China has a labour problem.
The country has an ageing population, and that creates a series of problems ranging from slower growth to reduced savings. The country’s challenging demographics have been described as China’s ‘fundamental’ problem.
China recently revised its one-child policy, in part to try and up reproductive rates. But there is another, more impactful change that is taking place in the country: the rise of robots.
Bao Fan, chairman and chief executive of investment bank China Renaissance, described an exchange on the topic of China’s future on social media in the aftermath of the one-child policy decision.
The largest population of robots
“I said two things: first, China will become world’s largest elderly home,” he wrote. “Second, China will have world’s largest population of robots.”
The exchange was first reported by The Wall Street Journal.
The growth of robotics in China has been incredible. In 2014 alone, the sale of robotics grew 56%, according to the International Federation of Robotics. China will likely account for more than a third of industrial robots around the world by 2018, the federation predicted in October.
This trend is likely to be much more important than the policy shift on children for a variety of reasons. First, there are cultural challenges to upping the reproductive rate that extend beyond the end of the one-child policy.
“In the long term, the labour shortage might become slightly less pressing because of the two-child policy, but the degree of the change will be very small because people aren’t willing to have children,” Fuxian Yi, the author of ‘A Big Country with an Empty Nest’ told Business Insider. “The issue of old-care and the labour shortage is a very severe issue for China.”
The increasingly well-educated young workforce shies away from blue collar work, too.
Blue collar workers
“Their education has improved significantly from those of their fathers or older brothers,” Credit Suisse analysts wrote in an October note. “Therefore, it will be increasingly difficult to find enough labour for jobs that are exposed to high temperatures, danger and a poisonous environment, and such vacancies will naturally need to be replaced by robots and automation systems.”
Over the past decade the “reducing labour force due to a declining birth rate, along with them receiving a better education, has triggered the development of industry automation/ robotics in China,” Credit Suisse analysts continued.
For companies, robotics are also becoming a more attractive option than human labour.
There is little loyalty between blue collar workers and their company in China, meaning workers often take their training elsewhere, increasing training costs. And labour in China is becoming very expensive.
“In the Pearl Delta area such as Zhejiang and Jiansu, it’s very hard to find workers,”said Yunhui Liu, a professor of mechanical and automation engineering at the Chinese University of Hong Kong, who works with Chinese companies interested in purchasing robotics.
“On top of that, every year there is Chinese New Years, and when workers go back to their hometown, only 20% or 30% of workers come back. They will go to other places or their hometown. They won’t go back to their factory.”
Liu also mentioned that while robots can work around the clock, human workers are restricted to working during the day.
Chinese government subsidies are also driving up robotics demand. China is currently subsidizing robot producers and manufacturers who install robots in their factories — spending between $US31.4 million to $US78.5 million annually, according to the South China Morning Post.
China is also pushing for a “Made in China 2025” plan, in the hopes of becoming a leading robot maker by 2030.
Deus ex machina?
Then there is the increasing need for help in the home.
“While the one-child policy will officially end, its legacy looks set to last. It has created a fiscally strained generation of couples with four parents, potentially eight grandparents and one or two children to support,” wrote a Credit Suisse analyst.
“The government will likely be under pressure to build crucial support infrastructure for childcare and old-care quickly.”
The ratio of working to the elderly in China will only close over the next few decades. In 2010, for each elderly person, 7.6 were working. By 2030, that ratio shrinks to 3.3, 2.1 in 2040, and 1.7 by 2050.
“The use of service robots could finish tasks for the aged who are physical challenged. In addition, service robots can reach inaccessible places for different purposes such as unmanned aerial vehicle for movie recording,” the Credit Suisse analysts wrote in their October note.
To be sure, the rate of growth in robots will be tied to state of the broader economy, which is currently showing signs of a slow down.
Swiss automation and power technology company ABB for example reported a slowdown in revenues from robotics sales in China in its third quarter results.
“The reference in our outlook statement is mainly to convey that we recognise the transition the Chinese economy is going through from an export led industrial based economy to a more domestic consumer orientation,” Sandra Wiesner, the media relations agent for ABB, told Business Insider.
“This transition will not only be uneven but also cause the pace of growth to be slower than in past year including 2014.”
Wiesner added: “The longer term demand drivers and opportunities for ABB remain intact including the need to automate (due to labour shortage), renewables and electric vehicles (to provide better air quality) and power transmission / distribution (move west and renewable integration).”
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