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Markets “Golden age” for China’s machine tools despite Corona?

| Author / Editor: Henrik Bork / Steffen Donath

In China, the long-term prospects for the machine tool industry remain good. Furthermore, cobots are on the rise in China. But how has Corona impacted this market?

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“China Market Insider” is a new series of articles originally published on MM Maschinenmarkt.
“China Market Insider” is a new series of articles originally published on MM Maschinenmarkt.
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The Corona virus has hit China’s machine tool industry hard, but has so far had relatively little impact on important trends and future forecasts for the industry. This is how the latest data and analyses by market experts can be summarised in the world’s largest market for machine tools.

Now available for the first time, figures for the first quarter of this year confirm that machine tool manufacturers in China, as part of a key sector for the manufacturing industry, have been hit extremely hard by factory closures and other quarantine measures. At the same time, industry observers are still predicting a “golden age” for the industry in the People’s Republic, especially if the industry will face the necessary digital transformation and quality improvement even more decisively in response to Corona.

As was to be expected, the data for the first quarter is devastating. While the assembly lines in the car factories came to a standstill and the lights went out in other factories in China from January to March of this year, the machine tool manufacturers were not able to achieve much either. According to the National Statistics Bureau in Beijing, the accumulated operating results of the Chinese machine tool industry fell by 20.8 % in the three months compared to last year. Accumulated profits even fell by 31.3 % in the same period, again compared to the previous year.

Economic downturn is the main topic of this year, quoted the speaker of the China Machine Tool and Tool Builders Association in an analysis. At the same time, the fundamental potential of the industry has not changed. “With a population of 1.4 billion, China has the advantage of a large market, a complete manufacturing ecosystem and strong economic resilience,” the Machine Tool Association wrote.

None of the analysts, not even China’s industry association itself, plays down the industry’s current difficulties, which range from Corona-induced slump in demand in China's export markets to acute bottlenecks in the value chains. Corona is causing procurement problems for “imported high-end key components such as CNC systems, rational linear encoders, optical encoders, precision bearings and other parts,” the association complained.

But China is still the world leader in the consumption, production and import of machine tools, and its exports rank fourth in the world, market observers stress. And among the economic stimulus measures of the Beijing central government are also targeted subsidies for accelerated digitisation of the country's manufacturing industry under the heading of “New Infrastructure”.

Many analysts therefore continue to see great potential in China’s machine tool market in the long term, especially with regard to the high-quality part of the industry. The next ten years could be “a golden decade for the digital production of machine tools,” Maschinenmarkt (China) quotes Siemens manager Yang Dahan, whose business unit supports Chinese manufacturers in China with digitisation.

For about two years now, the machine tool market in China, like the entire industry worldwide, has been in a downturn, says the Siemens expert, but the decline in demand primarily affects "simple, cheap low-precision CNC machine tools. “The demand for high-end machine tools, on the other hand, is growing completely against the trend,” says Yang.

The Siemens manager says that the trend is clearly visible that the exports of the Chinese machine tool industry are shifting more and more from poorer countries to the European market. Chinese machine tool manufacturers are already among the suppliers of top manufacturers in the automotive industry and other key industries in Europe.

It is foreseeable, say many analysts in agreement, that the Corona crisis will further increase the digital transformation pressure on China's machine tool manufacturers.

Cobots on the advance in China

Predicting explosive growth for an industry has become rare these days. But for the manufacturers of cobots — robots that collaborate with humans — good times seem to be just beginning in China. By 2023, China will increase its share of the rapidly growing global market for robots from one third to around 50 %, predicts the trade journal "Robotics Business Review" in an analysis published in early May.

The forecasts predict that the global market for cobots will grow from around 567 million dollar in 2018 to 5.6 billion dollar in 2027, a tenfold increase within a decade. The automotive and electronics industries in particular have a need for the social machines, and the logistics industry is also increasingly discovering the usefulness of cobots.

While complete automation solutions usually cost a lot of money, cobots are much cheaper because they are partially controlled by human hands. They still have knobs and control menus that do not require half an engineering degree, and some of them can even be operated easily by quickly trained skilled workers.

China is still the “workbench of the world” and at the same time the world's largest market for industrial robots. Many manufacturers see that they cannot remain competitive without automation and digitalisation, but often shy away from the necessary investments, partly because of a lack of experts. Cobots, on the other hand, have been experiencing above-average sales growth in China for years, and analysts predict that this trend will continue in the Corona era.

Between 2014 and 2018, China’s cobot industry has seen cumulative annual growth of 65 %, the pro-government China Daily reported. In 2018, 6,320 cobots were sold in China for a market value of 930 million yuan (around 120 million euros). Even if growth may not double this year already because of Corona, as analysts predicted before the crisis, strong growth can still be expected.

China’s government is massively supporting a number of industries in their automation efforts. And the manufacturers of cobots are also benefiting from the helping hand of the state. At least 65 “robot industrial parks” have already been established in all parts of the country. In the aftermath of the Corona crisis, Beijing has announced that as part of its economic stimulus measures it will invest even more aggressively than before in new technologies. Robots are also on the list.

Helmets are becoming mandatory, but there's just not enough to buy

At present, one would like to be a manufacturer of bicycle helmets in China. Overnight, China's government has surprised all riders of electric scooters with helmet requirement. There are 300 million electric scooter owners, and by far not enough helmets to buy.

This new edict of the central government reminds many of the sudden introduction of compulsory masks at the beginning of this year in the wake of the Corona crisis, when there were far not enough masks to buy. Some Chinese, in their distress, tied Chinese cabbage leaves with holes for eyes and nose in front of their faces to avoid being denounced or reprimanded.

In helmets, smart dealers are currently doing the business of a lifetime, such as Wang Zhenxiang in Shanghai, who, according to a report in the “South China Morning Post”, bought hundreds of helmets for a price of 30 Yuan (4.50 euro) per piece, which he now sells in retail stores for 85 Yuan (11 euro) per piece.

This article was first published on MM Maschinenmarkt

Henrik Bork is Managing Director of Asia Waypoint, a consulting agency specializing in China and based in Beijing. China Market Insider is a joint project of Vogel Communications Group, Würzburg, and Jigong Vogel Media Advertising in Beijing.

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