In a comprehensive report, it has been found that after a decade of development and amidst fierce competition among lower-end products and the loss of dominance in higher-end products, China’s machine tool technology still faces a bottleneck imposed by foreign technologies.
Analysts point out that as early as the “Eleventh Five-Year Plan” in 2015, the Chinese Communist Party promised to “significantly reduce” reliance on foreign high-end machine tool technology by 2025. However, the lackluster performance of China’s domestic industries and the constantly changing priorities of the CCP government are hindering this progress.
High-end machine tools used to manufacture a wide range of products from jet engine parts to microcircuit board components are still manufactured in China by European, Japanese, and American companies and supplied to China. Currently, the localization rate of high-end CNC machine tools in China is less than 10%, with over 90% relying on imports.
Qiu Mingda, a senior China analyst at the Eurasia Group, told the Financial Times that machine tools are the foundation of everything and an indispensable part of the supply chain.
China particularly lacks the hardware and software for manufacturing and operating high-precision computer numerical control (CNC) machine tools, a technology that has long been dominated by German company Siemens and Japan’s Fanuc.
Morten Paulsen, head of Japanese research at Lyon Securities, stated in an interview with the Financial Times that Siemens and Fanuc constitute a duopoly in the high-end machine tool market, with little hope for other market entrants to gain access as it’s like trying to sell homemade operating system computers to the market.
An employee of a Chinese machine tool manufacturer, who preferred not to reveal their identity, also informed the Financial Times that Siemens and Fanuc still have a better brand positioning, and they themselves prefer using Siemens and Fanuc’s controllers rather than domestically produced ones.
According to data from the Bank of America, foreign machine tool companies occupy about two-thirds of the Chinese market, with Fanuc, Mitsubishi, and Siemens holding 33%, 20%, and 16%, respectively.
In a report by mainland Chinese media “Huashang Taolue” in 2020, it was reported that almost all of the 18 major Chinese machine tool state-owned enterprises were in dire straits, questioning how this so-called “national key industry” had reached such a disastrous state. With lower-end battles, middle-end struggles, and high-end losses, companies are striving to survive amid fierce competition.
The machine tool industry has high technological barriers, emphasizes specialized division of labor, and requires long-term accumulation, a typical industry characteristic. Siemens and Fanuc have both been champions in the field, focusing their efforts in specific areas for an extended period.
However, Chinese machine tool enterprises tend to pursue rapid expansion once they achieve some level of success, leading to difficult situations as witnessed by state-owned machine tool giants such as Shenyang Machine Tool Plant and Dalian Machine Tool Plant that were once top-ranking but are now facing insurmountable challenges.
Liu Junqi, a machine tool analyst at Northeast Securities, told the Financial Times, “If every company blindly pursues scale, maintaining long-term investment becomes challenging.”
Currently, Chinese companies are competing in the low-end market by engaging in cost competition, attempting to gain market share by lowering prices.
A recent report by the China Machine Tool Tool Industry Association pointed out that in 2024, the industry’s revenue decreased by 5.2%, reaching 1 trillion yuan, with profits plummeting by 76.6% to 26.5 billion yuan, attributed to “intensified vicious competition” further eroding profit margins.
On the other hand, Beijing is focusing on technological developments in areas such as chip manufacturing and space exploration rather than cutting-edge CNC machine tools, although these sectors also require machine tools.
Moreover, with the collapse of the real estate market leading to inadequate government revenue, local governments in recent years have gradually reduced support for machine tool enterprises. This exacerbates the already vicious cycle these enterprises are facing.
Paulsen told the Financial Times that Beijing has already started shifting its focus from machine tools to robots, but the machine tool industry “cannot be profitable without government support.”
He further stated that in 2021, China transitioned from a net importer to a net exporter of machine tools, yet many machine tools manufactured in China and sold internationally are produced by foreign companies operating in China.
So far, China has made significant progress in artificial intelligence, solar energy, and electric vehicles, but has struggled to develop machine tools vital to the manufacturing industry.