China's robotics rush shows how its debt can get out of control
By Nathaniel Taplin
WUHU, China (Reuters) - Down a side street bracketed by massage parlors and cheap hotels in this city on the banks of the Yangtze river, a humanoid food service robot trundles around the corner of a table in a cafe, red eyes flashing in tune with synthesized classical music.
The Wuhu Hands On Café's waiter, named "Hero," has no customers on a drizzly Friday morning. He is, though, a symbol of Wuhu city's hopes of becoming a major center for robotics, and the local government's ability to chase that dream through the debt markets, whether it makes commercial sense or not.
"Hero" was the result of six months research at a nearby robotics park that has cost 2.2 billion yuan ($332 million) to establish. For the park's next stage, including a hotel, an exhibition center and a cultural plaza, Wuhu is raising another 1.2 billion yuan through a so-called local government finance vehicle (LGFV), and offering a raft of incentives for firms to set up there.
The problem is it is not alone. Dozens of other medium-sized Chinese cities like Wuhu, which is west of Shanghai in Anhui province and has a population of around four million, have similar robotics park plans.
And the ease with which municipalities can use off balance companies like LGFVs to finance infrastructure - some needed, some not - is rapidly boosting China's already high debt burden. Meanwhile, investors gambling that Beijing will not allow the debt to default while infrastructure remains a critical support for growth, have bid up LGFV bonds to new highs.
Beijing's drive to make the nation a leader in robotics through its "Made in China 2025" initiative launched last year has set off a rush as municipalities up and down the country vie to become China's robotics center.
The investment boom comes as the industry is already showing warning signs of overcapacity, despite increasing demand for robots in auto manufacturing and electronics.
Growth in demand for industrial robots in China fell by more than two-thirds to 17 percent in 2015 – and yet more than 40 robotics parks have sprouted throughout the country in the last two years, according to industry data. In June, the National Business Daily reported Vice Minister of Industry and Information Technology Xin Guobin warning that China's robotics industry is showing signs of over investment and of "a high-end sector becoming low-end." Continued...