US trade war weakens China’s position as global leader in automation and robot manufacture

Production among China’s robotics manufacturers is slowing as the trade war with the United States hits many of the industry’s biggest customers.

There is great uncertainty for the sector’s outlook. The US and China agreed a truce at the weekend that avoided a scheduled increase in tariffs, but tariffs on $250 billion of Chinese imports to the US remained.

“China’s robotics industry is showing weakness from the impact of the trade war on the electronics industry, which is one of the most important customers of robot makers, accounting for one third of the sales,” said Nikkie Lu, an analyst at Bloomberg Intelligence. “China accounts for 70 per cent of the world’s electronic production capacity, and the trade war is weighing on their investment decisions in industrial robotics.”

China’s industrial robot production units, including output by foreign makers in China, reported a decline of 16.4 per cent in September following rapid growth of 30 per cent monthly in the first five months of this year, and later softened growth of about 7.5 per cent in between June and August, according to China’s National Bureau of Statistics.

In October, robot production fell to 9,590 units in October, down 3.3 per cent year-on-year, although output was affected by the week-long National Day holiday at the beginning of the month.

“Even with the current talk of a ‘truce’ there will be uncertainties” about the industry’s outlook, Lu said.

Last month, Shenzhen-listed Janus Intelligent Group, a leading Chinese robotics company, told 18 employees from its consumer electronics components business to take a five-month holiday because production cuts were required. The announcement raised questions about the government’s efforts to increase the capabilities of the nation’s manufacturing industry.

Janus reported a 4.7 per cent year-on-year decline in revenue for the first half of 2018, as the trade war led to an overall decline in orders from the smartphone and consumer electronics industries, according to its interim report.

Janus announced a net loss of 102 million yuan in the first three quarters of this year, which it attributed to a market downturn in mainland purchases of consumer electronics, computer numeric controls and industrial robots. The company reported a net profit of 418 million yuan during the same period in 2017.

Janus received subsidies from the municipal governments of Dongguan and Shenzhen last year totalling more than 120 million yuan (US$17.3 million), according to public data.

Another robot maker in central China, Shenzhen-listed Wuhan Huazhong Numerical Control (HNC), located in Wuhan, suffered a net loss of more than 59 million yuan in the first three quarters of this year, compared to a profit of 6 million yuan during the same period last year, according to its fiscal report. The company attributed its loss to a slide in demand from computer, communications, and consumer products manufacturers.

HNC has also been well supported by the government. A week ago, it obtained a subsidy of 10 million yuan from the Ministry of Industry and Information Technology, which finances major national science and technology projects, the company’s website said.

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Japanese robotics firm Fanuc, which has operations in China through affiliates and is setting up factories in Guangdong and Hubei provinces this year, watched as its orders were dragged down by weaker demand from China-based electronics firms.

Chinese orders plunged 34 per cent in the April-to-June quarter from the year earlier, pulling down its overall orders by 14 per cent, the company said.

The declining performance of these companies echoes the recent deterioration in the Chinese cellphone market.

Strong growth of the mainland market for consumer electronic products had buoyed demand for automation, with three domestic smartphone giants – Oppo, Vivo and Huawei – producing 257 million mobile phones in Dongguan in the first nine months of last year. That production was worth 83.8 billion yuan – up 45 per cent from a year earlier. The city shipped more than 300 million mobile phones last year – a fifth of the global total.

Oppo, Vivo and Huawei have been big clients of Janus, but their prospects have dimmed recently.

According to market research firm IDC, China’s domestic smartphone market, which accounts for roughly one third of all smartphones sold globally, has been in decline since the second quarter of 2017, with the July-September period this year the sixth consecutive quarter during which the market contracted.

China smartphone sales were down 11 per cent in the first half of 2018 and the challenges continued in the third quarter.

“There has been an obvious slide in sales in the mainland industrial robotics market in the past a few months due to recent changes in the economic situation, such as international trade tensions and softening demand in many manufacturing industries, not just robotics companies,” said Luo Jun, chief executive of the International Robotics and Intelligent Equipment Industry Alliance, a government think tank focused on smart manufacturing.

Uncertainty about the trade war outlook is having a widespread impact on investment decisions among manufacturers.

“According to what I know, many factory owners in Guangdong’s cities, like Dongguan, Shenzhen and Foshan, especially those export-oriented ones, had delayed or even dropped their plan to replace workers with robots,” said Judy Liang, a Shenzhen-based producer of cables and accessories for household appliances, telecommunication equipment and power supplies.

“We have to wait and see the further impact of the trade war on our orders next year. Few are investing to expand production at this moment,” she said.

Spurred on by generous government subsidies, many robotics companies expanded their investment last year and early this year, resulting in higher costs for operations as well as research and development, even as their orders were shrinking as a result of the economic slowdown, said Luo.

The mainland has been the world’s largest market for industrial robots since 2013, as its vast manufacturing industry has gradually increased automation on the factory floor. In 2015, Beijing launched its ambitious Made In China 2025 plan to move Chinese manufacturing up the value chain, listing robotics as one of the 10 hi-tech industries that the government would support to become the best in the world. Local governments at the provincial and city levels have also subsidised native robotics businesses.

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Those generous subsidies sparked a boom in the domestic robotics sector. The number of robotics companies – including those that manufacture and service industrial robots, as well as those that provide automation integration solutions – has soared from a few hundred to more than 6,500 in just a few years, according to a report released in February at the 5th China Robotop Summit.

However, the trade war has put a damper on expansion in the industry, at least in the short run.

“With the uncertainties arising from the looming trade war, companies are taking a wait-and-see approach with their new investment in industrial robotics,” said Jing Bing Zhang, research director, worldwide robotics, at IDC.

Zhang also noted that demand from the electronics industry will remain low in the current quarter and the early part of the next quarter as a result of the seasonality of consumer electronics. However, developments in the automobile sector, such as Tesla’s plan to open its Gigafactory 3 in Shanghai, will be a boon for robotics demand from carmakers for the middle- to long-term.

“Regardless of the trade war, the development of China’s automobile industry will create high, genuine demand for automation and robotics in the long run,” Zhang said.

“We expect the growth trend to pick up from 2020 onwards, and the worldwide robotics market to reach $201.3 billion in 2022.”