The ripple effects of China’s industrial robotics push
Tue 17 May 2016
The domestic and international ripple effects of China’s industrial robotic push, backed by the government’s Made in China 2025 plan (transitioning China’s economy by elevating its national brand into sophisticated areas like aerospace and robotics, thereby driving efficiency and innovation) is a momentous change in how the world’s leading manufacturer — which produces a quarter of the goods sold on this planet — is projecting to do business in the years to come.
This focused shift offers many bright spots, as well as plenty of worries. Developing nations (especially in the Asia Pacific) hoping to copy the Chinese model of lifting millions out of poverty by enticing them into the cities with factory jobs, will be watching intently how China’s industrial robotic surge develops over time.
The shifting economics of Chinese manufacturing
As China’s global status has risen over the last few decades, becoming an international economic powerhouse as a result, the backbone upon which it could traditionally rely was its massive and inexpensive labour force. After embracing market reform in the late 1970s, China brought approximately 800 million people out of poverty, in large part due to its enormous manufacturing sector (which still employs around 100 million workers).
But times have changed, and an endless supply of cheap labour is no longer the norm.
“As a general principle, there has been a movement in the labour markets of rich countries toward automation of routine tasks.” Nathaniel Baum-Snow, Associate Professor of Business Economics at the Rotman School of Management at the University of Toronto, tells The Stack. “Some of this has to do with robotics, and some has to do with computerization. This has led to a big decline in the demand for workers who use medium amounts of skill.”
This phenomenon is clearly kicking in as China gets richer, and wages rise. “We certainly see it happening now that low-end manufacturing is being off-shored from China to nearby locations with cheaper low-skilled labour, like Indonesia and Vietnam.”
According to Dezan Shira & Associates, the years of double-digit growth in China, spurred on by an army of affordable “young able-bodied workers” is coming to an end. An ageing population, shifting population demographics (women shunning factory work for service industry jobs) and a declining youth population, combined with a better educated workforce demanding higher wages and improved work conditions, means there are more favourable locations where manufacturers can find cheap labour for labour-intensive production lines.
Robots, with their efficiency, speed, and ability to operate with a greatly reduced staff, seem to be where the Chinese private sector — backed by the government — is placing their future bets.
Developing China’s domestic robotics industry
The Made in China 2025 initiative not only seeks to nurture and support high-tech industries, but to also give a boost to traditional manufacturing through the introduction of industrial robotics and advanced automation systems. While China is now the largest global market for industrial robot sales (surpassing Japan a few years ago), the nation is far from saturated with robot density (calculated in units per 10,000 employees) when compared to competitors like South Korea (478 units), Japan (314 units) and German (292 units).
The International Federation of Robotics (IFR) forecasts that by 2018, China will “account for more than one-third of the industrial robots installed worldwide” as the PRC continues to engage in its epic game of advanced — and traditional — industry-based robotic catch-up.
“Developing robotic manufacturing tech can help upgrade industries, create more high-skilled jobs and tech-service related jobs,” Dr Haizheng Li, from the Georgia Institute of Technology, tells us. “It’s not a good strategy to stay away from it — just for the sake of saving low-skilled jobs.”
Not to worry, though; the Chinese Government is embracing robots — both foreign and domestic — with open arms. Currently, foreign robotic firms tend to enjoy a better reputation in China than their native counterparts, with outfits like Switzerland’s ABB Robotics (18,000 employees in China), Germany’s Kuka and Japan’s Yaskawa Electric doing stellar business in China — even after factoring in the Middle Kingdom’s recent economic slowdown.
And while foreign robotic producers still have a significant technological edge, Chinese firms are in hot pursuit, with the additional advantages of understanding the local business landscapes better, and access to substantial governmental funding schemes, exemplified by Guangdong Province’s pledge last year to spend $150 billion or so on updating and providing Pearl River Delta factories (many factories are closing or in dire straits, which is a recipe for political strife) with industrial robots and cutting-edge automation systems.
As the cost of robots comes down, and the payback period (time a company needs to recoup funds dished out on units) shortens from 4 or 5 years to less than 2 years (making it a very profitable business for sellers and buyers alike), the incentive for Chinese engineers and entrepreneurs to get into the game only grows. Even though, of the hundreds of Chinese robotic companies springing up, many still rely on foreign components, materials and international knowhow to function, more and more Chinese robotic companies, like GSK CNC and Shanghai’s SIASUN Robot & Automation Co., will be able to operate without much (or any) help from overseas — and if the dark predictions of science fiction tell us anything, someday, perhaps, even without help from those meddlesome human beings either.
Industrial robots and factory job loss
But then, of course, there are those important factory jobs that people in China, and everywhere else, need to survive. While industrial robots will help Chinese manufacturers become more efficient, technologically advanced and sharpen their competitive edge, they will also eliminate millions upon millions of jobs — and perhaps the dreams of other countries planning to follow the Chinese example out of poverty and developing world status.
Labour-intensive textile jobs (employing legions of low-cost workers) that haven’t found a good way to integrate robots into the manufacturing process (yet) have already begun to leave China for cheaper labour markets, like India and Vietnam — meaning some nations can still follow China’s path, perhaps, for a while. But even workers in the garment industry need to be wary, as companies like the American SoftWear Automation are “aggressively pushing the bounds of textile manufacturing” through better robotic fabric handing and sewing automation, which could translate into a considerable reduction of those kinds of jobs as well.
“There’s a natural fear that comes about when many think of automation, as it means people’s jobs are being replaced by machines,” Baum-Snow says. “However, in the grand arc of history, this is a good thing. In the short run, it’s painful for some … but in the long run, their kids will be much better off for it.”
Dr Li echoes this sentiment, and looks to education to ease the burden some, explaining, “As factories replace workers with robots, it certainly reduces the number of manufacturing jobs. Government policy should be focused on helping low-skilled workers improve their skills. It can be done by improving education, providing job training, etc. With new technology-driven educational delivery methods, such as MOOC [massive open online course] such a policy can be implemented at a much lower cost than it would have been before.”
China’s transformation from a labour-intensive factory hub to a modern, automated manufacturing economy is necessary to remain competitive, but it comes with some hard growing pains. Many developing nations are paying close attention, as the associated job loss, worker displacement and transition difficulties (jobs shifting to the service sectors) rippling through China will also ripple through the world. The robots are coming … at our invitation. China is welcoming and bracing for them at the same time, and it looks like the rest of us should be doing the same as well.