Should China be worried by the rise of the robots?

22nd August 2012

It adds up to a formula that few ever challenge. It's a given that China will continue to produce annual growth in the higher end of single figures – and that it is the future.

Well, yes, but only up to a point. And that point could be closer than many imagine. The West is fighting back, not with cheap labour but with no labour at all.  Welcome to the world of  "robotisation". 

Designed in the West, Made in China

The China sweeps all before her argument owes much to thinking within current constraints – to assuming that what is now will always be. It's the straight line argument that so often leads investors away from the action.  It the ability of knowledge-based economies to advance potentially further and faster than labour-based economies. After all, all the clever stuff made in China was designed in the West.

Reshoring, or bring back jobs and work from Asia is one route – as this Mindful Money story makes clear. Spanish clothing giant Zara sources many of its garments in Spain, Portugal or Morocco – it can get a new design or colour into its stores in a week while using China would take months.

But robotisation is far more dramatic.  According to The New York Times , the number of functions where machines are replacing humans is growing. It states:

"At the Philips Electronics factory on the coast of China, hundreds of workers use their hands and specialized tools to assemble electric shavers. That is the old way.

"At a sister factory in the Dutch countryside, 128 robot arms do the same work with yoga-like flexibility. They do it all without a coffee break – three shifts a day, 365 days a year.

All told, the factory here has several dozen workers per shift, about a tenth as many as the plant in the Chinese city of Zhuhai. This is the future."

Anything you like – and in any colour

The New York Times was visiting a Philips facility in the Netherlands where electrical engineer Binne Visser told the paper:  "With these machines, we can make any consumer device in the world." Philips, once a world major in consumer electronics has retreated to more specialist devices over recent years due to Chinese price pressure.

There are plenty of other examples from robotic vegetable packing to solar panel manufacture. Beyond manufacturing, machines can now diagnose cancers while others can make a passable attempt at reporting sports events. The Japanese have even come up with robot woman to model dresses at fashion shows.

Robotisation has the capacity to do for manufacturing labour what digital did to analogue or the printed word. It can make complex items such as mobile phones which are currently churned out in China by hundreds of thousands of workers. Robotics costs will fall – those of Chinese labourers will rise.

It creates very few jobs and destroys many. But if it takes off, then the effect will be similar to that of the first industrial revolution where huge numbers of manual textile workers were replaced by very few machines, leading to discord and unrest, although ultimately to the biggest economic gains and transformation of society ever seen at that time.

Dependent on fixed investment

China's difficulty is that it remains highly dependent on manufacturing exports which require fixed investment in factories, housing and infrastructure such as new high speed rail lines. These all require a long repayment period so if they are underused due to robotisation reshoring jobs to the United States and Europe, the Chinese face low returns on their money.

And this ignores changing Western tastes.  For instance, as manufactured goods become more reliable and lower cost, more is spent on leisure activities such as tourism or casinos.  China remains heavily linked to western consumer spending but just as Asia has achieved manufacturing quality, it faces a consumption downturn among the customer base plus the threat of robots.

To continue growing, China has either to rebalance the economy away from manufacturing and infrastructure and towards a service economy.  This took the West more than a century and a half to achieve. China has the misfortune of continually being a laggard, not a leader.

Check out the check-out

But the service economy itself is not immune. Check-out workers at supermarkets are already often supplanted by self-checkout. It's the logical extension of the self service that has been around since the 1950s and which most people now expect – how many are still served by a real butcher or baker? Many call centre tasks are also automated, much to the current annoyance of people trying to use them although they are intended to improve.  And it is decades since anyone expected dock workers or delivery drivers in the West to use their own muscles.

The question of what to do with labour made redundant is one for society – not investors in robotics – to solve.

The New York Times does however balance the picture with Bran Ferren, a veteran roboticist and industrial product designer at Applied Minds in Glendale, California.  He has moderated his views on the robot revolution – so investors may not have to tear up their portfolio.

Steep obstacles in the way

Ferren argues: "There are still steep obstacles that have made the dream of the universal assembly robot elusive. I had an early naïveté about universal robots that could just do anything. You have to have people around anyway. And people are pretty good at figuring out, how do I wiggle the radiator in or slip the hose on? And these things are still hard for robots to do."  And while some believe it is only a matter of time before most routine jobs can be robotised, there remains resistance from organised labour and other communities.

But whether there will be machine-smashing as there was in the UK at the time of the Luddite Riots is questionable.

Meanwhile, it adds up to another lack of certainty for investors – the low cost labour story that lies behind much emerging market rhetoric might soon be empty. Or not.

 

More on Mindful Money

Realities and myths of the Chinese growth miracle

The rise of the machines

Is giant Chinese iPad maker's threat to replace workers with one million robots credible?

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