On January 14, the Governor of Guangdong Province Ma Xingrui revealed that the GDP of Guangdong Province in 2019 is expected to exceed CNY 10.5 (USD 1.52) trillion, with a year-on-year increase of about 6.3%, which means that Guangdong has become the first province in China with a GDP exceeding CNY10 trillion.
Supporting this outstanding achievement is the strong pillar of manufacturing, which contributed over 40% of GDP.
The Greater Bay Area plan
The Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area or GBA) was initiated in 2013 as part of a development action plan put forth by the Central Government.
The plan includes the outlines for the future development of an internationally competitive first-class bay area by fully leveraging the composite advantages of the nine municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Dongguan, Zhongshan, Jiangmen, Huizhou and Zhaoqing in Guangdong Province and the Hong Kong Special Administrative Region (Hong Kong) and Macao Special Administrative Region (Macao) to create a world-class city-cluster that supports the country's economic development. The development of the GBA is accorded the status of key strategic planning in the country's development blueprint, having great significance in the country's implementation of innovation-driven development and commitment to reform and opening-up.
As one of the country's major economic powerhouses, high-tech and new-industry sectors are powering economic growth, along with the upgrade of traditional manufacturing.
PE/VC investments in smart manufacturing in GBA
The PE/VC investments in GBA are mainly for industrialization, which is closely related to the local traditional industrial accumulation for decades.
In terms of the number of investment events, electronic equipment, industrial automation, and artificial intelligence equipment are among the top three, accounting for 23.88%, 16.42%, and 14.93%, respectively. Regardless of the number of cases or the amount of money, high-tech barrier companies are increasingly favored by investors, which means that the GBA has begun to implement automated technological transformation and machine substitution on a large scale. Moving towards the goals of Industry 4.0 and smart manufacturing, it will gradually get rid of the traditional model of labor-intensive enterprise gathering and will push China's manufacturing towards the mid-to-high end.
The widespread application of information technology and the improvement of technical barriers have accelerated the rise of smart manufacturing. Government agencies, investors, and enterprises have joined forces to promote the transformation and upgrade of manufacturing. EqualOcean used the ITjuzi to compile a list of smart manufacturing startups in GBA which are potential, based on the fundraising amount.
From the perspective of geographical distribution, PE/VC investment in the smart manufacturing industry among cities in the Greater Bay Area is unevenly spread. In the period 2017-2019, only 7 cities had related investment activities, and more than 70% of the invested companies were located in Shenzhen. Guangzhou ranked second.
In addition to developed cities such as Guangdong and Shenzhen, cities such as Foshan, Dongguan and Zhongshan are also adept at making efforts in the smart manufacturing industry. In the planning of the Greater Bay Area, Dongguan is positioned as a smart manufacturing center, while Zhongshan is positioned as an advanced manufacturing base, showing the GBA’s comprehensive top-down design .
In addition, the construction of the GBA has enabled Hong Kong's backbone industries, such as the financial industry and the service industry, to achieve deep integration with the Guangdong region, promoting the further development of high-end manufacturing in the Pearl River Delta region.
Challenges of today's factories
The labor-centric approach has led to some real systematic challenges in manufacturing today.
1. The utilization of full machine capacity in a factory is low; machines sit idle more than half of the time, waiting for the operator and material.
2. Quality continues to be an issue. The scrap rates in these modern factories – often somewhere between 2-5% – add up to a large economic impact on the bottom line.
3. The third problem plaguing factories today is labor turnover.
These 3 things started to be a nasty problem for people to solve some time ago – but this is getting exacerbated now because it's coming at a time when the demand for products keeps rising. The combination of those endemic challenges and rising demand is making trying to solve this problem of capacity a big challenge for manufacturers around the world. Automation today remains hard to scale. It costs too much, takes too long, it really isn't flexible – and it relies on a small number of highly skilled people putting these automation machines in place in the factories.
Software matters for the industry upgrade
People increasingly want products built in a customized fashion to their taste – so manufacturers are really now starting to struggle with the problem of getting to the next big leap in manufacturing when globalization was the last big leap they made.
Manufacturers in the GBA are looking to make this leap in capability and capacity –software is central to the reimagining of Chinese factories, because the software is one of the keys to scaling, along with the robotic/ hardware side of automation.
With better leveraging of the financial advantage of Hong Kong, the GBA is on its way to becoming the next 'international bay area,' with a combination of industry and high tech.