The Global Economy May Be Affected By China’s Robot Revolution

Other nations may be affected due to China installing more robots than any other nation.

The International Federation of Robotics estimates that shipments of robots to the second largest economy in the world will nearly double to 160,000 in 2019 even as it has already jumped 27 percent to about 90,000 units last year, marking a single-country record and almost a third of the global total.

But according to a report this week by Bloomberg Intelligence, this flow of robots to China might influence the global economy even as the blazing pace hasn’t dented Chinese wages – yet.

The rising use of robots also threatens to exacerbate domestic income inequality, undermining consumption even as automation may drive productivity gains and export competitiveness. And economists say that it could spill out beyond the country’s borders.

“By turbocharging supply and depressing demand, automation risks exacerbating China’s reliance on export-driven growth – threatening hopes for a more balanced domestic and global economy,” BI economists Tom Orlik and Fielding Chen wrote.

Pay gains are intact. According to China Household Finance Survey data cited by BI, from 2010 to 2014, domestic manufacturing workers with a high-school education saw wages rise 53 percent.

“Increasing use of robots should be bad news for medium-skilled workers, especially those in sectors where routine work means scope for automation,” Orlik and Chen said. “Yet wage growth in China remains rapid, and if anything medium-skilled workers conducting routine work are doing better than average.”

In order to upgrade factories to be highly automated and technologically-advanced, robots are at the core of the government’s sweeping Made in China 2025 plan. A shrinking working-age population would also helped to be offset by replacing assembly-line workers.

And according to the IFR, saturation is nowhere in sight and its density of robots is below the world average even though China is catching up to global leaders like South Korea and Singapore.

More and more of its own robots are being also bought by China. Beijing plans to focus on automating key sectors like car manufacturing, electronics, appliances, logistics, and food under Made in China 2025 and a five-year robot plan launched last year.

According to BI, because the benefits of productivity gains are skewed toward the owners of capital, at the expense of workers, fears of greater inequality also rise due to the “robot revolution” proposed by President Xi Jinping in 2014. Orlik and Chen said that delay the shift toward a consumer-driven economy could happen and there could be bad news for household spending by such an outcome.

The government also aims to produce 100,000 robots a year by 2020, compared with 33,000 in 2015 and by 2020 from 31 percent last year, it wants to increase the share of Chinese-branded robots in the country’s $11 billion market to more than 50 percent of total sales volume That means for foreign firms such as Japan’s Fanuc Corp. and Yaskawa Electric Corp., competition will intensify for the firms that supply 67 percent of China’s robots.

(Adapted from Bloomberg)

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