China is installing more robots than any other nation. As robots become smarter and cheaper, embracing robot technology and automation is an effective solution for both a shrinking labor force and rising labor costs. China is a global leader in robotics.
China is the world’s largest robot market, accounting for 27% of global shipment. The country is determined to move its vast manufacturing industry up the value chain, to become a quality rather than a quantity manufacturer. Robotics and exponential growth in digitization will make factories smart. They increase productivity, improve quality, shorten lead times for new products and require less energy to produce them.
China added about 90,000 robots over 2016, a third of the global total, and this will increase to 160,000 in 2019, according to the International Federation of Robotics. The government’s current 5-year plan targets an increase from 49 robots per 10,000 manufacturing workers in 2016 to over 150 per 10,000 by 2020.
Central and local governments offer tax reductions, special funding and other subsidies to industrial automation firms. This significantly increases profitability, leaving companies with more funds to reinvest in the business, and thus take the sector’s progress forward rapidly.
We expect China’s robot sales volume to show a compounded annual growth of 28% from 2017 to 2020. Local suppliers will grow even faster, at a 40% CAGR. This is shown in the chart.
The stunning growth in robot sales has three drivers:
In the future, robots will replace most heavy-duty work that is currently still done by humans. An interesting secondary effect is that robotization will promote the return of local production, which is perfectly in line with China’s shift to a more domestically driven economy. After all, whereas labor costs differ greatly from one country to another, the price of robots is more or less equal. In terms of costs, it doesn’t matter so much whether a robot sews a pair of jeans together in Bangladesh or Beijing. For China, the latter is even more attractive because of lower transport costs and shorter delivery times.
Another form of robotics is the self-driving car, which could be seen as a collaborative robot. Self-driving cars will change the car industry and society as a whole. They are expected to reduce accidents by roughly 90% and remove most traffic jams. China is the world’s largest electric vehicle market.
Technology and innovation are a key theme in Robeco Chinese Equities. Although competition with foreign high-end suppliers is still limited, Chinese automation companies are catching up. For now, we find the best investment opportunities in the mid-end segment. We also hold several stocks with direct exposure to the electric vehicles theme, i.e. car manufacturers, or indirect exposure, such as battery producers.
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