In this article:
As China records its first population decline in decades, the race is on for the country to automate its industries - to shore up the labour force and compete with countries with cheaper manufacturing costs. Meanwhile, the reopening from Covid-era lockdowns is providing local robot manufacturers a great opportunity to boost sales and upgrade technology.
During a recent research trip to visit companies in the southern tech hub of Shenzhen and eastern coastal cities of Suzhou, Nanjing and Ningbo, we were surprised by how some manufacturers managed to outperform amid the sectoral downcycle to gain market share and expand their line-up of products. The end of lockdowns in late 2022 clearly boosted managements’ confidence about future sales, while their downstream customers are also expecting a gradual increase in incoming orders.
While the sector may bolster growth on the back of pent-up demand in the short run, it will need to capture China’s far-reaching demographic changes to grow sustainably over the long term. The population is rapidly aging and the birth rate is falling. For manufacturers confronted with such headwinds, upgrading production lines with robots can help makers of consumer electronics, electric vehicles or home appliances to cut costs and alleviate labour shortages, reinforcing the country’s competitiveness as a factory of the world.
China has already made a strong start. It has been the world’s largest industrial robot market since 2013 and accounted for 52 per cent of total installations in 2021, according to the International Federation of Robotics (IFR).
During the trip, Fidelity visited companies that manufacture machines that can inspect defects on mobile phones or move parts from one location to another. Although some of these companies currently lag far behind their global rivals in terms of market share, their competitive advantages, from lower costs to customized solutions for clients, give them great growth potential. While these companies focus solely on their domestic market for the most part, they may be able to sell to overseas customers in the future, especially if they can upgrade their tech.
At the same time, rising trade and geopolitical tensions have seen Chinese authorities renew their push for the industry to strengthen homegrown robotics technology and increase manufacturing self-reliance. In January, China’s Ministry of Industry and Information Technology and 16 other government agencies outlined a comprehensive plan to accelerate the application of robotics across a wide swathe of sectors including manufacturing, agriculture, logistics, energy, healthcare, education and elderly services.
Of course, installing more robots won’t solve all the problems on the factory floor. And there are many jobs robots simply can’t do. But it’s clear that China is counting on enjoying the dividends from ramping up automation technology for some years to come. With strong policy support and rising demand from downstream customers, we think China’s automation sector is set to move into higher gear.