Company breaks foreign brands' dominance

Servo system provider Hechuan Technology, based in rural county, advances to forefront of field, aims for world-class quality

Editor's note: China aims to nurture 10,000"little giants" from 2021 to 2025 amid an ambitious plan to trigger the vitality of small and medium-sized enterprises in its sprawling industrial economy. "Little giants" typically specialize in niche sectors, command high market shares and boast strong innovative capacity. To be termed a "little giant", a Chinese firm must see a minimum 5 percent year-on-year average growth rate of its main business income or net profit in the past two years. More importantly, it must have two valid invention patents or other similar proof of its innovation capabilities, and at least 3 percent of its top line must be dedicated to R&D, among other financial and operational criteria. China Daily explores how they help the world's second largest economy stabilize its industrial and supply chains, navigate headwinds from the COVID-19 pandemic and achieve breakthroughs in technology bottlenecks.

"Did we get cheated?" That was the thought that private equity company official Chen Ze said went through his head when he first visited the headquarters of a high-tech company his employer planned to invest in.

The offices of Zhejiang Hechuan Technology Co are located in a small, rural county in Quzhou, Zhejiang province, which Chen, managing director of Fortune Capital, said seemed like an improbable location.

Chen and his team had taken high-speed trains and taxis before setting out on foot along country roads.

"Does the company have crucial technologies developed by itself, or is it just producing products based on foreign patents?" Chen said he asked himself amidst the pastoral scenery.

But after extensive talks with Hechuan's management team, Chen said he understood the core competence and technological prowess of the company, a pioneering Chinese firm focusing on industrial automation products and services.

Hechuan, founded in 2011, was among the first domestic companies that broke the dominance of foreign brands in the Chinese servo system market.

Servo systems are self-contained devices that use electronics and gears to transmit precise motion control for many uses. They have become crucial high-end components in advanced manufacturing and industrial automation control.

At the heart of precise and flexible manufacturing, they are widely used in sectors such as semiconductors, consumer electronics, photovoltaics and medical devices. For a long time, China had to rely on imports to meet its growing demand for servo systems until domestic brands such as Hechuan made breakthroughs in homegrown technologies.

Hechuan had become the No 2 Chinese maker of servo systems, and China's top industry regulator has classified it as a "little giant".Companies classified as such are smaller, often startups, with special products and know-how in important sectors. Its customers include big names such as Foxconn Industrial Internet Co Ltd, battery giant Contemporary Amperex Technology Co Ltd, logistics heavyweight SF Express and carmaker BYD.

In April, Hechuan made its debut on the Shanghai Stock Exchange's Science and Technology Innovation Board, also known as the STAR Market, raising 893 million yuan ($132.5 million) to finance its digital manufacturing plant and research institute.

"We are a company with a big dream," said Wang Xiangbin, chairman of Hechuan. "We want to be a one-package solutions provider in industrial automation, which can outrival big international brands."

According to Wang, Hechuan's servo system products have already approached or exceeded the level of foreign companies that are in the first echelon of the technology.

"If you compare industrial machines to people, the motors of the servo system are equivalent to the joints of people. The encoders allow the joints to perform precise movements, and Hechuan's proprietary encoders can control the servo system to the precision of 0.036 degrees, which means that they can meet the requirements of more than 90 percent of industrial application scenarios," Wang said.

Encoders are sensors that essentially provide feedback to help control a motor's speed and position.

Hechuan's progress in the field has lured customers from foreign rivals and helped establish its reputation in the industry. Now, it accounts for 3 percent of the Chinese servo systems market. Though still behind Japanese companies such as Yaskawa, Mitsubishi and Panasonic in market share, Hechuan is growing rapidly thanks to surging demand from sectors such as the lithium battery and photovoltaic industries.

"We hope one day our market share in China will reach 15 percent," Wang said, adding that the company has been investing 10 to 15 percent of its annual sales revenue in research and development since its first year.

Chen from Fortune Capital, which invested in Hechuan in 2017, said the company has not only strong patent portfolios but also a deep understanding of industrial processing technologies and downstream industry applications, which helps it quickly adapt to complex and specific industry needs. Hechuan has expanded its R&D team to more than 400 people, enabling it to quickly respond to the specific demands of customers from a variety of sectors.

"Hechuan is an emerging industrial automation control company with the most potential to grow into a high-level industry-customized overall solution provider," Chen said.

While servo systems account for about 90 percent of Hechuan's revenue, the company is working to expand its presence along the upstream and downstream segments of industrial chains with such products as industrial control chips, sensors and high-end numerical control machine tools.

The company decided to start developing proprietary industrial control chips in 2018, after it became clear that general-purpose chips were unable to handle specific applications in different industries.

"Unlike chips used in consumer-oriented products, many of which require advanced manufacturing, industrial chips focus more on reliability," Wang said, adding that the company's proprietary chip system has gone from the drawing board into production, and 90 percent of its new-generation products will use its in-house chips.

To boost its R&D, Hechuan has acquired a Canadian-Chinese chip design team and set up a semiconductor unit in Hangzhou, Zhejiang.

"Our industry is technology-focused, and talent is the key to our development," Wang said, adding that Hechuan has adopted two approaches to recruit the talent it wants.

"For R&D talent, we set up research institutes where they are. For instance, we have R&D centers in Hangzhou, Shenzhen and Dalian, where a lot of talent are located," Wang said.

But for the manufacturing talent closely linked to industrial craftsmanship, it is best for them to be far from big cities, Wang said. "In the future, high-tech companies will have more plants in the countryside, because it takes years to accumulate advanced industrial manufacturing processing techniques. In rural areas, people find it easier to settle down and don't have to worry too much about housing prices and children's education," Wang said, "That is exactly why Japanese industrial giants Fanuc and Yaskawa are based in small counties."

This also helps explain why Hechuan is based in rural Longyou county. Wang said the first group of Hechuan's workers came from Guangdong province, and later, the company started cultivating local people. The third step happened when local migrant workers who had been employed at high-end factories in southern China for years returned home, bringing new vitality to Hechuan.

Wang said the company is building a digital smart manufacturing plant. Once finished, the company's revenue is expected to more than sextuple to 4 to 5 billion yuan.

"We want to build the plant into a model for small and medium-sized enterprises in eastern China. There are a few million SMEs in Jiangsu and Zhejiang provinces, and they don't have the capital to buy large-scale digitalization services. We want to create a model for them," Wang said.

As a technology-intensive industry, industrial automation control has always been a battleground for advanced manufacturing at home and abroad. The Ministry of Industry and Information Technology, the nation's top industry regulator, has placed great emphasis on developing high-end homegrown industrial automation technologies.

The market size of industrial automation control products and technical services in China is expected to exceed 200 billion yuan in 2022 from 186.5 billion yuan in 2019, according to Chinese industrial website Gongkong.com.

Wang said domestic industrial automation control products are facing a strategic opportunity amid the growing emphasis on supply chain security.

Chen from Fortune Capital said: "As the product portfolios and technical levels of local industrial control product manufacturers are further developed, they can better adapt to demand from industries such as lithium batteries, photovoltaics and robots. This is also a great opportunity for domestic servo system manufacturers to have leapfrog development."