Category Archives: Industry

Too Innovative To Be True

Traffic-straddling busTHE GIANT TRAFFIC-STRADDLING bus that caught this Bystander’s somewhat skeptical eye last year (see above) has gone the way of many an idea that was too innovative for its own good. Nowhere.

Technical and financial shortcomings seem to have done for it, according to press reports. Latest reports say the test track is being dismantled.

Last year, shortly after the (very) short test run of a prototype Transit Elevated Bus (TEB) in Qinhuangdao, the Beijing News reported that the main investment promotor for it was Huaying Kailai, an asset management company blacklisted in 2015 for conducting illegal finance activities. The Global Times said the firm, part of the Huaying Land Group, also ran a peer-to-peer financing scheme that promised high returns but risked running out of cash.

Claims of cooperation agreements between the bus’s maker, TEB Technology Development, and municipal governments appear to have been as spurious as purported orders from three countries in Latin America.

Update: Police have arrested 32 people in connection with the failure of the TEB, including the CEO of TEB and founder of Huaying Kailai Asset Management, Bai Zhiming, and 31 Huaying Kailai employees.

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China’s R&D Gets Ever Bigger Bucks

TARIFF CUTS ON imports of some 200 IT products ranging from touch screens to semiconductors took effect on Thursday. The goal is to eliminate them within seven years.

China is one of 50 countries that signed up to a World Trade Organisation Information Technology Agreement last year to promote trade liberalisation of technology goods. China imports an estimated $325 billion worth a year of the components covered by the agreement. Reducing the duty on them will cost an estimated $2.25 billion a year, rising to a potential $8 billion a year with complete elimination.

However, the benefits of cheaper imports for the IT sector are seeing as outweighing these costs. Beijing is undertaking a drive to promote the development of technology-based industries. To this end, it is also raising research and development spending to 2.5% of GDP by 2020 from 2015’s 2.1%, a change that eventually will fatten China’s R&D pot by $50 billion a year.

Intensification of investment into R&D facilities outside China parallels this. So far this year, Chinese companies have announced nine new overseas R&D centres for a total capital expenditure estimated at $224m, according to fDi Markets, a Financial Times division, with pharma and biotech investments particularly prominent. Only Germany and the United States have spent more.

That will support the transformation of the manufacturing economy from low-end exports to self-sustaining indigenous technological innovation, an essential prop for the rebalancing of the economy overall towards being consumption-led.

Winning domestic market share is the aim for now of Chinese firms’ R&D efforts.  The success some are having is creating an indigenous innovation culture built around rapid, incremental product development that can take advantage of the economies of scale of the domestic market.

However, Chinese firms are closer than ever to competing with developed-economy companies in R&D. Products they are now selling in Africa and Asia, as well as at home, are starting to show the results of that, a harbinger of what will eventually come to developed markets, too.

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The Global Greening Of China

CHINA HAS THREE imperatives when it comes to climate change: to use the issue to cement its growing position as a world power; to deal with its domestic pollution problems so that they don’t become a political issue that could challenge the Party’s primacy; and to establish industrial leadership in ‘green’ technologies including renewable fuels.

The symbolism of Presidents Xi Jinping and Barack Obama jointly ratifying the Paris climate change agreement (Cop 21) will not be lost domestically or internationally. Xi will take the opportunity of the G20 meeting in Hangzhou to reinforce that message that China is at the centre of world affairs and that, as state media put it, developed and emerging countries are “in the same boat, with China charting the course ahead this time”.

The move by the world’s two biggest polluters is clearly a significant step for the climate change deal, which needs 55 nations accounting for at least 55% of the world’s emissions for it to come into effect. China and the United States raise the percentage at a stroke to more than 40% from 1%. It just now needs the EU and a couple of other countries to follow suit to get the deal over the line.

Beijing’s Paris accord commitment is to cut its carbon emissions per unit of GDP by 60-65% from 2005 levels by 2030 and to increase non-fossil fuel sources in primary energy consumption to about 20%. While those targets don’t necessarily mean a cut in absolute emissions levels, it will slow their growth meaningfully. China committed at Paris that they would peak in ‘around 2030’.

The large steps China has taken in energy efficiency and the rebalancing of the economy away from industrialisation and towards more services will aid it in hitting those goals. Becoming more of a low-carbon economy will also help achieve its domestic goals of lessening pollution, a perpetual point of popular perturbation and protest. Environmental NGOs are kept on a short leash for fear they are a seed of political organisation.

At the same time, China has developed into the world’s largest market for hydropower, nuclear, wind and solar energy and increasingly aims to make those indigenous industries, serving both the ambitions of developing low-carbon urbanisation and bringing economic development to some of the poorest but also windiest and sunniest provinces. As relatively new industries, there is also more opportunity for China’s new found desire to be innovative to flourish, as well as for its manufacturers to find new export markets for wind turbines, solar panels and even nuclear reactors.

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China Revs Up Its Jet Engine Making

JET ENGINES FOR aircraft have long been high on Beijing’s lengthy priority list of technologies to be indigenized. The current Five-Year Plan has aviation engines in the top 10 of 100 state-sponsored projects over the next 15 years intended to increase the country’s technological capability.

China has now formally launched the Aero Engine Corp. of China (AECC) to build them, with a ceremony in Beijing on August 28th. Two former Aviation Industry Corp. of China (AVIC) executives, Cao Jianguo and Li Fangyong, were appointed party secretary and chairman and deputy party secretary and general manager respectively earlier this year.

They will be running a company being created out of more than 40 firms working on some aspect of jet engines. These include three listed companies, AVIC Aviation Engine Corp, Sichuan Chengfa Aero-Science & Technology Co. and AVIC Aero-Engine Controls Co.

AECC will have initial capital of $7.5 billion and start with 96,000 employees. AVIC, which makes military aircraft, and Commercial Aircraft Corp of China (Comac), which makes the C919, China’s biggest domestically-produced passenger plane, are investors in AECC along with the government.

Creating a jet-engine behemoth by merging lots of smaller companies fits the pattern adopted for the rail equipment makers and in some basic industries—consolidating the state-owned sector to create national champions that can be globally competitive.

Galleon, a Shanghai-based aviation consultancy, has estimated that China will invest $300 billion over the next 20 years in aircraft engine development, a sector in which progress to date has been weak.

This is all part of a grand vision for advanced manufacturing, encapsulated in the Made in China 2025 document made public in March, which includes the longstanding ambition to rival the world’s two leading aircraft makers, Europe’s Airbus and the United States’ Boeing. Chinese-built airliners will need Chinese-built engines, not those bought from General Electric, United Technologies’ Pratt & Whitney or Rolls-Royce.

It is not just civil airliners that will need Chinese engines. Increasingly so, too, will China’s domestically built military aircraft, which now use mostly Russian engines or inferior Chinese-designed ones. The PLA-Air Force’s J-20 and J-31 stealth fighters, for example, cannot fly at supersonic speeds like their closest rivals without using after-burners, which makes them detectable by radar.

“The founding of [AECC] is a strategic move that will help enhance national power as well as the capacity of the armed forces”, President Xi Jinping said in a message to this weekend’s ceremony, and called for a speeding up of R&D and manufacturing of aircraft engines “to make China an aviation industry power”.

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Straddling Buses And Wireless Trams

 

Traffic-straddling busA GIANT TRAFFIC-STRADDLING bus (seen above) has caught the world’s attention, but it may be a different public transport technology that has the lasting impact.

The day after a prototype 2 metre-high Transit Elevated Bus made its inaugural test run along 300 metres of track in the northeastern city of Qinhuangdao in Hebei province, China’s first fully indigenous super capacitor (‘supercap’) tram rolled off the production line in Zhuzhou in Hunan province.

Both tick several boxes for China: road-congestion reduction, green transport that will lower carbon emissions and cutting-edge technology.

The electric-powered Transit Elevated Bus can carry 300 passengers, with, its manufacturers say, up to four of its 21 metres long by 7.5 metres wide units eventually being able to be strung together.

It runs along a track that can be laid on an existing road and sweeps over the traffic below (or at least over vehicles low enough to fit under) at speeds, it is said, that will eventually reach up to 60 kilometres per hour. It is touted as being like a subway system without the need to build the tunnels, thus reducing construction costs to a fifth of that of constructing a new subway line.

CRRC ZELC supercapacitor tramThe super capacitor tram  (seen above) does not have the futuristic look of the elevated bus. It looks like, well, a tram. Built by the electric motor division of the giant state-owned rolling stock manufacturer CRRC Corp., ZELC, the tram can carry up to 380 passengers and travel at 70 kilometres per hour. Its key feature is that its batteries can be fully powered in 30 seconds — i.e. while it is stopped to take on or put off passengers — so there is no need to install unsightly fixed lines above the track to provide the power.

The technology is at least a decade old and lets trams run for up to 5 kilometres on a single charge. Centenary-less supercap trams using technology from Germany’s Siemens are already running Guangzhou. Nanjing will be next. China’s cities have 5,000 kilometres of tram track with plans to have half as much again by 2020.

But why bother with tracks at all? Super capacitors can also be used to charge electric buses. ZELC has already developed a prototype in Ningbo, a bus that still travels on the road rather than over it.

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State-Owned Enterprise Reform Slogs On Slowly

TWO THINGS WILL emerge — eventually — from China’s reform of its state-owned enterprises (SOEs): the elimination of a lot of redundant capacity in heavy industry and some multinationals that are strategically important domestically and formidably competitive internationally.

China has 111 centrally owned SOEs (those under the State-owned Assets Supervision and Administration Commission), down from 196 in 2004. The goal is to more than halve the number to around 50.

The consolidation of heavy industry, which accounts for more than two-thirds of SOEs, will let that target be attacked forcefully. Capacity reduction, particularly in steel and coal, is a policy priority in the near term.

That will drive consolidations. So, too, with inefficient and unprofitable, or zombie, SOEs in all sectors. Making globally competitive SOEs, particularly those that can underpin and benefit from the ‘One Belt, One Road’ initiative, will also be undertaken by horizontal and vertical merger and acquisition.

Similarly, SOEs that operate in sectors identified as strategically important: vehicle making, ‘green’ industries, information technology, biosciences, advanced engineering (from defence to aerospace, robotics and advanced transport), energy (nuclear and renewables) and new materials. AVIC in aerospace and CRRC in high-speed-rail equipment are examples of merging existing SOEs into huge monopolists that can dominate the domestic market and provide a platform for international sales (just, it seems, the same way Western companies are going).

The intention is to reinforce government control over core industries while opening up some parts to private and, particularly in financial services and telecommunications, to foreign investors. The intention of what is delicately called ‘mixed ownership’ is to drive improvements in governance, competitiveness and efficiency. Wholesale privatisation is not on the cards, though some spin-offs, such as Sinopec’s sale of its retail division, are.

A contradiction in all this is that the current five-year plan, to 2020, calls for its ambitious growth target (average annual GDP growth of 6.5% to vault the ‘middle-income trap‘) to be achieved through innovation based on entrepreneurship and advanced technology, not oligopolistic state capitalism.

Yet economic decision making is being centralised as warp and woof of the Party’s reassertion of its political control.

At the same time, SOE reform is proceeding slowly (too slowly for the IMF) in the face of stiff resistance from long-standing interests that feel endangered and the anti-corruption investigations that are being used by President Xi Jinping to break it. The Maoist tradition of regarding SOEs as economic arms of political institutions (and the politicians that control them) has deep roots.

A similarly live memory is of the social unrest that followed Prime Minister Zhu Rongji’s round of SOE reform in the 1990s. Then, tens of millions of workers lost their jobs and the big state-owned banks carrying the SOEs bad loans had to be bailed out.

Even though SOEs have steadily withdrawn from labour-intensive industries over the past two decades and they no longer get favoured policy loans to the extent they once did, the risk of social unrest remains a significant reason that this latest round of SOE reform will proceed slowly.

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Two Deals Highlight China’s Push To Make Self-driving Cars

A couple of relatively small recent M&A deals have caught this Bystander’s eye.

Auto parts maker Ningbo Joyson Electronic Corp. said it had signed the deal it announced in February to pay $920 million for Key Safety Systems Holdings, an American firm that makes airbags for cars but, more critically to this deal, is developing collision avoidance technology and other autonomous car-safety systems. Ningbo Joyson’s other deal is a $205 million acquisition of TechniSat Digital, a German maker of sat nav systems.

Where the deals fit into the broader scheme of things is that both sets of technology are needed for the development of self-driving vehicles. China, the world’s largest auto market, does not want to be left behind in what promises to be the next revolutionary development in the car industry and a potentially whole new industry of shared mobility services.

Hitherto, much of the research in this area has been done by the military. The National University of Defence in Bejing is reported to have road tested a prototype driverless car in 2011 and the Military Transportation University in Tianjin to have done so the following year.

Commercializing military technology to help push China’s manufacturers up the value chain appears to have been given the green light, with autonomous vehicles a clear early application. Easing traffic congestion and air pollution and improving road safety are three reasons that the government would put its weight behind the initiative. Beating out the U.S. and Europe in a new, technologically driven market would be another.

State media have reported that the National University of Defence plans to cooperate with FAW Automotive, one of China’s ‘Big Four’ vehicle makers, to develop driverless vehicles.

In an uncanny echo of Google’s venture into autonomous vehicles, the search engine Baidu has teamed up with Germany’s BMW to focus on self-driving buses and jitneys. Its target is to have them operating on the roads by 2019 and in mass production within five years. Yutong, China’s largest bus builder, has already tested a prototype of its own.

Baidu spent $10 million buying Indoor Atlas, a data mapping company, and is developing Baidu Brain, a system to improve image recognition. It road tested a prototype car (a converted Series 3 BMW, not a bus) at the end of last year.

Volvo, which is owned by Zhejiang Geely, also plans to test 100 driverless cars in cities around China, though details are sketchy.

The Boston Consulting Group has forecast that China will be the world’s largest self-driving market by 2035. Ningbo Joyson’s deals suggest it believes that forecast will prove well founded.

Update: Changan, one of China’s ‘Big Four’ automakers, has sent a self-driving sedan on a 2,000 kilometre trip from its research headquarters in Chongqing to Beijing, claiming to be first Chinese automaker to undertake such a lengthy driverless journey.

 

 

 

 

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