‘The manufacturing boom in Guangdong is over’: Industrial robot makers the latest to get swallowed up by China’s economic slowdown

• 

Industrial robots weld automobile bodies at a workshop of a motor vehicle manufacturing factory in Liuzhou city, southwest China's Guangxi Zhuang Autonomous Region. Photo: Imaginechina

Manufacturers of industrial robots in the southern province of Guangdong, China’s manufacturing hub, are seeing declining profits as demand dwindles in tandem with the country’s economic slowdown. 

A senior salesman for LXD Robotics, one of the biggest robot makers in Foshan, a city of 7million people, predicted that only five per cent of the companies making such robots in the province would still be around in two years’ time.

This suggests the fault lines of China’s slowdown may run deeper than previously thought, given that the nation is said to be in the throes of an automation revolution, as makers look to robotics to overcome labour shortages and spur innovation amid rising wages and in line with a central policy this year touted by Premier Li Keqiang.

READ MORE: Rise of the machines as robots take off in China

Early this year, authorities in the province said they would spend 943 billion yuan (US$149.93 million) to replace traditional manpower with the kind that require batteries or electricity, but which work tirelessly and never complain or ask for a raise.

Visitors watch an industrial robot operating at the China International Internet Plus Exposition in Foshan, Guangdong Province on Thursday. Photo: Xinhua

As a result, many manufacturers of robots in the region set overly ambitious targets, while investment in this field was tipped to hit a record high.

But as the oppressive summer heat in this part of the world passes its peak, much of that optimism has now ebbed as sales targets are missed and revenue streams start to dry up.

He Zexian, the LXD Robotics salesman, predicted in April that his company’s annual output would reach 300 million yuan in 2015, marking a dramatic jump from 20 million yuan in 2013.

He had since been forced to halve this estimate, he conceded on Thursday at the Guangdong International Internet Plus Exposition and International Robotics and Intelligent Equipment Industry Conference in Foshan.

A staff member stands next to robots at a plant of Kuka Robotics in Shanghai. Photo: Reuters

“Competition has become more and more fierce. Most manufacturers of industrial robots have been forced to engage in a price war,” he said.

READ MORE: Foxconn’s Foxbot army close to hitting the Chinese market, on track to meet 30 per cent automation target

LXD's robots are used in jobs considered hazardous to human health, such as polishing, welding and moving heavy freight.

The company's polishing and burnishing robots cost between 800,000 yuan and 1.5 million yuan apiece, but they can replace up to six humans, the company claims.

“The price of many models is being reduced every three months,” he said. “Those that sold for 150,000 yuan last year now go for 130,000 yuan.”

He blamed market saturation and a shortage of core technology needed to independently produce high-end industrial robots. 

Most Chinese companies in this field, he said, operate at the lower scale of the quality spectrum and depend on imported components.

“The export-led manufacturing boom in Guangdong is over. Exports are even getting worse by the month,” said Zeng Qingzong, sales manager of Foshan Jiefeng Industrial Automation, which produces robots that can weld, stamp and polish, echoes similar views

“The cot of financing in this industry is so high, but the funding channels are so few for private robot makers like us,” he said.

READ MORE: Why falling prices – not stock market turmoil – is the real headache for China’s manufacturing bosses as the nation’s economy slows

Generally, the size and scale of the Chinese industry is hard to gauge due to a paucity of official statistics.

LXD’s He calculated that China had 400 companies making such robots last year, with about 60 per cent turning a profit. 

Robot arms weld car parts at an auto plant of Dongfeng Peugeot Citroen Automobile Co., Ltd. in Wuhan city, central China's Hubei province. Photo: Imaginechina

There are now believed to be 700 to 800, mostly concentrated in Guangdong due to its comprehensive supply chains, and two-thirds are in the red, He said.

The government is partly to blame for exaggerating, or misreading, demand, He added. 

But many companies rely on government subsidies and would collapse if these were withdrawn, according to the salesman.

Cities in the province have promised to deliver annual subsidies of between 200 million and 500 million yuan to makers of robots and to the manufacturers who install them on assembly lines.

Yet more is needed, local operators say. 

On the other hand, manufacturing giants like Media and Taiwan’s Foxconn Technology Group, the trading name of Hon Hai Precision Industry, have set up their own robotics businesses.

They have also started selling robots to their domestic market in China, thus squeezing the share and profits of small- and mid-sized makers of factory and other robots.