Robots Leave Behind Chinese Workers
These are difficult days to be a factory owner in China. Workers are increasingly scarce, wages are rising, and strikes are breaking out with regularity. Factories in southeast Asia are now beating China at its own game, attracting investors with the promise of even cheaper labor for low-value assembly work. What's a factory owner to do?
One increasingly popular option is to buy robots, lots of them. But that solution is already raising another uncomfortable question: what to do with the workers they displace?
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?
The answers offered so far by companies and government officials haven't been very reassuring. 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.
Meanwhile, officials in Guangdong Province and their supporters in the Chinese media argue that the government-subsidized robotics industry will provide plenty of employment opportunities in robot manufacturing. But even if displaced low-skilled workers can be funneled into those jobs as rapidly as the Chinese government suggests, there’s no guarantee that the resulting jobs will pay as well as those they replace. In fact, with so many displaced workers seeking to fill them, they might even pay less, according to a recent study of automation’s impact on labor markets.
China's central government, always keen to avoid the disgruntlement of its working class, has made efforts of its own. It has committed to expanding vocational education so China’s low skill workers won't get left behind in an automated economy. Beijing also continues to encourage the early stages of economic development of China’s western provinces, including the relocation of lower-value manufacturing to the region. 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.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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