China Robots are a Defense against US retaking the economic lead

China’s Troubling Robot Revolution
By MARTIN FORD JUNE 10, 2015 NYT op ed

OVER the last decade, China has become, in the eyes of much of the world, a job-eating
monster, consuming entire industries with its seemingly limitless supply of low-wage
workers. But the reality is that China is now shifting its appetite to robots, a transition that will
have significant consequences for China’s economy — and the world’s.

In 2014, Chinese factories accounted for about a quarter of the global ranks of industrial
robots — a 54 percent increase over 2013. According to the International Federation of
Robotics, it will have more installed manufacturing robots than any other country by 2017.

Midea, a leading manufacturer of home appliances in the heavily industrialized province of
Guangdong, plans to replace 6,000 workers in its residential air-conditioning division, about
a fifth of the work force, with automation by the end of the year. Foxconn, which makes
consumer electronics for Apple and other companies, plans to automate about 70 percent of
factory work within three years, and already has a fully robotic factory in Chengdu.

Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the
case in the United States and other developed countries. That may make it significantly more
difficult for China to address one of its paramount economic challenges: the need to rebalance
its economy so that domestic consumption plays a far more significant role than is currently
the case.

China’s economic growth has been driven not just by manufacturing exports, but also by fixed
investment in things like housing, factories and infrastructure — in fact, in recent years
investment has made up nearly half of its gross domestic product. Meanwhile, domestic
consumer spending represents only about a third of the economic pie, or roughly half the level
in the United States.

This is clearly unsustainable. After all, there eventually has to be a return on all those
investments. Factories have to produce goods that are profitably sold. Homes have to be
occupied, and rent has to be paid. Generating those returns will require Chinese households
to step up and play a larger role: They will have to spend far more, not just on the goods
produced in China’s factories, but increasingly in the service sector.

Making that happen will be an extraordinary challenge. Indeed, the Chinese leadership has
been talking about it for years, but virtually no progress has been made. One problem is that
even in the wake of recent wage increases, average Chinese households simply have too little
income relative to the size of the economy.

Another problem is that the Chinese public has an extraordinary propensity to save. By some
estimates, the average household socks away as much as 40 percent of its income. That may
be partly driven by the need to provide for retirement and self-insure against risks like
unemployment and illness, as China’s newly capitalistic economy has largely decimated the
social safety net.

The bottom line is that any policy designed to rebalance economic growth will have to raise
household incomes while dampening down the saving rate. That would be a daunting
challenge under any circumstances, but accelerating technology is virtually certain to make
it far more difficult.

The traditional path followed by developed countries has been to first raise incomes and build
a solid middle class on the basis of manufacturing, and then later to make the transition to a
service economy. The United States, and later, countries like Japan and South Korea, had the
luxury of undertaking that journey at a time when technology was far less advanced. China is
faced with making a similar transition in the robotic age.

Automation has already had a substantial impact on Chinese factory employment: Between
1995 and 2002 about 16 million factory jobs disappeared, roughly 15 percent of total Chinese
manufacturing employment. This trend is poised to accelerate.

That might not be a problem if the Chinese economy were generating plenty of higher-skill
jobs for more educated workers. The solution, then, would simply be to offer more training and
education to displaced blue-collar workers.

The reality, however, is that China has struggled to create enough white-collar jobs for its
soaring population of college graduates. In mid-2013, the Chinese government revealed that
only about half of the country’s current crop of college graduates had been able to find jobs,
while more than 20 percent of the previous year’s graduates remained unemployed.

According to one analysis, fully 43 percent of Chinese workers already consider themselves to
be overeducated for their current positions. As software automation and artificial intelligence
increasingly affect knowledge-based occupations, especially at the entry level, it may well
become even more difficult for the Chinese economy to absorb workers who seek to climb the
skills ladder.

What policies might help China succeed in making the transition to a consumer economy
even as the robotic revolution unfolds? Strengthening the health care, retirement and
unemployment insurance systems, so that workers feel more secure, might help lower the
savings rate somewhat.

However, it seems likely that the Chinese government will ultimately need to resort to direct
income supplementation in some form — perhaps through a program similar to the earned-
income tax credit in the United States. Even that may prove ineffective in the long run as
rapidly advancing technology leaves more and more workers behind.

China could well turn out to be ground zero for the economic and social disruption brought
on by the rise of the robots. The country’s relatively brittle authoritarian political system,
together with its dependence on a sustained level of economic growth that would be
considered extraordinary in any developed nation, suggest that China may face a staggering
challenge as it attempts to adapt to the realities of a new age.

Martin Ford is the author of “Rise of the Robots: Technology and the Threat of a Jobless