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Automation Technologies 3/2016

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Automation Technologies 3/2016

Industrial

Industrial Automation: the new engine for China’s economic growth NEWS AND MARKETS Sushen Doshi Emerging industries like industrial automation, robotics, intelligent equipments, drones and high speed railways are becoming China’s new economic engines. Currently they contribute around 8 % to the national GDP, it is expected that by 2020 this figure shall jump to 15 %. The basic component of China’s reform policy is ensuring that the economy stays on track. It’s old model of economic growth is now out of steam. China, in the past 20-25 years has seen unbelievable numbers in terms of GDP growth. For example, from 2011 to 2014, China posted 9.5 %, 7.7 %, 7.7 % and 7.3 % growth in GDP respectively. Along with the GDP, the per capita income also grew with the same rate. This growth was mainly driven by the government led investment and FDIs flowing in. After the recent decades of China’s export-driven economic growth, the downturn in the global economy led China to realize the vulnerability of its economic model due to its dependence on the demands of its overseas markets. To transform and rebalance its economy, China has been actively promoting the development of its high-tech industries and domestic consumption so as to ensure sustainable growth. In this regard, the government has driven up minimum wages, allowed the currency to appreciate, aggressively enforced labor regulations, thus increasing the costs of manufacturing in China and driving out low-end businesses. In China’s rush to wean itself from being an export-driven economy and into a consumer-based economy, it is State policy to place more money in the hands of Chinese nationals. For example, the per capita income from 2011-2014 shows an average rise of 7.5 % per annum, i.e. the per capita income of average individuals grew from 36,000 Yuan to roughly 47,000 Yuan. Annual increases in salaries and the increasing mandatory welfare costs associated with this are making some local governments in China to strike a fine balance between making companies happy (with no further raises to labor cost) and workers demanding higher salaries – which will attract more workers and increase local consumption. What’s troubling the dragon? For some time now, rising labor costs in China have been setting off alarms among foreign investors. According to China’s Employment Promotion Plan, the minimum wage in each jurisdiction must be increased at least once every 2 years; meanwhile, the 2011-15 Five- Year Plan stipulates an average increase of 13 % per year. Based on 2014 figures, however, it looks like China’s wage increases have begun to slow down, as the Central Government exerts pressure on maintaining economic growth targets. This is slightly better news for the foreign investors. As of April 2016, a large number of companies from the manufacturing sector had reported losses, including the industrial giants in the steel and coal industry, which swallowed up more than 100 s of millions of dollars in losses. The lacklustre performance by these companies shows the struggle the traditional heavy industries face amid the sagging global economic recovery. Squeezed between shrinking demand and excessive production capacities, China’s heavy industries are confronted with challenging times. And to add further salt to injury, it seems like these companies with heavy losses will have a hard time reversing the situation in the near future as the demand remains weak and exploring new markets requires more time and investment. Due to the on-going shift in China’s economic engines and volatile domestic as well as overseas demand, the traditional heavy industries have to step up their efforts of transformations and improve the added value of their products, in order to survive. To arrest this economic slowdown, China is restructuring its industries to sustain growth, encouraging new sectors and reforming the old ones. Emerging industries like industrial automation, robotics, intelligent equipments, drones and high speed railways are becoming China’s new economic engines. Currently the contribution of this emerging sector is around 8 % to the national GDP, it is expected that by 2020 this figure shall jump to 15 %. While this sluggish growth bites into the profits of heavy industries, firms in the emerging and high-tech sectors tell a different story altogether. BYD, China’s largest new energy vehicle (NEV) maker raked in profits of billions of Yuan in 2015, a whopping 550 % year on year growth. Just like BYD, a majority of the high-tech companies have reported stellar growth for 2015, mainly from the new energy, medicine and information technology sector. The China Enterprise Management Science Foundation, in a report said that sectors like industrial automation, robotics and intelligent equipment will continue to further outpace the traditional industries. The Chinese government is also eager to see its workforce diversify from the traditional heavy industries to the new emerging ones and its manufacturing industries become more technologically advanced. For example, Industrial Robots that might offer a solution to China’s rising wages challenge. If more robots can be deployed successfully in many manufacturing plants, this would increase the overall plant efficiency. Most people will be concerned about the potential loss of jobs, but the reality is that China will have a labor shortage. Demographics are not in favor of China’s traditional labor-driven factories as the work force is aging and the attitudes of the younger population towards manufacturing jobs is changing in favour of alternative pursuits. Author: Sushen Doshi, correspondent India for AUTOMATION TECHNOLOGIES

However, as more and more robots are employed, they will require advanced sensing, manipulation, and intelligence, this robotization drive could help promote the technical expertise of the remaining manufacturing workers, as well as those employed in designing, building, and servicing these manufacturing machines. The scale of this robot revolution could be enormous. 2 years ago China became the world’s largest importer of robots, and the International Federation of Robotics, estimates that China will account for more than a third of all industrial robots installed worldwide by 2018, indicating a huge potential for growth. Many automation experts say that China’s manufacturing industry is lagging behind technologically, as compared to other nations and would need a major overhaul. A part of this challenge is to figure out which tasks can be automated most effectively, which tasks actually do need to be automated and how machines and humans can share the workload. Not all labor-intensive industry can or should be automated. Basically, what China needs is a hybrid automation model. structure from high speed manufacturing to high quality manufacturing. These plans also include Internet Plus, which aims to integrate the Internet with traditional industry, and Made in China 2025, a program for industrial upgrading and intelligent manufacturing. This program aims to make China an innovative and “world manufacturing power” by that year. The effort involves adding connectivity and intelligence to manufacturing equipment and factories, to improve overall flexibility and efficiency. According to recent reports, Beijing has decided to invest approximately $ 900 billion in 2016, for development of high-tech industry, R&D and infrastructural projects including railways. Photographs: teaser fotolia, graphics national bureau of statistics, Chinaz Target: “medium to high” growth While proposing the 13 th five-year plan (FYP), President Xi stated that China’s annual GDP growth rate should be no less than 6.5 % over the next five years. To meet this goal, one of China’s first tactics is to continue with the incremental opening up and marketization and to allow the market to play a decisive role. The 13th FYP also proposes the government to play a smaller role in pricing of commodities and service. According to the 13 th FYP, China, as a policy will focus on innovation as primary driver of economic growth and shift it’s economic igus ® ... chainflex ® works ... 36 month guarantee ... Gigantic selection: 27x Ethernet 36 month guarantee chainflex ® Ethernet cable range for moving applications Always the most cost-effective cable that works: 27 different cables in seven price classes for a wide variety of applications. Available in as little as 24 hours with no minimum quantity surcharge. With a 36 month guarantee from stock. www.chainflex.eu plastics for longer life ® igus ® GmbH Tel. +49-2203-9649-800 info@igus.eu Visit us: Industrial Automation BEIJING - Booth 11-50 Igus-englisch.indd 1 12.04.2016 13:11:03 AUTOMATION TECHNOLOGIES 3/2016

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