_for_the_future_of_ai.
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