China is trying to engineer a robot revolution. Home appliance maker Midea is in the vanguard of change with its Euro 4.57-billion ($5.17 billion) takeover offer for German industrial robot maker Kuka, one of the world's big four. Robots appeal to China because they can replace domestic migrant workers as wages soar. The logic of Midea's bid for Kuka is less obvious.
Replacing people with machines will help push China up the manufacturing value chain. Low-cost manufacturing drove the first wave of economic growth in the People's Republic as workers moved from the fields to the factories. Now rising living costs are driving them home again. President Xi Jinping has a grand vision to transform China from the world's factory into a technological powerhouse under the so-called "Made in China 2025" plan.
There appears to be plenty of official funding for the cause. Last year the southern Chinese province of Guangdong, where Midea is based, announced it would spend $144 billion on replacing human labour with robots including the construction of two advanced robotics-manufacturing facilities, according to Xinhua.
Now private capital is getting stuck in too. Bankers say that tax breaks and cheap credit will flow to companies that buy technology the state wants. Midea can put robots into its own manufacturing processes, and sell them to other companies seeking to do the same.
Yet the Chinese company is paying a hefty premium to join the bandwagon. The offer of Euro 115 per share is an astonishing 60 per cent premium to the price in February when the Chinese company disclosed it had lifted its existing stake in Kuka to 10.2 per cent. It equates to a multiple of 40 times earnings for this year based on forecasts compiled by Eikon. Japanese rival Fanuc trades on just 30 times and has a net profit margin almost six times fatter than Kaku.
It is unclear if existing large shareholders at Kuka will sell out. At these prices, China's robot revolution is hard to ignore.
