-Analysis-

BEIJING — An in-depth report recently published by this newspaper, titled Robot Industry Development, Great Leap Forward-Style depicted the sector's troubling situation in China. The article, needless to say, triggered plenty of discussion. According to Caixin's investigative data, China currently has as many as 800 robot enterprises, although this statistic already excludes those which don't actually manufacture robotic machines, or which operate on a very small scale.

Meanwhile, as Hu Yong, CEO of Robotschina.com, pointed out to this newspaper, only 70,000 robotic units were sold in China last year. If, on average, one unit is sold for 200,000 RMB ($30,714), this makes a total of 14 billion RMB ($2.2 billion) of output value. After taking away the 85% which are foreign imports, it means domestic products only account for 2.1 billion RMB ($322 million) of sales. In other words, when divided by the 800 firms mentioned above, each of these companies has an average annual sales of less than three million RMB ($460,666).

Industry insiders worry that due to various local government subsidy policies which were set up to boost political performance objectives, the industry is a bubble ready to burst. In fostering the rapid growth of this key sector, various practices may have been triggered, from fraudulently acquired subsidies, faking production capability, low-end competition, or even bad money driving out the good. This is definitely not what those decision-makers wanted to see when they first put forward the industrial development strategy.

Endowing subsidies is a common practice in many countries when supporting an emerging industry. But once the industry has gone through the initial period, it becomes essential to establish order and core competition — otherwise, subsidies can become counterproductive. High levels of subsidies can lead to a chaotic situation, and even lock competition into a price war that undermines technical progress. This might temporarily satisfy a closed domestic or regional market, or be acceptable for ordinary consumer goods. But in a worldwide high-tech battlefield such as robotics, it can be poison.

The most conspicuous recent example is China's attempt to boost the polycrystalline silicon photovoltaic industry, key to the production of solar panels. The central government had at one time overcharged on the electricity tariff so as to subsidize this industry, while various local governments vigorously put forward investment promotions to make it their pillar industry. But polysilicon production quickly started to show signs of excess. Meanwhile, since the core technology was still controlled by others, when this was coupled with international countermeasures, the industry was vulnerable. Firms began to go bankrupt. This is a wake-up call to China's heavily subsidized and prevailing new energy vehicle and robotics industry.

Empty parks

According to this newspaper's statistics, as of 2015, there are a total of 36 Chinese cities with the robotics industry as their focus of development. Shenzhen, for example. aims to have 200 billion RMB ($30.7 billion) in added economic value from the sectory by 2020.

Hundreds of so-called robot industry parks have popped up around China. When local authorities find that it's hard to attract enterprises to come and invest they either relax the conditions for investment or endow them with large sums of subsidies. As a result, according to research conducted by China's robot industry union, some of these parks have insufficient firms to reap the benefits of a scaled aggregation and attract supporting industry.

At a crossroads

Since most subsidies come from local governments, local officials naturally expect this money will result in a GDP boost that highlights their political performance. As such, when putting together all local governments' development objectives, this turns out to have inflated by several times the overall plan set up by the central government. In other words, it has essentially become the kind of poorly planned state-run development associated with the Great Leap Forward.

This comes as the leading Chinese robotic enterprises are being squeezed by competition from both upper and lower ends, while the international technology giants claim more than 80% percent of China's market. A price war is imminent.

Looking at China's top robotic companies' 2015 financial reports, we see how central state subsidies have been to their survival. How to rethink and adjust state policy so that enterprises can actually improve technology is a crucial, and complex, question for China's leaders.