China’s manufacturing industry is finally on the mend after a turbulent few years. It has transitioned from a low-end manufacturing and labor-intensive industry to a high-end manufacturing centre supported by technology. Automation and robots have the potential to modernize China’s manufacturing industry while also increasing labor efficiency and reducing labor shortages. Companies and investors, predictably, want to cash in on this trend.
For a long time, robotics has been a trendy topic, but its popularity has exploded in recent years. According to market research firms, the sector received $6 billion in investments and finance in 2021 and is predicted to treble in size in five years. However, when these investments will yield a satisfactory return is unknown. Robotics is the largest bubble in China’s venture capital business, with a lot of speculation and inflated companies. Compared to previous investment bubbles in the last ten years, this one is larger in magnitude, lasted longer, and has the potential to be more damaging.
Many publicly traded firms no longer use the price-to-earnings ratio, and the market-to-sales ratio has been abandoned. The “burst” can, however, be completely avoided. On both sides of the negotiation table, investors and companies must return to business basics and resist the industry’s normal impatience for exits.
We are seeing a partial and cyclical overheating of the market in China because of the influx of capital investment. Because many institutions that invested in Internet companies are also rapidly entering this industry, many investors caught up in this investment tide are imitating the software investment approach. So, what is causing this uptick? Everything from Chinese government policy to the establishment of the Science and Technology Innovation Board has provided an easy departure route. The attempt to modernize China’s industrial structure is exacerbating the trend.
However, it is critical that investors do not apply software-investing standards to investments in industrial technologies. For starters, the time from investment to exit is different. When compared to internet companies, robotics and other industrial technology are relatively long-term investments. Internet companies can go public three to five years after investing, but industrial technology companies may take twice as long or longer.