China wants to build robots to overtake its rivals — but it's not there yet
- Chinese robotics companies will have to do more if they want to stand out from the global competition, a senior partner at McKinsey tells CNBC.
- Karel Eloot says Chinese companies will have a competitive advantage if they move into other developing markets.
- There were more than 6,500 robotics companies in China at the end of 2017, according to Chinese media.
China's affinity for robots has created a booming industry, but its companies aren't overtaking their global competitors, a senior partner at consulting firm McKinsey & Company told CNBC.
A decade ago, Chinese robotics firms met only 5 percent of the demand in their country, Karel Eloot told CNBC's "Street Signs" on Thursday. The industry has since developed and Chinese companies now provide about a third of industrial robots in the country.
"There's still a long way to go, especially when you think about the government's targets of 50 percent in 2020 and 70 percent in 2025," he said.
Eloot was referring to the Made in China 2025 national plan drawn up by Beijing, which identifies 10 key sectors such as high-end technologies, that the country wants to develop to catch up with its rivals including the United States and Germany.
One of the goals in that plan is for local companies to make up half of the domestic market for industrial robots in the next two years and capture about 70 percent of the market by 2025. China is also aiming to develop local robotics systems to compete with global rivals and eventually beat the United States in the field of artificial intelligence.
"When we talk about global competitiveness, there is work to be done," Eloot said, explaining that there are strong incumbent robot suppliers in many developed markets.
In those countries, he said, Chinese companies will likely have to do as they've done in their home country: "come from the bottom of the application pyramid and move their way up."
But Chinese robotics firms have an advantage in developing markets because they are similar to what China went through in the last decade, Eloot said. "For them, it's more natural to go there."
So far, the Made in China push has resulted in a growing Chinese robotics market.
Earlier this year, local media outlets reported that there were more than 6,500 robotics companies in China by the end of 2017. Sales of China's industrial robots that year was around $4.22 billion, a 24 percent increase from a year ago, while sales of service robots were up 28 percent compared to the prior year at $1.32 billion.
China in 2016 added around 87,000 industrial robots — slightly below Europe and the United States combined, the International Federation of Robotics said.
Chinese companies are also using more and more robots in their businesses as the Made in China 2025 campaign encourages automation and intelligent manufacturing. For example, iPhone assembler Foxconn deployed tens of thousands of "Foxbot" factory robots between 2012 and 2016. The Taiwanese manufacturer said it plans to replace more of its workforce with robots over the next decade.
Globally, robots are being used in more areas than just manufacturing.
"One of the hottest areas right now is warehousing and distribution," Jeff Burnstein, president at the Association for Advancing Automation, told CNBC's "Squawk Box."
"Robots are pouring into companies like Amazon, Walmart, Target, Alibaba, you name it," he said, adding that automated machines are even popping up in the retail world.
Chinese tech giant Alibaba has a driverless robot that can carry multiple packages and deliver them to customers. It is currently being tested in Hangzhou, China, and is predicted to go into commercial production by the end of the year, according to reports.
While automation and the growing presence of robots in workplaces create concerns over massive job losses, Eloot said there are many potential positive outcomes. For China, automation could lead to improved productivity that will "further the foundation" for developing the economy, he said.
"You can see that China wants to use robots, wants to use artificial intelligence, digital tools to leapfrog. They know there's a gap and they want to be able to close that gap faster," he said.
— CNBC contributor Joshua Bateman and Reuters contributed to this report.