As wages for Chinese workers’ skyrocket, the country’s manufacturers are scrambling to replace humans with machines, in many cases to preserve thin profit margins that have been choked by debt service.
But according to a report from Bloomberg Intelligence, China’s embrace of automation – its companies are installing machines faster than in any other country – could have unintended consequences for the global economy, as the robots force wages to sink, inequality to balloon, and consumption to collapse.
To be sure, the blistering pace of AI adoption hasn’t dented Chinese wages – at least not yet.
“Pay gains are intact. Domestic manufacturing workers with a high-school education saw wages rise 53 percent from 2010 to 2014, according to China Household Finance Survey data cited by BI.”
But as one economist explained, the increasing reliance on automation could thwart the Communist Party’s plan to transition to a service-focused 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,” BI economists Tom Orlik and Fielding Chen wrote.”
However, China’s leaders have embraced a different view. Beijing believes that if it can automate sectors like car manufacturing, electronics, appliances. Logistics and food, its citizens will focus on better service-sector jobs, while also compensating for an anticipated shrinking of the workforce. The Communist Party’s Made In China 2025 plan and a separate five-year plan governing the expansion of its robot workforce were launched last year.
“Robots are at the core of the government’s sweeping Made in China 2025 plan to upgrade factories to be highly automated and technologically-advanced. Replacing assembly-line workers will also help it to offset a shrinking working-age population.”
As part of its plan, China is also hoping to produce more of its own robots, crowding out the foreign firms that presently dominate that market.
“The government also wants to increase the share of Chinese-branded robots in the country’s $11 billion market to more than 50 percent of total sales volume by 2020 from 31 percent last year, and aims to produce 100,000 robots a year by 2020, compared with 33,000 in 2015. That means competition will intensify for foreign firms that supply 67 percent of China’s robots, such as Japan’s Fanuc Corp. and Yaskawa Electric Corp., according to BI.”
While China is quickly catching up to South Korea and other global robotics leaders, the overall population density of robots in China remains below the world average.
In a viral video published back in April, the People’s Daily provided a glimpse into the rapidly approaching future of China's labor force: The video, also released by the SCMP, shows hundreds of round Hikvision robots, each roughly the size of a seat cushion, swiveling across the floor of the large warehouse in Hangzhou. A worker is seen feeding each robot with a package before the machines carry the parcels away to different areas around the sorting center.
The robots sort more than 200,000 packages a day.
And as engineers continue to make progress building robots that are better suited toward working alongside humans, the robots’ numbers will probably continue to skyrocket.
While the impact on wages has been mild for now, it likely won’t stay that way forever.