China Automation Market Consultation

Over the ten years of high-speed development, the Chinese automation market has already had a considerable scale, with product
categories being extremely rich, application fields constantly expanding, suppliers gradually increased, and channels increasingly
mature. Now, more and more foreign manufacturers begin to pay attention to the Chinese automation market.

Since the Chinese automation market has reached the sales revenue up to 19.46 billion USD in 2008, it has boasted a signiicant
position in the world. The product market takes up 57% of the overall Chinese automation market while the service market accounts
for the rest about 43%.

I. In the Recent 10 Years, the Chinese Automation Product Market Takes on an Annual Growth Rate of 15.8%.
Over the past decade, the Chinese automation product market maintained an annual growth rate of 15.8%, far above that of GDP
in the same period. Two factors that mainly stimulate the growth are: the growth of the OEM market spurred by the progress of the
Chinese manufacturing industry; the growth of the End User (EU) market driven by the progress of the Chinese heavy chemical
industry.

Figure 1. General Situation of the Growth of the Chinese Automation Market^¹ 1998-2008

Data source: gongkong®

II. The End User (EU) Market Takes up Approximately 2/3 of the Automation Market.

Figure 2. Industrial Distribution of the Chinese Automation Market 2008

Figure 3. Contrast between Chinese OEM Market and EU Market

III. The Chinese Automation Market Has Already Boasted Very Rich Product Categories.

After ten years of development, the Chinese automation market has already boasted very rich product categories, with different
application width and depth for different products. For example, PLC has already been the automation product applied maturely, while
high-voltage inverters are in a quickly developing period.

Figure 4. Product Distribution of the Chinese Automation Market 2008 (by Sales)

IV. Foreign Brands Hold about 3/4 of the Overall Chinese Automation Market.

The current Chinese automation market is primarily dominated by foreign brands which account for about 75% of the overall market,
while the rest 25% is taken by local brands. Manufacturers can be divided into the following three categories:

● European and American brands are the mainstream, occupying the medium and high segments of the market. Major brands:
Siemens IA&DT, Emerson, ABB, Schneider, Rockwell, Invensys, and Honeywell, etc.;
● Japanese brands hold the medium segment of the market, and major brands are: Mitsubishi, Omron, Yaskawa, Yokogawa, and so on;
● Local brands mainly take the low-end market with large quantities and ierce price competition.

The above three categories of manufacturers have distinct discrepancy in terms of organizational structures, market positioning,
product speciicities, channel systems and so on. For the time being, an interpenetrative tendency exists among the three categories
of manufacturers, that is, the high-level brands constantly develop medium- and low-end products so as to expand the market; and
local manufacturers also continuously upgrade products, expecting to break through the more proitable high-level segment of the
market.

V. Inluence of the Financial Crisis

In 2009, the inancial crisis starts to spread, which also permeates into the Chinese automation market. Passing by 10 years of glory,
the automation market, rich and plump at one time, feels the “pan” arising from slimming in 2009 for the irst time. It is indicated from the gongkong® Index that the overall Chinese automation market shrunk 11% in the irst quarter, but began to be recovered from the third quarter, and it is predicted that, in the fourth quarter of 2009, it will be warmed up to the level of the same period of last year.

Figure 5. gongkong® Index^² (an Prosperity Index of the Chinese Automation Market) in the Fourth Quarter of 2009

Seen from the manufacturer side, by the third quarter of 2009, most automation manufacturers had felt helpless to see the negative
growth only appeared several years ago. Influenced by such factors as business modes, target markets, Yen appreciation, and
productivity limitation, etc., Japanese enterprises witnessed more gloomy performance.

From the perspective of the industry, a majority of automation application industries seemed to run at a weak state, especially the
automation market in the metallurgical industry even saw almost 50% shrinkage in the irst half year. However, there are still a few
industries wonderfully showing a stable and even high-speed growth and becoming the straw to clutch at for some automation
manufacturers. These industries are:

● Industries promoted by national policies. The industries related to clean energy such as nuclear power and wind power, etc., as well
as those stimulated by the direct investment of government such as railway, rail transit, and water treatment and so on. However,
as most of the industries have higher thresholds, limited enterprises will be benefited. Moreover, there will be very few market
opportunities really brought to the traditional automation market. Consequently, some markets only “look very nice”.
● Industries less affected by the economic cycle. The industries closely interrelated with people’s life, such as food and beverage
production, packaging equipment, and pharmaceutical equipment, etc. These segments still keep a stable growth more than GDP. In
addition, the basic industries which have an impact on the national economy and people’s livelihood, petroleum and national gas for
instance, continue showing a stable development.
● Besides, even inside an industry suffering a downturn, a fairly good growth can still be found in some sub-industries.

VI. Forecast for the Future

The rapid growth in the past decade will be hard to see in the next ten years since the Chinese automation market is transiting from
the extensive to the intensive. As the products are gradually promoted, the applications are further deepened and the competition
becomes increasingly intense, the Chinese automation market needs more reined farming. Furthermore, the future market share will
depend on today’s insight and investment of suppliers. It is believed by us that suppliers should pay more attention to the following
aspects in the next decade:

● Emerging markets brought by energy, environmental protection and recycling economy;
● Equipment updating and optimized control aroused by industry upgrading;
● Regional market opportunities brought by the coordinated development of regional economy;
● Updating and service markets given by the huge inventory market.

gongkong means industrial control in Chinese, while gongkong® is the most authoritative and professional brand committed to providing automation marketing and consultation services. The website www.gongkong.com, a part of gongkong® , is regarded as
the most successful consultation and information service provider in the Chinese automation market. Until now, gongkong®
has released more than 180 automation market assessment reports for seven continuous years, covering a variety of product ields such as controllers, drive, motion control, sensors, process instrumentation, industrial network communications, automation software and so on, and including lots of market elements of market size, market share, development trends, industry markets, suppliers, channels, prices, technologies, user demands and so forth. Additionally, gongkong® is appointed by over 30 mainstream suppliers every year to carry out special customized market research projects.

^¹The scale of the automation product market herein refers to the value of the goods sent from the suppliers and excludes the 17% value-added tax. The specific products the automation market contains are shown in the chart below indicating the product distribution conditions of the Chinese automation market.

²gongkong® Index is a real-time index system indicating the current situation of the automation market, predicting the market tendency, and evaluating the development of the automation industry. It takes the size of the Chinese automation mainstream market as the base (100 points) and calculates and updates data quarterly using a ratio method. Born in the “First gongkong® Year” when the global economy witnessed changes and the automation industry underwent transformation, gongkong® Index is a professional index system recording, relecting and predicting a new turn of the growth of the automation market and industry based on the last lourishing age and starting from the next.

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