China’s robot army set to surge
China’s robot army set to surge
By Steve Johnson April 8, 2016 9:28 pm
China’s uptake of industrial robots is set to rise
rapidly in the coming years as higher labour costs and the heightened
aspirations of workers push manufacturers to embrace automation.
The development may add to fears that workers in poorer
countries are most in danger of being displaced by automation, with analysis by
Citi and the Oxford Martin School, a research and policy unit of the UK
university, published earlier this year suggesting that more than 75 per cent
of jobs in China are at a “high risk” of computerisation.
Mirae Asset Management, an Asia-focused house with $75bn
of assets, predicts that China’s robot army will expand at a compound annual
growth rate of 35 per cent until 2020.
Given that the International Federation of Robotics
estimates that China had 260,000 industrial robots last year, Rahul Chadha,
chief investment officer of Mirae, says: “Using the rule thumb that one
industrial robot replaces four to five workers, this suggests that robots have
rendered more than 1m people jobless.”
This figure is set to rise sharply in the coming years.
As the first chart shows, the number of robots per 1,000 employees in China, as
of 2013, was just 30 per cent of the level in North America, 11 per cent of the
German figure, 9 per cent of Japan’s tally and 7 per cent of that in South
Korea.
Mirae argues that China’s use of robots is tracing the
path blazed by Japan a quarter of a century ago, and still has several years of
rapid expansion ahead of it, as the second chart shows.
This concurs with forecasts from the IFR, which says
China acquired 57,000 robots in 2014 but is likely to be buying 150,000 a year
by 2018.
Mr Chadha, who calculates that robots will replace around
3.5m Chinese workers over the next five years, says: “The message that comes
from the leadership is on improving productivity via automation. They are
paranoid about doing things quickly, they believe they have got to because
their competitors will do the same.
“When I meet companies on the ground, they say ‘the
demand environment is not great, what we can do is improve our processes,
improve our productivity’.”
Mr Chadha believes the process is being driven by the
changing dynamics in the labour market. Until recently, China’s low wage levels
minimised the benefit of replacing labour with capital.
This is starting to change, however. While hourly wages
in Chinese are still relatively low in absolute terms, they rose at a compound
annual growth rate of 17 per cent in the decade to 2012, far outstripping pay
growth in other major economies, as the last chart shows.
Although the pace of wage growth will inevitably slow,
the availability of labour is also likely to tighten. Whereas the size of
China’s labour force rose by 80m people to 930m in the decade to 2010, Mirae
believes it is likely to flatline for the next few years, before slowly
declining.
Moreover, Mr Chadha says the younger workers who are
still entering the labour force are increasingly shunning the manufacturing
sector, with a better educated population preferring service sector employment
to often tedious, repetitive and potentially unsafe industrial jobs.
Because of this, and the flat labour force, he does not
believe the likely rise in robot-driven redundancies will cause social problems
or unrest in China, or in neighbouring countries with similarly low birth rates
such as Japan and South Korea.
However, he says the automation trend “has huge social
ramifications for somewhere like India, the Middle East or Africa, where you
have good demographics. India needs to create 10m jobs a year.
“This is an added challenge for these economies. They
have to do something different to attract investors, or we will see more tariff
barriers,” Mr Chadha fears, as poorer countries attempt to maintain employment
levels by barring imports from countries with higher, robot-driven,
productivity.
At present, foreign companies still dominate the market
for robots in China, with the likes of Japanese duo Fanuc and Yaskawa Electric,
Swiss-Swedish group ABB and Kuka of Germany accounting for two-thirds of sales,
although this is down from three quarters in 2009.
However, Mirae notes that domestic producers now have
almost half the market share in more basic segments such as handling and
dispensing, even as they are smaller players in higher tech areas such as
assembly and welding.
Profitability for China’s leading producers, which
include HollySys Automation and Shenyang Siasun Robot & Automation, “is
still depressed because of their aggressive pricing strategy and lack of
expertise in core components manufacturing”, Mirae says, although it expects
the pricing differential to narrow as Chinese companies focus less on gaining
market share.
Copyright The Financial Times Limited 2016.
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