The tendency of major Chinese manufacturers to jump from one new business to the next is giving investors reason to worry about the future of the country's manufacturing sector.
Smartphone maker Xiaomi, faced with a sluggish market in its mainstay business, unveiled its first drone in May. The company last year went into the air conditioner business, and in March it released smartphone-controlled rice cookers aimed at competing with Japanese makers. Now it makes drones. What next?
It is a similar story with appliance giant Midea Group, which has acquired Japanese electronics maker Toshiba's home appliances unit. With its core air conditioner market bottoming out, Midea last year said it would partner with Japanese robot maker Yaskawa Electric to get into the robot business. Now it is mulling the acquisition of several companies, including German robotics maker Kuka, to obtain the necessary technologies.
Midea rival Gree Electric Appliances of Zhuhai, China's largest air conditioner maker, is finding its smartphone operations, which it launched last year, sluggish. Now the company has decided to enter the electronic vehicle business and is looking for EV makers to acquire. Citing the profound effect such a deal would have on its operations, the company has halted trading of its shares for the past four months.
Manufacturers should take time to nurture their operations and develop technologies other companies do not have, but these Chinese makers all tend to rush into a new business as soon as the previous one turns sour.
It is hardly a new trend. When the real estate market was booming, more than a few Chinese makers actively invested in property, with little regard for the impact on their core operations. They jumped into liquid-crystal display TVs as soon as those looked likely to be profitable, the same as with air conditioners and smartphones. And many of them got out of the business as quickly as they had gotten into it.
Until it rectifies this habit, Chinese manufacturing will never be truly competitive in the global market. As Chinese leaders reaffirmed at the National People's Congress, held in March, the country needs to shift from being merely a manufacturing "giant" to being a manufacturing "powerhouse" if it is to achieve sustainable growth.