Chinese Manufacturing Retains Competitive Edge By Replacing Workers with Robots

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A new survey shows that China’s manufacturing sector is retaining its competitiveness against other emerging economy rivals despite rising labour costs.

The latest China Employer-Employee Survey (CEES) released on 20 June indicates that while Chinese labour cost advantages continue to diminish, the manufacturing sector is maintaining competitiveness by making increasing use of automation.

According to the survey, which was conducted in 2015 and 2016 and covered 14,000 workers in over 1000 enterprises situated the key manufacturing hubs of Guangdong and Hubei province in China’s south, 8% of companies are making use of robots, while 40% of companies employ automated equipment.

The rate of robot usage is higher in the established manufacturing sectors of Guangdong, where the figure is 10% while in Hubei province the figure is 6%.

State-owned and foreign-invested companies make far greater use of robots than domestic private enterprise, with usage rates of 14% and 6% respectively, as do standard trading and processing enterprises, whose robot usage rates are 15% and 11%.

Automation is especially strong in the machinery equipment, electronic equipment and metals manufacturing sectors, and lower in more traditional, time-honoured industries such as textiles and leather.

Some local governments are supporting automation of the manufacturing sector with subsidies for robots and automated equipment. The Guangdong province factory town of Dongguan is an example, providing a subsidy of 10% for new robots.

The researchers say that the use of robots to replace human workers will not cause unemployment problems given ongoing declines in China’s working age population, and that in future Chinese manufacturing will need to rely on technological innovation as opposed to cheap labour.

The increase in robot usage and automation arrives in tandem with rising labour costs and greater difficulty faced by manufacturers when it comes to sourcing factory workers.

According to the survey real wage growth for workers in the manufacturing sector has been strong and steady over the past several years. Guangdong province saw an increase of 5.8% during the period 2013 to 2014, and 8.3% and during the period from 2014 – 2015, while inĀ Hubei province real wages rose by 5% during the period from 2014 to 2015.

These wage gains have eroded China’s labour advantage, with the real monthly wage for Chinese workers (including end of year bonus) of USD$635 in 2015 significantly higher than that for Vietnamese and Malaysians, where the figures were $206 and $538 respectively.

Manufacturing employment numbers have fallen in tandem with these wage gains, with declines of 6.3% in Guangdong and 3.3% in Hubei during the period from 2014 – 2015.

The survey was a joint undertaking conducted by scholars from the Wuhan University Institute of Quality Development Study, the China Academy of Social Sciences, Stanford University and the Hong Kong University of Science and Technology.

Despite labour cost gains and declining employment numbers, the survey researchers claim China is maintaining its competitiveness by multiple means in addition to increased use of automation, including economies of scale and the formation of comprehensive industry chains.

According to the survey in 2015 only 13.3% of Chinese enterprises made use of imported intermediate good, comprising just 3.7% of total input good value, while 27% made use of imported equipment, comprising 11% of total machinery value.

The survey authors say that China will need to engage in technological innovation and management improvements if it wishes to maintain its competitive edge in future,

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