Andover could be described as a sleepy market town in rural Hertfordshire in the south of England with a history which dates back to Celtic times. But behind this idyllic veneer is a high-tech company that is scaring the pants off Amazon, one of the blue-chip behemoths of the online era.
Ocado is an internet supermarket and software developer with ethical values, a green approach and a dedicated, but small staff.
It also has a 1,000-strong army of factory robots, which look like small versions of R2-D2 from Star Wars, linked to an air-traffic-control system and powered by artificial intelligence, or AI, technology in a state-of-the-art, but unassuming, warehouse.
Branded the “next Microsoft,” Ocado embodies the very principles of the “Made in China 2025” policy, except for one thing, it is British.
“It doesn’t happen very often, but we believe Ocado Solutions has [the] potential to become the ‘standard’ platform for logistics across all sectors as the operating system of retail,” analysts at UK investment brokers Peel Hunt pointed out.
“Whilst the company is focusing on exclusive contracts within the food retail vertical, we would advocate an eventual shift in its focus towards becoming the open industry standard; just like [Microsoft’s] Windows operating system,” they added.
China, of course, has some “big beasts” of the online sector, such as Alibaba, Tencent and Baidu, which are collectively known as BAT, as well as JD.com, the massive e-commerce and logistics group.
But while they are the ‘crown jewels’ of the country’s internet industry, they are struggling to make major technological breakthroughs, even though they have amassed a market capitalization which exceeds US$1 trillion, and have spent billions of dollars on research and development programs.
Still, they have one valuable ace up their sleeve in President Xi Jinping’s administration.
Technology sector
“China’s efforts to support its own technology sector are engineered into the very sinews of its economy, spanning tax, subsidies, antitrust, procurement, standards, localization and technology transfer. The government shapes the tech market in deep and granular ways,” Bill Whyman, the head of technology strategy research at International Strategy & Investment, said in an article for the Brookings Institute, a think tank based in Washington.
Significantly, Beijing has helped “shape” the rise of smartphone and electronics companies such as Huawei, Xiaomi and Lenovo, as well as embattled telecom group ZTE. But a bigger challenge for the “Made in China 2025” blueprint is just beyond the horizon.
Despite its high-profile ambitious, the world’s second-largest economy still has to rely on a steady supply of foreign-made semiconductors, the heartbeat of the “Internet of Things” and the industrial factories of the future.
To illustrate the point, China’s fragility was exposed last month when ZTE was dragged into President Donald Trump’s trade war. At one point, there were fears it would go under after being banned for seven years from buying US-made components such as chips.
“Xi himself has made semiconductor development a priority for years,” Jesse Heatley, a director at Albright Stonebridge Group and a security fellow with the Truman National Security Project, wrote for The Diplomat in April.
“Almost exactly two years ago, he gave a controversial speech in which he similarly assailed China’s dependence on foreign suppliers and urged mastering ‘core technologies.’ At that time, China observers noted Xi’s plans to develop globally competitive chipset champions and challenge foreign tech firms’ dominance.”
The task will be daunting. A glance at the global semiconductor industry underlines just how far behind the country is when it comes to chip manufacturing, and R&D.
Last year, revenue from the sector in the US edged close to $250 billion compared to China’s miserly $24.7 billion, statistics from IEK, which is part of the government-sponsored Industrial Technology Research Institute in Taiwan, showed.
With such a disparity, it is hardly surprising that Chinese companies have to import about $200 billion worth of chips from the US each year.
This, in turn, has left Beijing vulnerable, threatening the whole concept of “Made in China 2025” and putting at risk ‘smart’ companies such as ZTE, Huawei and Xiaomi.
Even online giants like the BAT grouping could feel the aftershocks if the supply of semiconductors dried up. For China Aerospace Science and Technology Corporation, it would also seriously curtail its satellite and space programs.
“Chinese companies have a large task ahead, given their talent and capability gaps, the high bar for global leadership, and the need for the country’s global champions to be the top one or two players in their segments,” Christopher Thomas, a principal at global consulting firm McKinsey and Company in Beijing, said in a report back in 2015.
“The more segments and technologies in which China attempts to be number one, the more diffuse industry and government efforts will be. The more companies that attempt to become the Chinese champion for a certain segment, the more the best talent will be spread across too many teams,” he added.
Three years later, little has changed. Data from Bloomberg showed that Intel, Broadcom and Qualcomm, the US suppliers of semiconductors for smartphones and computers, had at least 10 times the market value of China’s biggest chipmaker Shenzhen Huiding Technology.
As for processors used in high-end electronic products, American companies dominate the landscape. Chinese chips tend to be used in low-end items such as bank and key cards.
“The gap is still huge and the semiconductor industry is capital- and labor-intensive” Dai Ming, a money manager at Hengsheng Asset Management in Shanghai, told the South China Morning Post. “It requires massive investment and technology accumulation. In the short term, it’s difficult for China to catch up with the US.”
The impact will also hammer the expanding robotics sector.
A report by China Briefing, a business Intelligence portal from Asian professional services advisors Dezan Shira & Associates, revealed the country was the world’s largest industrial robot market for four consecutive years.
Sales volume
In 2016, China had a total sales volume of almost 90,000 units, which was a 27% increase compared to the previous year, and represented 30% of the global market.
By 2020, the country will have wheeled out a further 150,000 industrial robots with more than 950,000 in operation, the International Federation of Robotics stated.
“[Yet] despite China having the most industrial robots in the world, its [sector] density is below the global average, with only 68 units per 10,000 workers. Furthermore, most of the demand for robots in China is from international firms, and domestic producers are reliant on foreign technology,” I-Ting Shelly Lin, a researcher at Dezan Shira & Associates, said.
To break through this technological barrier, Beijing has encouraged its major tech players to look for juicy overseas investments with Alibaba and Tencent leading the way, a report released in March by Hurun Research and DealGlobe stressed.
Tencent and its affiliates splashed out 38 billion yuan (US$6 billion) last year to acquire foreign firms, followed by Alibaba and its associates on 23 billion yuan. In 2017, 25 of the 100 top deals were in the tech sector, up from 12 a year ago, the report stated.
“The desire for advanced technology and industrial upgrading, which is vital to domestic companies’ organic growth in the long term, was a major driver in the increase of M&As,” Feng Lin, the CEO of DealGlobe, said at a press briefing. “That is the reason why advanced economies were the top five destinations for Chinese capital,” Feng added.
With money to burn, maybe one or more of the BATs will decide to hone in on Andover and Ocado’s swarm of robots.
Part 1: Welcome to this brave new world with Chinese characteristics
Part 2: Robots, chips and the pursuit of China’s tech dreams
Part 3: Speed bumps ahead as smart cars and clean energy fuel China’s rise
Part 4: How fintech is turning China’s cities into cashless societies
Why is then so worried about ‘make in China 2025?’.
Why is the US then so worry about make in China 2025?
There are a lot of misinformation in the article。
1. Though China bought a lot of chips from the US companies like Intel, Broadcom and Qualcomm, but most of their chips are made by Taiwan Semiconductor, like Apple’s iPhones and iPads are made by Foxconn. The American chip companies make their money via direct and indirect loyalties and fees, they do not have the manufacturing expertise and technologies themselves.
2. Aerospace chips and commercial chips are two different beasts. Aerospace chips focus on reliability and market is small. USA and its allies embargo those chips to China absolutely due to national security requiirements. China is self sufficient in aerospace chips, it does not import aerospace chips from anyone. While commercial chips focus on features and price, though Chinese chip makers can match features but has yet able to match prices against foreign chip companies because companies like ZTE denies Chinese chip makers the market share to cut down their costs. The trade war offers China the opportunity to lock down its internal market for its chip makers to expand its scale and lower the costs then beat the foreign chip companies/makers internationally by 2025.
3. China has embarked on producing machinery/equipment for 7 nm Process, its aim is to beat Taiwan Semiconductor and Samsung. With government injected fund, encouraging polices and consolidation of Chinese chip making industry, as well as the extreme external pressure, the driving force and nurturing environment will push Chinese self sufficient in computer chip R&D and making by 2025 a very promising perspect.
In the matter of microchips, semiconductors and robotics, China is not trying to overtake USA because USA is no longer a key player in these fields. Instead, China is trying to overtake South Korea, Japan and Germany that are ahead. And as it has done in so many other fields, China will succeed.