How China Became an Industrial Automation Powerhouse
9 min read
The meteoric rise of the Chinese manufacturing sector has profound consequences that ripple throughout the globe. Some of these effects are obvious—China now boasts the world's 2nd largest economy and is the largest exporter of goods—while others manifest in more subtle ways. For American factories, their owners, and their workers, the juggernaut that is Chinese manufacturing looms large and influences everything from what we can build at a competitive rate to how we construct our supply chains.
Chinese industry has come a long way from its genesis, when it was built on the back of nearly unlimited access to cheap labor. Today, China is rapidly automating the sector, investing in next-generation technologies, and even stands poised to overtake the West in both investment and innovation in new tech.
Consider, for instance, the proliferation of robotics in Chinese manufacturing. The number of Chinese companies involved in robotics manufacturing rose from 800 in March 2017 to almost 6500 at the end of the same year. Along similar lines, China surpassed Japan in 2013 to become the world’s largest market for industrial robots, and it now accounts for over a third of industrial robots installed worldwide. And these trends are only accelerating.
In this article, we’re going to explore Chinese automation to figure out what’s going on over there, why it’s happening, and how they’re making this transition at a governmental, societal, and cultural level. For American businesses to effectively compete with our Chinese counterparts, we need to understand what they’re doing so that we can continue to stay one step ahead. Our future depends on it.
The State: Direction and Support from the Chinese Communist Party
We all know that, compared to capitalist countries like the US, the Chinese government has much more direct control over their economy, their national outputs, and the allocation of resources. We’re not here to weigh the merits of this approach but to lay out the facts. By providing direction and support, the Chinese state is at least partly responsible for their burgeoning industrial automation and other tech capabilities.
These investments largely center around two initiatives from the Chinese Communist Party (CCP). First, both the most recent 14th Five-Year Plan (FYP) and the previous 13th FYP place heavy emphasis on developing the domestic manufacturing automation sector alongside complementary technologies like 5G, AI, and cloud computing.
The 14th FYP states, “We will promote the optimization and combination of innovation systems guided by the strategic needs of the state and accelerate the construction of strategic science and technology (S&T) power under the leadership of national laboratories. We will establish a number of national laboratories with a focus on quantum information, photonics and micro and nano electronics, network communications, artificial intelligence (AI), biotech and pharmaceuticals, modern energy systems, and other major innovation fields.”
These research areas then feed into the industrial sector. The FYP continues, “We will persist in putting the focus of economic development on the real economy, accelerate the construction of a manufacturing powerhouse and a quality powerhouse, promote the deep integration of advanced manufacturing and modern service industries, strengthen the supporting and leading role of infrastructure, and build a modern industrial system with coordinated development of the real economy, technological innovation, modern finance, and human resources.”
The directives laid out in this FYP are a direct continuation of a national strategic plan dubbed Made in China (MIC) 2025. This initiative seeks to reduce China’s reliance on foreign tech, invest in R&D for the domestic high-tech industry, and secure China’s position as a global powerhouse in high-tech manufacturing. It focuses on 10 key industries:
Advanced information technology
Automated machine tools and robotics
Aerospace and aeronautical equipment
Ocean engineering equipment and high-tech shipping
Modern rail transport equipment
Energy saving and new energy vehicles
Power equipment
New materials
Medicine and medicinal devices
Agricultural equipment
According to the Chinese state-run media company Xinhuanet, the total state funding for MIC 2025 programs is likely to exceed 10 billion yuan, or 1.5B USD. The Chinese Ministry of Industry and Information Technology (MIIT) is also cooperating “with China Development Bank to provide financial services including loans, bonds, leasing to support major projects, with an estimated 300 billion yuan of financing in place in the 2016-2020 period.”
These direct cash infusions have a big impact. For instance, the government’s semiconductor investment fund supported smartphone producer Xiaomi in developing the country’s first domestically produced smartphone chips.
Another tool in the CCP’s arsenal is the creation of special economic zones that feature more free market-oriented economic policies and flexible regulations compared to the rest of the country. The most prominent of these is the Guangdong-Hong Kong-Macau Greater Bay Area, or GBA. Often referred to as China’s Silicon Valley, the GBA also includes the cities of Shenzhen, Guangzhou, and Dongguan and the "Innovation Corridor" that links them together.
By funneling resources into a centralized location and creating regional policies that favor businesses, the government has created innovation and economic centers that feature clusters of industries alongside supporting institutions such as universities and venture capital funds. The result is faster information sharing, easier access to resources, and higher productivity.
Finally, the state's embrace of mass surveillance and the minimal data protection and privacy afforded to Chinese citizens is a boon for the country’s AI industry, which, of course, is a key enabling technology for advanced automation. Simply put, access to more data enables data scientists to train better machine learning (ML) models. China’s so-called "golden age" for AI development has so much fuel to put in the fire because they’re able to gather immense quantities of data. Put it together:
The world's largest population
All digital life (and data) centralized within mega platforms like WeChat
Chinese hackers exfiltrating massive datasets from foreign organizations
The state’s introduction of the China social credit system and similar programs
Investment in AI research, talent, and infrastructure
It’s not hard to see that the Chinese government has the incentive, ability, and will to create the next generation of AI systems. While the implications reach far beyond manufacturing alone, we can say for certain that improved AI capabilities will certainly bolster automation and smart manufacturing.
The Chinese People: A Changed Society that Continues to Change
The government may set the stage by charting the course, footing the bill, and creating favorable conditions for tech innovation, but it’s ultimately up to the Chinese people to do the heavy lifting. Now they’re primed to do just that. Here’s why.
First, over the past 30 years, China has changed more than any other place on Earth. Looking at Harvard's Lived Change Index, which uses lifetime per capita GDP to track how much economic change a population has experienced, we immediately see just how much China stands out from the rest. The Chinese people have witnessed an over 30x per capita growth in their GDP. To put it in contrast, other rapidly developing countries like India have barely seen a 5x increase, while in the US the rate is closer to 3x.
Imagine living through such a transition. Take a moment to look at these photos of Shanghai, showing the same view of the city in both 1987 and 2013. We can relate to a degree—our world too has changed a lot since the advent of the internet, the smartphone, and the other technologies that define the 21st century for us—but this shift has still been nowhere near as seismic as the one in China. While we went from desktops to laptops to smartphones, the average Chinese person went to smartphones straight from paper.
Add that to the urbanization of their population—from 13% in 1950 to 45% in 2010 and a projected 60% urban share of the population by 2030—and the end product is a cultural zeitgeist that accepts dramatic change as just another part of life. Innovative technology is more commonplace than aspirational, and adoption is more about survival than staying at the cutting-edge.
In an article for Harvard Business Review, Zak Dychtwald writes that “China now has at its disposal a resource that no other country has: a vast population that has lived through unprecedented amounts of change and, consequently, has developed an astonishing propensity for adopting and adapting to innovations, at a speed and scale that is unmatched elsewhere on earth.”
For example, he points towards the fact that Chinese people have a much higher adoption of mobile payment than Americans who have been long-accustomed to electronic payment via card. In 2019, “only 24% of US iPhone users had ever actually used [Apple Pay] technology. And not until that year did Apple Pay surpass the Starbucks mobile app—used only in Starbucks stores—as the most-used mobile-payment app in the United States.”
By comparison, “WeChat Pay has won 84% of market penetration among smartphone users” in China. “That kind of penetration explains why in 2018 WeChat Pay did 1.2 billion transactions a day, whereas Apple Pay did one billion a month.” Mobile payment adoption is so high in China that beggars can even collect alms with a QR code.
Additionally, higher standards of living affect both the jobs that people are willing to take and the goods and services that they want to purchase. McKinsey research shows “that by 2020, the income of more than half of China’s urban households, calculated on a purchasing-power-parity basis, will catapult them into the upper middle class—a category that barely existed in China in 2000. The members of this group already demand innovative products that require engineering and manufacturing capabilities many local producers do not yet adequately possess.”
This increased demand certainly fuels the push to improve domestic manufacturing, both in terms of overall throughput and the quality of the end products. Plus, these people aren't interested in factory work that’s dull and repetitive. When we combine these factors with China’s aging population and shrinking workforce, it’s clear that Chinese manufacturers need to improve their automation capabilities to compensate for labor shortages and to keep up with demand.
Although we’ve mostly focused on how modern Chinese culture has changed and has accepted change, that’s not all there is to the story. Traditional Chinese values, such as prioritizing education, pushing students towards pragmatic fields of study like STEM, and a focus on the collective good continue to play a key role.
Lastly, we have what leading AI researcher Kai-Fu Lee calls “copycat culture”. In his book AI Superpowers, he explains how drastically the Chinese conception of imitating others' work differs from our own and makes the case that it drives innovation. It’s a practice with a long precedent. “Ancient Chinese philosophers counseled people to follow the rituals of sages from the ancient past,” he writes. “Rigorous copying of perfection was seen as the route to true mastery.”
When applied to modern technology, we see Chinese companies endlessly imitating both each other and their Western counterparts. He explains that “Silicon Valley may have found the copying undignified and the tactics unsavory. In many cases, it was. But it was precisely this wide-spread copying—the onslaught of thousands of mimicking competitors—that forced companies to innovate. Survival in the internet coliseum required relentlessly iterating products...and seeking ways to build a robust business ‘moat’ to keep the [pure] copycats out.”
While there’s almost certainly some truth to his argument that being at risk of being copied can spur even further innovation, the most poignant fact is simply that Chinese technology did not have to start from scratch. It’s no secret that the Chinese are famous for stealing IP, and so their technologists were able to more quickly catch up simply because they had access to many of the same resources as those in more advanced nations.
Another offshoot of the copycat culture is a race to the bottom in terms of both price and quality. When anyone can create the same product, then companies are incentivized to create it more cheaply than their competitors. The resulting notoriously poor quality of so many Chinese products remains a competitive advantage for American businesses.
Conclusion
As outsiders looking in, it’s difficult to truly comprehend the breadth and speed of Chinese technological development. A lot has happened in a short amount of time, and surely there’s still a lot that we don’t know about. However, by doing our best to try to understand the framework under which these businesses operate, we can start to learn what makes them tick, begin to see their strengths and weaknesses, and make better decisions about what we produce here and how we produce it.
From a purely technological perspective, a lot of what’s happening in Chinese automation is truly impressive. In the next article, we’re going to explore the unique innovations that we’re seeing in Chinese industry, from nanorobotics to advanced AI systems.
One thing we know for certain is that American businesses have no choice but to compete with China. We cannot risk falling behind in the automation race. If you’re ready to gain a new advantage in industrial automation, reach out to Outlier Automation today to learn more about how we can help you to optimize processes, cut costs, and lead the way for American industry.