Doing the Dirty Work

Many people still assume that as the world’s most populous nation, China has a limitless supply of cheap labor. While that was true in the 1990s, the reality is that the manufacturing sector faces a challenge people thought impossible just a few years ago: a dearth of workers.

Younger Chinese born in the 1990s are no longer willing to toil in factories for very low wages, and the country overall faces an aging population because of the one-child policy. Its young people have white-collar dreams and prefer to work in service sectors. They want to buy iPhones rather than make them.

In the 1990s, service accounted for 50 percent of China’s economy. It now accounts for 68 percent. Chinese workers are now a third as productive as their counterparts in America or Germany. My firm, the China Market Research Group, estimates that it’s now only about 20 percent cheaper to manufacture in China than in the U.S. Some Chinese companies, like the construction manufacturer SANY, are even setting up manufacturing operations in the United States.

This is why manufacturers have turned their focus to automation (see “The People’s Robots,” page 44), which is one of the fastest-growing sectors in the country, with a growth rate of 59 percent last year. China is now the world’s largest user of industrial robots.

Foxconn, the maker of iPhones and other gadgets, operates factory-cities that employ upward of 350,000 people, but it is replacing people with robots because it can no longer find the workers it needs. It’s now easier and cheaper for Foxconn to automate than it is to train workers. After 2010, when 14 Foxconn workers committed suicide, the company started an initiative to use robots in its factories’ “3D” positions—dirty, dangerous, and dull. It hopes to reach 30 percent automation by 2020 by installing more than a million robots on its production lines.

Chinese real estate developer Vanke has invested $20 million to establish a robotics R&D center to reduce its reliance on human labor. Hyundai and its partner Beijing Motors recently completed a factory that will produce over a million cars a year, mostly using robotic assembly. Even restaurants in Shanghai are using robots to make udon noodles because they can’t find enough cooks.

China won’t lose its manufacturing dominance anytime soon. It has advantages in scale and logistical capabilities. But it will become the leading hub for innovation in manufacturing by adopting and creating robotics faster than any other nation.

Shaun Rein is the author of the best-selling book The End of Cheap China.