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Saturday, April 18, 2015 1:36 PM

Productivity, Robots, China, Growth

Mish Moved to MishTalk.Com Click to Visit.

Congratulations. You are more productive than ever. Just don't expect to be paid more for it. In reality, some machine is doing all that for you.

Japan Times reports Robots Leave Behind Chinese Factory Workers

According to the International Federation of Robotics, an association of academic and business robotics organizations, China bought approximately 56,000 of the 227,000 industrial robots purchased worldwide in 2014 — a 54 percent increase on 2013. And in all likelihood, China is just getting started. Late last month, the government of Guangdong Province, the heart of China’s manufacturing behemoth, announced a three-year program to subsidize the purchase of robots at nearly 2,000 of the province’s — and thus, the world’s — largest manufacturers. Guangzhou, the provincial capital, aims to have 80 percent of its factories automated by 2020.

The government’s involvement in this process shouldn’t come as a surprise. The Chinese government (nationally, and in Guangdong) has long wanted to shift the country’s manufacturing away from low-quality products that are manually assembled and toward higher-value ones — like automobiles, household appliances and higher-end consumer electronics — that require the precision of automation.

And it’s no secret that demographics aren’t on the side of China’s traditional, labor-driven factories. Urbanization, population control policies, and cultural shifts have pushed China’s average birth rate below those in more developed countries like the United States. Meanwhile, as a result of growing urban affluence, workforce participation rates are in decline, especially among women. Together, these factors are pushing wages upward, with an average annual increase of 12 percent since 2001. That trend offers plenty of incentive to factory owners and government officials to pursue automation.

Of course, what looks sensible from the perspective of the economic planner’s office is more distressing from the factory floor. In March, Caixin, a Chinese business magazine, reported that Midea, a major Chinese manufacturer of air-conditioners and other appliances, plans to cut 6,000 of its 30,000 workers in 2015 to make way for automation. By 2018, it will cut another 4,000. What will happen to those and the millions of other low skill workers who will be displaced by the shift?

When Foxconn, the contract manufacturer for many Apple products, announced in 2011 that it was beginning a three-year program to replace some of its workers with as many as 1 million robots, the company said it was doing so out of a “desire to move workers from more routine tasks to more value-added positions in manufacturing such as R&D.” But even if those intentions were sincere, Foxconn never gave any indication that it would have enough higher-skilled positions to employ every displaced iPhone assembler.

Still, it’s easy to see how China’s millions of low-skill workers might still be left with an uncomfortable sense of impending obsolescence — a sense not unknown to their working class counterparts in more developed economies.

Their best hope is the simple fact that China’s economy continues to grow. True, at a projected 7 percent for 2015, the country is not growing as fast as a decade ago. But that should be plenty fast enough for China’s shrinking labor force to find other opportunities, and avoid competing — for now — with China’s inevitable robot workforce.
Growth Hope Not the Answer

If China's best hope is growth, then China has little hope.

Two to three percent growth is the best China can hope for, on average, over the next decade or so. Growth in robots though, is here to stay.

Chinese growth (global growth too) is headed one way, lower, and at a faster pace than most think. The key problems are debt, demographics, and asset bubbles.

Mike "Mish" Shedlock

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