Bosch Rexroth provides an interesting and informative insight into the Chinese market for machinery and automation.
In just a few years, China has secured the top position as the world's largest mechanical engineering nation and at the same time become the biggest sales market for machinery. Following a phase of rapid growth, a paradigm shift is underway: purely quantitative growth is increasingly being replaced by qualitative growth. This applies to both the direction being taken by the national economy and the corporate and product strategies of the mechanical engineering industry. Chinese companies are investing heavily (with state sponsorship) in innovation and are developing increasingly complex machinery. In terms of technology, two megatrends are particularly indicative of this shift: the Chinese government has drawn up challenging environmental targets in a five-year plan through to 2015. Chinese industry will only be able to hit these targets if it uses energy-efficient machinery and systems. The second megatrend relates to the increasing level of automation in industry, which is being driven by demographic developments. In order to achieve its declared targets, China has identified mechanical engineering as a key industry. With state sponsorship, Chinese manufacturers are now also targeting the mid to high-end sectors — sectors that were previously dominated by the major mechanical engineering companies of Europe, Japan, Korea and the USA. This has laid the foundations for market success outside of the domestic market.
At the end of the 19th century, the then leading industrial nation, Great Britain, passed legislation stating that all products imported from Germany must carry the label Made in Germany. In just a few decades, what was originally intended to protect consumers from what were thought to be lower-quality goods soon established itself as a badge of quality. Japan experienced a similar development in an even shorter space of time. In the 1960s and 70s, Japanese products stood for cheap copies. However, by as early as the 1980s, the Japanese automotive industry and machine tool manufacturing industry were setting new standards on an international level.
China now finds itself on a similar path, including in the field of mechanical engineering. According to calculations by the China Machinery Industry Federation, machine production in China exceeded the USD2billion mark in 2010. The National Bureau Of Statistics of China anticipated a further increase of 17.4 per cent in domestic machine production in 2011. Many manufacturers continue to focus on the lower market sectors, with comparatively simple machinery. As the market becomes increasingly saturated, however, competitive pressure increases, as do the quality demands of the end users of the machinery. In response to this situation, more and more machine manufacturers are looking to the mid- and high-end sectors as an alternative route. This strategy complies with the requirements of the current five-year plan, which defines the seven strategic emerging industries, including the high-end mechanical engineering and plant design industries. Under the plan, it is hoped that these strategic emerging industries will drive innovation and become the world leaders.
Patents applied for
With state sponsorship, Chinese industry is currently investing heavily in research and development, particularly in the case of the strategic emerging industries. The current five-year plan envisages the number of applications for patents and utility models increasing to two million a year by 2015. For the first time, China is also promoting collaboration between private companies and government research institutions.
Despite patents traditionally focusing more on the areas of telecommunications, IT, alternative energies and biotechnology, there is also a trend towards innovation in the field of mechanical engineering. A quick look at the machine tool industry illustrates this change. In 2010, Chinese manufacturers produced more than 220,000 machine tools, most of which were simple and compact machines. However, these manufacturers are making increasing use of the latest CNC automated technology, and are making breakthroughs into new performance classes as a result. Focusing on drives and controls precisely tailored to the needs of Chinese users is enabling Chinese manufacturers to achieve a high level of manufacturing precision and very short cycle times in their latest machine generations. At the same time, manufacturers also take into account the lower qualification levels that still exist in parts of China, offering simplified machine operation.
More and more manufacturers are also aligning themselves with the targets of the five-year plan, exclusively targeting the upper market sectors. They have built up their knowledge and expertise in recent years, and have access to the necessary financial resources. In the last two years, many manufacturers have unveiled more complex CNC processing centers. With their high-performance, compact machine tools that are optimised for mass production, and their even more sophisticated new concepts, these manufacturers are increasingly dominating markets outside of China. Initially, they are concentrating on the neighboring ASEAN countries and Africa. According to figures from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), China exported machines and electronics to the value of USD900billion in 2010. China already ranks as one of the world's top-five exporters in several mechanical engineering sectors.
The current five-year plan also sets ambitious energy-efficiency targets for the whole economy. The aim is to reduce energy intensity per unit of gross national product by 16 per cent in the Chinese economy by 2015. As such, the government is also offering fiscal measures that reward low energy usage and impose sanctions for higher consumption. For Chinese machine operators, this is very quickly translating into greater investment into more energy-efficient machines and systems, and, thanks to China's position as the world's largest machinery market, it enjoys a purchasing power that enables this single requirement to shape new machine concepts around the world.
Manufacturers of plastics machinery, for example, are already using energy-efficient, variable-speed pump drives, thereby reducing the energy consumption of the hydraulics by up to 70 per cent. For an annual Chinese production of some 50,000 injection molding machines alone, this approach represents considerable savings across the region.
Another paradigm shift is reflected in the demographic development currently taking place in China. At the annual China Summit of British economics magazine The Economist in November 2011, experts revealed that the number of young people between the ages of 16 to 24 entering employment had already fallen by around 30 per cent. Labor costs have been rising for several years in the major industrial centers, meaning that more and more companies are relocating to less industrialised backwaters and, as agricultural processes become ever more mechanised, this could increase the labour available for industry by a further 20 per cent. Interestingly, however, 72 per cent of industry representatives at the conference believed that China had already lost its advantage of being a low-wage economy.
Just as in other industrialised countries, the pressure to rationalise is increasing as companies shift their focus from manual labour to automation. The level of automation in Chinese factories will continue to grow sharply in the foreseeable future. This means further opportunities for European machine manufacturers, who already export the majority of machinery as production cells that include automation in markets such as machine tools and plastics machines.
China's importance in the global mechanical engineering market will continue to grow at increasing speed in the coming years. State-funded innovation and new machine concepts for the mid- to high-end sectors will also soon open doors to markets of the established industrial countries. Regional developments will focus both on greater energy efficiency and consistent automation of secondary processes, making Chinese products highly competitive on the international market. Equally, however, the USD300billion machine market (according to estimates by Alix Partners), offers new opportunities for the European mechanical engineering industry.
Bosch Rexroth: an example of success
Bosch Rexroth was quick to recognise the potential and opportunities involved in the changes taking place in Asia. Active in China since the mid-1970s, the manufacturer of drive and control technologies has been continuously expanding its presence. Bosch Rexroth combines its global strengths with local strengths across four locations: based on the global product platforms, Chinese associates develop and produce regional variants in accordance with German standards using bought-in parts predominantly sourced in China. For Dr Karl Tragl, Chairman of the Executive Board of Bosch Rexroth AG, local added value is the most important key to success: "Only by developing regionally tailored products that are manufactured in the region, and offering services and engineering consultancy advice from local experts and managers can a business grow successfully in China."
For more information, go to www.boschrexroth.com.