China’s Robotic Advantage
What happens to China’s overwhelming labor force?
As I am whisked along the factory floor, the robots and humans seem to work in nearly perfect synchronization. What I expected would be a dull hum filling the space, was actually a chaotic buzzing, clacking, and clicking of machines. Each expertly specialized in a specific task, and completes the action with unfathomable precision. Sewing seams, drilling buttons, affixing pieces of fabric — just about everything but finicky handmade details are administered by the robot employees. Partially made shirts dangle along automated conveyer belts and rolls of fabric are carted along on trolleys that play simple music reminiscent of childhood ice cream trucks.
Robots seem do everything better than humans can. With an aging population and rising labor costs, the old model of employing inexpensive and plentiful migrant labor is no longer feasible in China. The population is shaped like an upside down pyramid — the One Child Policy of the ’80s and ’90s significantly cut the size of the new workforce. According to the Chinese Ministry of Human Resources and Social Security, the labor population dropped by 19.34 million people in the last five years, and is not expected to level off any time soon.
It is becoming a trite insight that Southeast and South Asian countries, like Indonesia, Thailand, and Bangladesh are now taking away the jobs from China. But, the insight still rings true. Wages in those countries can be a third less than wages in Guangdong, for example. And they don’t appear to be slowing down any time soon in China. Since 2001, wages have been increasing 12% year over year — an exponential increase in relation to neighboring countries. However, they are still drastically lower than those in the U.S., where the average salary among the top ten blue-collar jobs is $27 USD per hour compared to $4-$6 USD per hour.
Soaring Robotic Investment
In order to remain competitive against both home country manufacturers that keep shipment costs down and countries that provide cheaper labor, China is facing increased pressure to develop a new comparative advantage. Regarding the build up of robotic capabilities, China is uniquely posed for success — in terms of scale, growth momentum, and money.
While currently living in the manufacturing and technology hub of Guangdong, I am overwhelmed by the presence of robotics. Many robotics conventions come to the city center to showcase their most innovative and cutting-edge products: I specifically remember being mesmerized by a machine that laser cuts fabric in just milliseconds. Just in 2015, Guangdong Province invested $150B to encourage automation and foster robotic innovation. Chinese companies are investing in both international and domestic robotics, however more and more private companies will purchase the technology and customize it — allowing them to re-name the product and erase the original providers name.
Not only are local governments supportive, but the messaging is also coming from the top down. In the most recent Five Year Plan, the Chinese central government included an initiative to provide billions of yuan for manufacturing companies interested in upgrading their technologies including advanced machinery and robots. Fueled by a desire to be the world leader in a number of high tech industries (medical devices, electronics, aerospace, etc.), Beijing has pushed for investment in automation. The government released the Robotics Industry Development Plan with the primary goal to manufacture at least 100,000 industrial robots annually by 2020.
From Operator → Technician
It is an open secret that Chinese manufacturers that do not invest in automation will eventually go out of the business. For those that decide to invest, it requires a fundamental shift in the perspective of line employees: from less-precise versions of robots to semi-skilled workers that can intuitively solve technical problems.
It’s likely that companies will make the investment in training employees beyond completing route mechanical movements to repairing, troubleshooting, and fixing machines. These employees will also have input on the design of the production workflow and provide feedback on the overall success of the product’s construction. The job description of technicians will cater to the emerging generation of workers that have the privilege to prefer meaningful non-repetitive work. When nearly half of those entering the workforce are university graduates, blue-collar jobs are below their education and pay grade. With the increase of technicians, China can be perceived as a high-tech labor source, not as a cheap, disposable, and replaceable labor source.
Unfortunately, there is still a gap between graduate’s abilities and the market’s needs. Chinese corporations are encouraged to emphasize human capital investment and training to close the gap. Equipped with the knowledge of navigating the semi-automated factory floor, more employees will be able to troubleshoot when malfunctions occur. Recalibrating, readjusting, and fine tuning will not be a job only for the few designated (often foreign or outsourced) hired technicians.
But what happens to workers that don’t emerge as technicians? Not all companies and not all employees will be able to make the transition to semi-skilled technical roles. I remember once while watching an old lady cut grass with fingernail scissors on a lawn about the size of a football field, I was told that “when China has a problem, they just throw labor at it.” And that comment always seems to creep back into my thoughts: going through cursory subway security, watching cleaners sweep the streets over and over, having someone stamp my grocery bill at the supermarket, or administering tickets at “free” museums. The labor just seems unnecessary — a way to keep the unemployment rates low, and people off the streets.
If Chinese companies become more efficient by reducing the amount of employees per output (thereby also increasing the productivity per worker), less workers will be required. With the wave of automation there will be some natural attrition in addition to firing employees that will both contribute to the overall reduction of the workforce. A reduction in the manufacturing workforce is not necessarily a bad thing, it just means that the quantity and function is changing. But “throwing labor” at manufacturing to solve its problems isn’t working anymore…
What’s future direction for China’s workforce?
There are four general paths that could shape the relationship between automation and labor:
- Companies only marginally reduce the workforce due to automation, but the workforce becomes more skilled to deal with increased automation.
- The government hires more employees to do “unnecessary” jobs in order to keep unemployment rates calibrated.
- There is an overall trend of an increasing service sector that hires more employees from traditional industries like manufacturing.
- Migrant workers are forced to return home because they are “replaced” by automation and innovation and those workers return to traditional jobs.
The future is likely a combination of the four directions above — the extent is dependent many factors including continued government support on local and national levels, corporate investment in technical training, domestic robotic innovation, protectionist trade policies, migration patterns, among others. One thing is for sure, China has the potential to capture a new competitive advantage, disparate from the “Made in China” movement of the early 2000’s.