AI could bring a fresh surge in China's economic growth, outpacing the US -- partly because Beijing is 'so concerned about social stability'

(Photo by Thierry Falise/LightRocket via Getty Images)Manus, a project designed by Madeline Gannon where interconnected industrial robots interact with humans, is displayed at the Annual Meeting of the New Champions of the World Economic Forum held in Tianjin last month.

  • China could lose 200 million jobs to machines and artificial intelligence (AI) over the next two decades, according to research by PwC’s UK chief economist.
  • However, the nation could also add almost 300 million other jobs as the economy transitions to new ways of working and as the population gets wealthier.
  • China’s economy is forecast to get a 20% growth benefit from AI by 2037, while the US is seen as growing 15%, allowing Beijing to continue challenge the primacy of the US in the global economy.
  • A big part of this potential benefit is that Beijing will do everything it can to quell social unrest from automation — something that western governments aren’t proving very good at.

A chief economist at one of the world’s leading consulting firms has been surprised by his own modelling that shows automation has the potential to drive yet another explosive period of economic growth for China.

John Hawksworth, chief economist at the UK arm of global professional services firm PwC, has conducted modelling that indicates China could see its national economy expand by an additional 20% over the next two decades thanks to automation -– as long as Beijing drives policy to manage yet another wave of economic transition as global companies rapidly automate their supply chains.

And while the modelling suggests some 200 million jobs could be displaced by 2037, it also forecasts the creation of almost 300 million new jobs, mainly in the services sector, which is already growing quickly in China.

Beijing’s central economic planning — a major topic of conversation among economists and the world’s business elite lately — and its ability to retrain workers will be pivotal in managing the fallout from the coming wave of automation that threatens to destroy huge amounts of manufacturing jobs. These jobs have supported China’s transformation over the past three decades and helped it to challenge the primacy of the US in the global economic order.

At the same time, it has helped the Chinese Communist Party consolidate power by dramatically growing the economy and increasing the wealth of its citizens. China’s leaders would avoid mass retrenchments “because they’re so concerned about social stability,” Hawksworth told Business Insider at the World Economic Forum’s “summer Davos” in Tianjin, China, last month.

Workers, policymakers, investors and business leaders are trying to understand the impact of mass automation of tasks currently performed by people. This has implications for politics in western nations as threats to existing industries are fertile ground for populist movements and protectionist policies.

But is also a potential landmine for emerging economies where political leaders have been able to ride consistent economic growth as a story to underpin their power base. Put bluntly, people are more likely to support regimes that make them richer.

Hawksworth admitted to being surprised at the glowing forecasts for the world’s second-largest economy from his modelling that tries to analyse the likely impact of automation around the world.

He said it was interesting that what “came out of the macroeconomic modelling, which perhaps we hadn’t anticipated, is that there’s potentially job gains. Because we think that China will become the world leader in manufacturing all the robots, and the drones, and driverless vehicles.”

PwCLikely impact of automation on Chinese industry.

But this is only part of the picture. Those manufacturing jobs may eventually be automated, too — with robots making the robots — and this is an enormously challenging problem for those setting economic policy.

For example: Ian Goldin, professor of globalisation at Oxford University, argued in an interview with Business Insider last year that China and other emerging economies are on the precipice of a devastating period of economic disruption that will need exceptional policy management.

Hawksworth has some interesting proposals for this, but to set the scene, here’s an outline of the problem from Goldin, with some emphasis added.

The classic model of development is that societies go from being agricultural to manufacturing to services through taking on very routine-based tasks with relatively semi-skilled workers during most of this transition. I think that transition path is gone.

So, we’ll have premature de-industrialisation coming. We’ll have many, many people in middle-income countries like China, like India, like The Philippines, finding that this assumption that this will be the development path is no longer there. This will be a production system that is determined by the price of capital, not the price of labour. And in that capital is much cheaper in the advanced economies than emerging economies, so it will be cheaper to install robots and to have machine intelligence in the advanced economies than it will be in emerging economies. There will be a re-shoring of production to the advanced economies and of call centres and other machine processes.

China’s economic and political system with its command economy will be one of the primary weapons the country will be able to deploy as it navigates the automation age and continues to challenge the US for global economic primacy.

The PwC research sees more than 20% being added to China’s GDP over the coming two decades. By comparison, the US is likely to add just 15%. Hawksworth points out there are many assumptions and possibilities, but he sees China’s outcome if it can tackle some key challenges.

John Hawksworth speaking at the World Economic Forum Event in Tianjin, China, last month.

Hawksworth is blunt in his assessment that China is ready to invest in retraining its workers if it means averting social unrest.

He explains: “We are reasonably optimistic the Chinese government would invest heavily in this, whether in the training or the necessary even just sort of creating jobs in the public sector. Because they were so concerned about social stability, they wouldn’t really allow this [mass layoffs] to happen.

“They would do whatever they could to kind of head it off. But obviously it’s better if this comes through retraining, rather than giving them make way kind of jobs in the public sector of something, just to keep unemployment down. So it’s better if they can actually be redeployed and reskilled and then they could be more productive.”

Some of the key areas where they could be potentially deployed are education, aged care, and the services sector catering for China’s increasingly wealthy elite — the parts of the economy where “demand is rising rapidly but [the jobs] are relatively harder to automate,” Hawksworth said.

On healthcare, Hawksworth says there’s already “a degree of automation in terms of augmenting healthcare professionals with AI systems to do diagnosis and maybe robots to help with looking into patients or doing some other tasks. But nevertheless I still think you need the human touch.

“So let’s take human professionals [such as doctors and nurses and carers] who are working in the complimentary way with the robots and the AI systems. And so I still think there’re going to be lots of people in those sort of sectors, particularly in a society like China, which is ageing so rapidly.”

There’s a similar opportunity in education.

“As societies get richer, the demand for education does go up,” Hawksworth said. “I think that will further push up the demand, certainly in a place like China, which is so pro-education.”

Computers will certainly assist in the education sector, but teachers and teachers’ assistants will be in huge demand “with everything from art, music, sport, group work, just sort of coaching” with assistance from AI platforms.

“So some of the most advanced pupils might be quite happy to sit at their computer and just learn on their own, but many of the others will need even more one to one kind of personal coaching.”

The full report from PwC is available in PDF form here.

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