China: Progressive Metamorphosis Underway
In the fifth year of China’s entry into the WTO (World Trade Organization), statistics from the National Statistical Bureau show that large industrial enterprises netted a profit of CNY 1469.7 billion from January through October 2006, a 30.1% increase compared to the same period last year. Strong double-digit numbers give us a vivid illustration of the extent of China’s manufacturi...
In the fifth year of China’s entry into the WTO (World Trade Organization), statistics from the National Statistical Bureau show that large industrial enterprises netted a profit of CNY 1469.7 billion from January through October 2006, a 30.1% increase compared to the same period last year. Strong double-digit numbers give us a vivid illustration of the extent of China’s manufacturing industry.
In 2005, manufacturing ranked No.1 in the top 10 industries of China with a total capital of CNY 8,240 billion, or more than 35% of the entire industrial asset. The oil and gas industry saw a profit growth of 30%, while mechanical manufacturing grew by 50%. The power industry grew by 38%, the chemical industry grew by 14%, and the iron and steel industry grew by 13%.
Taking the lead in the top 500 enterprises of China in 2006 are SGCC (National Power Network), Sinopec, Petrochina, Baosteel, FAW (First Auto Works) Group, China Tex, and CNMEG (China Mechanical Engineering Group).
Despite these unprecedented growth projections, China is faced with an awkward situation in its pursuit of higher capacity, better quality, and lower cost. Many youngsters graduate with manufacturing or related majors every year, yet the Chinese Ministry of Science and Technology put in as a first priority the introduction and promotion of human resources in this industry. Mr. Yang Shuzi, academician at the China Academy of Science, said that the nation is losing manufacturing talent at an amazing speed.
On the other hand, the price of raw materials stopped dropping in 2003 and has continued rising for three consecutive years since. During this period, the price increase for raw materials is, on average, 3.7% higher than that for the finished goods. In the first three quarters of 2006, the gap has been kept at 3.4%. This has become one of the most focused topics that concerns all parties.
Scarcity of process control engineers
The impacts of human resource scarcity and primary commodity price hikes on the control automation industry can be understood by looking at process control and discrete control needs separately. The Chinese market has completely different requirements for these two sectors.
For the process control market, the distinctive characteristics include a large number of projects, and user preferences toward advanced, high-end, and fully integrated control systems. For the discrete control market, although the demand is huge, a tighter cost control is usually applied when it comes to the selection of automation technology and tools, due to the low profit ratio.
The scarcity of process control engineers brings up the market potential of system outsourcing. “There is an increasing trend among the end-users to outsource the maintenance of the control system to system integration providers or engineering departments of multinational companies. This also enables them to lower the prohibitive maintenance and operation cost,” says Mr. Bian Zhenggang, from the Institute of China Instrument and Apparatus.
In addition to this trend, discrete control sector customers have a preference for more mature automated equipment, which drives the control automation system towards more intelligent, integrated, and efficient operations.
Rising commodity prices
“There are very obvious trends: the soaring prices of primary commodities, and the concentration of new profit in the raw materials section. These spur the investment in raw materials and related industry verticals, such as power, steel, petrol, and gas, and accelerate the initiation of new projects,” says Mr. Bian.
On the other hand, the rising price of primary commodities has a different impact on the discrete control sector. It makes cost control even more difficult. This pushes enterprises to focus intensified effort on improving automation and promoting productivity. Some companies also are forced to shift attention to more inexpensive local alternatives.
Within China, a magnificent automation era has been ushered in by the rapid development of mechanical manufacturing, the automobile industry, and the food and beverage industry. Its raw materials processing has increased accordingly. Through November 2006, China’s steel output amounted 420 million tons, its oil refining output reached 150 million tons per year, and its power generator capacity grew to 500 million kW (double that of 1997, according to a World Bank report).
To be successful in an ever-shifting global market, China places high importance on the long-term investment in technology and human resources. “China will prioritize the utilization of advanced manufacturing technology and push ahead further development of automation and integration technology, to enable manufacturing to develop at high quality and efficiency,” pointed out Mr. Liu Xin, chief engineer of the R&D Center in the Beijing Control Industrial Computer Group.
Ivy Peng is executive editor of Control Engineering China. The Chinese-language publication provides case histories, product information, technology tutorials, and local automation and instrumentation news 10 times a year in print and through e-newsletters.
Investing in China
According to Ms. Ma Xiu Hong, who is the vice minister at the Ministry of Commerce of the People’s Republic of China Business, so far more than 570,000 companies from 200 countries have invested in China, and the total capital has reached to US$665 billion dollars. Automation companies are among them.
Germany-based Phoenix Group set up Phoenix Contact Asia-Pacific (Nanjing) Co. Ltd. with Nanrui Group at the end of 1993.
Opto 22 went to China in 2002 by choosing local enterprise APT as its only agent. Before the cooperation, APT had already shown good performance in the automation system control field. Many foreign companies have succeeded in China markets using this win-win strategy and partnering with successful local companies.
National Instruments announced in the beginning of 2006 that “NI China will distribute directly from now on, as well as keeping the former relationships of local agents.”
Announcements of other ventures continue.