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October 20, 2016

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Chinese firms to lift R&D spending

OFFICIAL investment figures may be feeble, but exporters at China’s largest trade fair say they are ploughing more money into robotics, industrial automation and new product development to offset rising costs.

At the Canton Fair, which kicked off at the weekend for companies in the household electronics, decorative materials and building sectors — other sectors follow later in the month — more than 80 percent of companies quizzed by Reuters said they would be spending more next year.

That would represent a significant shift if matched throughout China’s economy. Official data yesterday showed private-sector investment in fixed assets in the first nine months grew just 2.5 percent, picking up from a record low of 2.1 percent in the first eight months.

Kison Van said his company, Ningbo Cixi Import and Export Holdings, which makes fans and heaters, needs to develop three to four new products every year to stay competitive.

“It’s important to continuously invest in R&D because once a new product comes out, you see it everywhere at the Canton Fair,” said Van. The fair sprawls over 1.2 million square meters almost twice the size of the world’s largest mall.

More than 65 percent of the 103 exhibitors polled by Reuters in Guangzhou expect to boost spending by up to 20 percent in 2017, while 16.5 percent expect to raise spending by above 20 percent.

That will be welcome news to the government, as China’s private companies, which make up the bulk of exhibitors at the fair, are a crucial engine of growth for the economy, unlike the largely inefficient and indebted state-owned sector.

China’s economic growth slowed to a 25-year low of 6.9 percent last year, and third-quarter figures released yesterday put it on track for about 6.7 percent this year.

Economists say the country’s mid-sized private companies are the primary source of investment, innovation and productivity growth.

Heavy machinery manufacturers at the fair said they spend over 30 percent of their investment capital upgrading production lines each year, while many building materials and household equipment makers said they were pumping money into automation.

China is achieving average annual growth of 18 percent in research and development spending, compared with just 1.4 percent across the rest of the world’s upper-middle-income countries, according to the UNESCO Institute for Statistics.

While most exporters surveyed aim to boost spending, around 20 percent said they planned to cut investment. Other sectors that may be under pressure as global growth slows, such as textiles and apparel, will feature later at the fair, which runs until November 4.

China is increasingly moving to modernize its manufacturing industry with robotics and automation, driven in part by a shortage of skilled workers and rapidly rising wages that threaten to erode its appeal as a low-cost workshop to the world.

“Robots do a better job than workers; the quality is more stable,” said Selina Song, general manager of Zhejiang Momali Sanitary Utensils Co.


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