Interesting the monthly wages is China is now higher than Brazil and Mexico hello B787
China’s robots push to drive new era of trade & productivityBloomberg Intelligence October 11, 2017
This article is by Bloomberg Intelligence economist Tom Orlik. It appeared first on the Bloomberg Terminal.
Automation is poised to reshape manufacturing in China, with the potential to drive the next stage of productivity gains and restore competitiveness to flagging exports.
At the same time, the rising use of robots threatens to exacerbate income inequality and hollow out consumption.
While automation could sustain growth, the price might be further distortions in China’s economic structure and further imbalance in its trade relations with the rest of the world.
The formation of China’s industrial policy isn’t always attractive to watch. But the combination of a massive domestic market, policy-driven technology transfer from foreign to domestic companies and government funding often proves brutally effective.
Automation in China’s manufacturing sector is rising fast from a low base. Last year, 87,000 robots were installed — 27% more than in 2015 and accounting for about a third of the global total.
That torrid pace is set to continue. The International Federation of Robotics expects shipments of 160,000 multipurpose industrial robots to meet Chinese demand in 2019, more than double the expected shipments to Europe and triple those in North America.
Gauging the impact across the entire economy is difficult, but sector- and company-level data provide an indication of the potential for robots to significantly improve productivity.
In the auto sector, for example, annual profit per worker tracks closely with automation levels. Automakers in South Korea, which has a high robot density, boasted profit per worker of $152,000 in 2016. The corresponding figure for China, with lower robot penetration, was just $48,000.
Source: International Federation of Robotics, National robot associations, Bloomberg Intelligence. *2016 figures are estimated for all countries except China.
‘Robot revolution’
China’s government is throwing its weight behind the development of the robotics industry. That starts at the top, with President Xi Jinping’s 2014 call for a “robot revolution.” The blueprint for upgrading the supply side of the economy, called China 2025, focuses on “intelligent manufacturing.”
The target is production of 100,000 industrial robots a year by 2020, up from 33,000 in 2015. That means Japan’s Fanuc and Yaskawa — which with other foreign companies supply 67% of China’s robots — face growing competition.
At Han Ma Electronic Technology — a smartphone screen producer in Dongguan, a factory town on China’s east coast — robots are the future.
“Wage costs are rising,” said Gao Feng, the chief financial officer. “So we moved from Shenzhen to Dongguan and spent 8 million yuan to automate the factory.”
The company now has just 130 employees, compared with 250 in 2014.
The same trend is playing out across China’s electronics sector as companies respond to wages more than doubling in the past decade. Downsizing might not be good news for the workers, but the advantages are clear from a manager’s point of view.
“Workers are costs,” Gao says. “Machines are assets.”
Haves, have nots
A rising tide from automation might not lift all of China’s boats.
More robots may be good for productivity, but the benefits of those gains are skewed toward the owners of capital, at the expense of workers. That raises concerns about burgeoning inequality — which could hurt China’s transition to a consumer-driven economy.
Based on estimates from academic surveys, China’s Gini coefficient already indicates one of the most unequal countries in the world. Inequality is bad for consumption because high earners have a greater propensity to save.
Global trade disruption: Impact of policy and emerging technology
Based on China
Household finance survey data, the top 10% of households command 50% of income and account for the overwhelming majority of saving. The bottom 50% don’t save at all.
A key reason for the rise of automation in China is a demographic time bomb that’s shrinking the working-age population, driving up wages and threatening to put the export sector into the old folks’ home.
According to United Nations data, China’s working-age population peaked in 2015 at 933 million. By 2030, it’s projected to drop to 888 million. The surplus supply of rural workers available to move to the factories has been used up.
The aging population is pushing wages up at a rapid clip, denting export competitiveness. A recent report from Wuhan University found factory wages at $635 a month in 2015 were three times higher than in Vietnam and four times above India’s.
Automation is part of the response to the problem.
Risks for trade
The rest of the world faces difficulties as well with China’s rise. First, the country’s industrial upgrading is eroding the competitive edge of companies in advanced economies.
Second, by adding to income inequality, automation will dent the spending power of Chinese households, obstructing the shift toward a consumer-driven economy. By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth — threatening hopes for a more balanced domestic and global economy.
China home appliance major Midea’s $4 billion acquisition of German robot giant Kuka this year highlights the scale of ambitions to make China the world’s factory. Midea aims to lower production costs and capitalize on opportunities as China’s robotics market expands.
Electronics giant Foxconn — which assembles Apple’s iPhones — shrunk its workforce to 830,000 in 2015 from 1.3 million in 2012. And e-commerce giant JD.com is moving toward automation of its warehouses. In one of its laboratories, a robot can sort 3,600 objects an hour, four times more than a person, according to Bloomberg News.
Source: International Federation of Robotics
Wage impact
The effect of automation on wages in China isn’t showing up yet in the data. The increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work brings scope for automation. Yet wage growth remains rapid and if anything, medium-skilled workers conducting routine work are doing better than average. In manufacturing, for example, employees with a high-school education saw wages rise 53% from 2010 to 2014.
While it’s possible China isn’t subject to the widely observed impact of automation, it’s more likely the trend hasn’t reached the critical mass needed to offset the gains from globalizing production chains and a shrinking working-age population — which push up wages.
China’s level of automation remains relatively low compared with other major economies, even as it installs industrial robots at a furious pace.
According to data from the International Federation of Robotics, China had 4.9 robots per 1,000 workers in 2015. South Korea had 53.1, Japan 30.5, Germany 30.1 and the U.S. 17.6. Even meeting a government target of 15 robots per 1,000 workers in 2020 would leave China lagging behind developed economies, indicating significant scope for further investment.
When it comes to automation, not all sectors are created equal. At one end of the spectrum are automobile assembly robots that can do more and better work than humans. At the other end is health care, where there’s scope for more automation, but greater need for a human touch.
The sectors that are the most susceptible to automation are showing the fastest growth. Automobile production, for example, expanded 13.1% in 2016.
I had the exact experience when I first came to Europe at the early 2000s. I was asked "do people in China all wear the blue/gray uniform?", I was shocked speechless.
