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Introduction: China is a manufacturing powerhouse, yet when Chinese tourists travel abroad, they go on shopping sprees buying toilet seats, air purifiers, and baby formula… The price of domestically produced crude steel is almost the same as cabbage, indicating overcapacity as a major burden, while high-quality and special steel still needs to be imported in large quantities. This indicates a problem on the supply side.
In fact, this phenomenon has long existed in the scientific instrument industry.
In the instrumentation industry, my country is a major exporter of electricity and water meters, but in the field of high-end scientific instruments, it has to rely on imports. A previous survey examined 60,000 testing instruments in some domestic laboratories, and 90% of them were imported.
What changes will the trend of supply-side reform bring to the domestic scientific instrument industry?
Three Major Dilemmas of Domestic Scientific Instruments
Li Yueguang, Vice Chairman of the China Instrument and Control Society, explained that in recent years, there has been a trade deficit between domestic and imported instruments. From 2012 to 2014, the deficits were US$17 billion, US$16.6 billion, and US$17.7 billion, respectively.
The "2015 China Scientific Instrument Industry Development Report" indicates that in 2015, the total import and export volume of the instrumentation industry reached US$67.6 billion, marking the first decline since 2003. Imports amounted to US$41.4 billion, while exports reached US$26.2 billion, resulting in a trade deficit of US$15.3 billion, a six-year low. Weak domestic market demand and improved capabilities of domestic enterprises led to a significant decrease in imports. The sluggish international market impacted both the export of high-end products by foreign-invested enterprises in China and the export of low- and mid-range products by domestic enterprises. The combined effect of these two factors contributed to the reduction in the trade deficit.
However, the long-term trade deficit is merely a symptom; the root cause lies in the insufficient competitiveness of domestically produced scientific instruments.
A predicament aptly describes the current situation of domestically produced scientific instruments.
The first predicament is the small and fragmented nature of instrument enterprises.
“The root cause of the trade deficit lies in the long-standing weakness of my country’s scientific instrument industry, which lags far behind foreign companies,” said Yan Zengxu, consultant of the China Instrument and Control Society. “Most of our exports are low- to mid-range instruments or components; very few domestic companies can export complete testing instruments.”
“The industry is small-scale and fragmented, with 95% of companies having annual revenue below 100 million yuan, and none exceeding 1 billion yuan. The vast majority of companies focus on low-end products and are still at a stage of ‘being content with their small profits,’” Yan Zengxu said.
The second predicament is that research institutions only buy imported instruments and not domestically produced ones.
On April 20, 2015, the Ministry of Agriculture published a “Unified Bidding and Procurement Announcement for Instruments and Equipment for Key Laboratory Construction Projects of the Ministry of Agriculture” on its website. This announcement quickly made the Ministry of Agriculture the focus of public opinion. Jiang Shiqiang, executive director of the China Instrument and Control Society, who participated in the project's demonstration and discussion, discovered after carefully reviewing the list of instruments to be procured that, of the 506 instruments and equipment to be procured, imported instruments accounted for a staggering 97.8%, while domestically produced instruments and equipment accounted for only 2.2%.
This is actually a true reflection of how Chinese research institutions purchase instruments.
In recent years, my country's investment in scientific research has increased significantly. Some research units, when purchasing instruments, only buy imported ones, even if the price is more than ten times higher than domestic ones. Some jokingly say that once research funding is allocated, most of the money goes to foreign instrument manufacturers, and stimulating domestic demand actually stimulates the economies of other countries.
In the field of testing instruments, foreign companies such as Shimadzu and Agilent have long dominated the Chinese market. For laboratory testing instruments with almost identical functions and parameters, imported instruments are nearly 50% more expensive than domestic ones, yet they remain the first choice for customers.
The third predicament is the homogenization and price war among domestically produced instruments.
Many domestic instrument manufacturers follow the trend of producing whatever instruments are profitable, leading to fierce competition and homogenization within the industry. This homogenization manifests directly as price wars. "A gas chromatography system with two detectors used to sell for 80,000 yuan, but now it only sells for 20,000 to 30,000 yuan," Yan Zengxu explained. "Profit margins are squeezed very low, and companies still have to cope with rising labor costs, resulting in a lack of R&D investment. Many companies have extremely limited mastery of core technologies and can only rely on their existing capabilities."
Like rowing against the current, if you don't move forward, you fall behind. Companies without R&D investment will naturally decline and become increasingly unacceptable to the market.
Innovation and Cultivation of Domestic Scientific Instruments
Why do Chinese consumers go to Japan to buy toilet seats, only to find that the manufacturers are actually in Hangzhou? This is because the competitive environment and supply system within my country's supply chain are flawed.
The domestic market is chaotic, preventing high-quality products and brands from standing out.
And the scientific instrument industry also suffers from this problem. Several industry insiders revealed that a significant portion of low- to mid-range testing instruments are manufactured in China, bought by foreign companies, rebranded with foreign names, and then resold at higher prices in China.
The root cause of this lies in the lack of authoritative and impartial evaluation for domestic products. Consumers' "blind faith" in foreign products and "distrust" of domestic products reflects the inadequacy of fair competition and survival-of-the-fittest mechanisms within the existing supply structure.
Although supply-side reform is a frequently used term this year, the Capital Science and Technology Conditions Platform has actually been working on this in the scientific instrument industry for some time.
The Beijing Municipal Science and Technology Commission launched the Capital Science and Technology Conditions Platform in 2009. Since 2009, the Beijing Municipal Science and Technology Commission, in conjunction with the Chinese Academy of Sciences, Peking University, Tsinghua University, China Electronics Technology Group Corporation (CETC), and other universities, research institutes, and large enterprises, has integrated 743 national and Beijing municipal key laboratories and engineering centers in the capital region, opening up 40,500 sets of instruments and equipment worth 20.9 billion yuan to the public for sharing. This has facilitated the transfer and transformation of 636 relatively mature scientific research achievements and gathered 10,403 experts, including academicians of the Chinese Academy of Sciences and the Chinese Academy of Engineering, and Changjiang Scholars, forming a large-scale pattern of open access to instruments, equipment, scientific and technological achievements, and R&D service personnel. The establishment of the Capital Science and Technology Conditions Platform has provided important resource support for promoting the development of domestically produced instruments and enhancing the competitiveness of China's scientific instrument industry.
The Capital Science and Technology Conditions Platform Testing and Certification Center is a professional service platform jointly established by the Beijing Municipal Science and Technology Commission, the Beijing Municipal Bureau of Quality and Technical Supervision, and the Beijing Entry-Exit Inspection and Quarantine Bureau, focusing on the field of testing and tool R&D. The goal is to integrate the resources of various innovative entities with testing and certification qualifications, and to integrate the scientific and technological resources of analytical testing instrument R&D institutions, to build an innovative service platform covering the entire process and chain of instrument R&D, production, and application; and a common technology service platform dedicated to improving testing services and capabilities. The center undertakes the organization, management, and service work for the Beijing area projects of the Ministry of Science and Technology's National Major Scientific Instrument and Equipment Development Special Project and the Capital Science and Technology Conditions Platform Scientific Instrument Cultivation Project.
The center explored innovative methods for serving industry enterprises and launched the verification and evaluation research and application work of domestically produced testing instruments and equipment on the Capital Science and Technology Conditions Platform.
Zheng Huanmin, Deputy Director of the Beijing Municipal Science and Technology Commission, explained: "The innovation and cultivation work of domestically produced scientific instruments and equipment in Beijing was established in 2012 along with the National Major Scientific Instrument and Equipment Development Special Project."
After extensive research and demonstration by industry experts, this cultivation project must be based on two points:
The first point is the original innovator. Currently, the Capital Science and Technology Conditions Platform has accumulated 20.9 billion yuan worth of instrument and equipment resources, many of which are high-end, with a large portion being imported. The country has invested heavily in laboratories, laying the foundation for technological innovation with equipment and methods. In the long-term process of scientific and technological research, many new research methods and results have also emerged, but many of these results remain in the laboratory and haven't yet been disseminated.
The second point is the demand side. Beijing's testing institutions, including central enterprises, enterprise groups, universities, and research institutes, receive a large amount of instrument and equipment purchased annually from the national fiscal science and technology funds. This represents the demand side for instrument and equipment. How can this demand side play a role in supporting the innovation and industrial development of instrument and equipment? How can the various technologies and methods in key laboratories play a role in supporting the innovation and improvement of domestically produced instrument and equipment products?
Based on these two points, the Beijing Municipal Science and Technology Commission and the Beijing Entry-Exit Inspection and Quarantine Bureau jointly established the Capital Science and Technology Conditions Platform Testing and Certification Center, undertaking projects for the verification and comprehensive evaluation of domestically produced testing instruments and equipment. Zheng Huanmin pointed out that the continuous cooperation over the past few years has yielded positive results for companies like Jitian and Puxi, forming a collaborative working mechanism involving enterprises, key laboratories of the capital's science and technology resources, and testing institutions. This has also established certain working systems and models. Building on these achievements, the next step is to promote this model in conjunction with the National Major Project for Instrumentation and Equipment.
Supply-side reform in the instrumentation industry should proceed in two steps.
Great scientific breakthroughs cannot be achieved without the support of advanced and precise scientific instruments. A report from the U.S. Department of Commerce's National Bureau of Standards states that while the total output value of the instrumentation industry accounts for 4% of the total industrial output value, its impact on the national economy reaches 66%. Instrumentation acts as a huge "multiplier" for the national economy, exerting a powerful driving force on overall social development.
Recently, a report released by a foreign research institution predicts that China plans to invest approximately 3% of its GDP in R&D, and is expected to become a global leader in R&D by the end of 2019. This positive outlook for the Chinese scientific instrumentation market indicates broader market opportunities for the upstream and downstream industries of the instrumentation sector. During the 2016 Two Sessions, delegates focused on advancing supply-side structural reform as the starting point for the 13th Five-Year Plan. The key to advancing supply-side structural reform is improving the quality and efficiency of economic growth and comprehensively enhancing the productivity of all factors of production in China.
"Supply-side reform should include scientific instruments," said Cui Xiangqun, an academician of the Chinese Academy of Sciences, during this year's Two Sessions. She acknowledged that while foreign instruments may be superior in quality and precision to domestic ones, with the continuous progress of domestic science and technology, some instruments can completely replace imports. "Without the test of the domestic market, it's difficult for domestic instruments to improve, and some manufacturers even face the risk of bankruptcy, which is abnormal."
She agreed with Wang Daheng's view: Instrumentation is not only crucial to national economic and social development but also related to national security and people's health. As a special industry, instrumentation cannot rely entirely on market regulation; it must adhere to independent innovation and development, and its industrialization must be distinct from other industries. The state must give it full attention and strong support.
Regarding supply-side reform in the scientific instrument industry, Yan Zengxu believes it should be implemented in two steps.
First, it is urged that domestically produced instruments should be purchased whenever possible, provided they can meet the demand. "Not all testing needs are high-end. In the petrochemical field, sometimes chromatography instruments are used to test only one indicator, and domestically produced instruments can fully meet this requirement."
Second, the domestic instrument industry needs to transform and upgrade, pursuing a path of specialization and refinement. Advanced scientific instruments and equipment are not only a prerequisite for knowledge and technological innovation, but also one of the main contents of innovative research and an important manifestation of innovative achievements. Therefore, supply-side structural reform in the scientific instrument industry needs to be led by innovation.
Liu Xiande, Director of the Science and Technology Standards Department of the Certification and Accreditation Administration of the People's Republic of China, pointed out: "Supply-side structural reform means strictly controlling quality through advanced testing instruments and comprehensive industry standards."
"The instrumentation industry is a small industry, yet it has a wide variety of products. Currently, homogeneous competition in the instrument industry is very serious, and the final result of price wars will inevitably be mutually destructive. Therefore, it is necessary to guide enterprises to take a path of competitive differentiation. Even for the same product, there should be its own market direction." Yan Zengxu cited the example of many small German companies that don't earn much money, but have focused on only one area for decades or even generations, which is very rare. There are forty to fifty chromatography companies in China, while in Japan, it's mainly just Shimadzu.
"Companies shouldn't just do whatever is profitable; they need to set long-term goals and focus on in-depth research," Yan Zengxu frankly stated. "Whether from the perspective of supply-side reform or based on the current state of our industry, specialization and refinement are essential."
In 2006, the State Council issued the "Opinions on Accelerating the Revitalization of the Equipment Manufacturing Industry," which proposed a policy of "encouraging the ordering and use of domestically produced first-of-its-kind major technical equipment," requiring targeted arrangements for a number of major technical equipment localization projects.
"It is precisely because of the guidance of the first-of-its-kind policy that my country's automation control systems have benefited, developing well in fields such as thermal power, metallurgy, and nuclear power. Now, domestically produced automation control systems can compete with foreign companies like ABB," Yan Zengxu believes. He also thinks the ongoing project for the verification and comprehensive evaluation of domestically produced testing instruments and equipment is a policy direction for promoting domestically produced instruments. "Its impact may not be immediately apparent, but in three, five, or even longer years, we will definitely see progress in the domestic instrument industry."
