Rise of the machines: China’s next revolution

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Contributed by Gaston Bedard
The Globe and Mail, (14/03/2015)
Rise of the machines: China’s next revolution
By NATHAN VANDERKLIPPE SHANGHAI – As its once-limitless supply of labour
begins to shrink, China is witnessing the rise of the robot. The country
that has become the world’s factory is on the cusp of dramatic change that
could see some industries replace nearly half of their workers with
automation in just a decade.
This change is readily apparent at the STEP Robotics factory on the
outskirts of Shanghai, where glass surrounds robots of all sizes, their
metal elbows flexing in inhuman ways and at inhuman speed. They are being
put through their paces before taking their place as a new generation of
factory workers.
“People are testing it out. They want to get a sense for it because they’ve
never done it before,” says Zhou Shuopeng, the company’s vice-general
manager. “It’s a very important time.”
In 2013, after years of trailing other nations, Chinese factories tripled
the number of robots they’d ordered just the year before, suddenly making
China the world’s biggest buyer. Yet, the International Federation of
Robotics expects Chinese orders to triple again by 2017.
The move to automation is part of an economic reckoning in response to the
turbulent after-effects of decades of population control that are creating
worker shortages and driving up wages.
Just 15 years ago, average salaries in the richest Chinese cities were still
$200 (U.S.) a month, so it’s unsurprising that China has leaned heavily on
human labour. Then, in 2008, the number of young people joining the work
force began to shrink, soon followed by the total number of workers. In 2013
and 2014 alone, the work force contracted by more than 6 million people.
Population control and the one-child policy were “overkill, and the chicken
is coming home to roost,” says Joan Kaufman, a Harvard lecturer on global
health and social medicine who, in the early 1980s, was in Beijing with the
United Nations Population Fund.
Calling low-cost manufacturing “the engine of the economic juggernaut,” she
says, “I don’t know how the whole country is going to make the transition.
How is the manufacturing sector going to maintain itself if there is a
drop-off in the supply of cheap labour?” The impact is being felt outside
the manufacturing sector.
Rising real-estate prices have been a major source of wealth in recent
urban growth has not only stopped in some places, it has begun to reverse.
researcher Victor Shih examined data for cities with more than a million
residents (there are about 250) and says between 50 and 60 have had
“negative population growth in the past five years.” The migration that for
so long drove the economy is grinding to a halt.
Enter the robots.
At CHIC Group, a sprawling Shanghai agriculture conglomerate, technology,
efficiency gains and automation have already brought striking adjustments.
“We reduced the requirements for hand labour by about half already in the
last six or seven years,” says Edward Zhu, founder and chief executive
officer of the company, which now has 12,000 employees. The demographic hit
has been so hard, he says, that it’s now “very difficult to grow any
business in China that requires intensive labour.”
Making those adjustments, he warns, is a matter of survival. “China really
needs to shift to a high-productivity, automation-type production. Without
that in place, China absolutely is not a competitive place to do business.”
Beijing has sought to speed the transition, orchestrating an explosion in
minimum wages – up more than 80 per cent since 2009 in some cities – to
force manufacturers to make better, more valuable products, rather than
forever fighting to be the cheapest.
“There is no panic any more in Beijing if another shoe manufacturer closes
says Louis Kuijs, chief China economist at the Royal Bank of Scotland,
“because what they want to see is that move up the value chain.”
Also, as wages have gone up, the price of robotics has gone down.
In a recent report, RBC Global Asset Management compared automation costs
with the average annual salary at Foxconn, the world’s largest electronics
manufacturer, which employs more than a million people in China to assemble
iPhones and other electronics.
In 2003, a robot was 2.5 times more expensive. But today, according to the
report, “it is likely” the cheaper option.
Beyond short-term savings, the shift to automation is a bet on the future.
Justin Rose of the Boston Consulting Group, which is assembling a major
report on global robotics, says China is making the switch “more quickly
than you would say makes economic rational sense … a clear sign they’re
trying to get ahead of what they see as long-term structural trends.”
By 2025, he says, robots may make up half the work force in some sectors,
versus as little as five per cent today. It is, he says, “nothing short of a
2015 The Globe and Mail. All rights reserved.

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