Many analysts would appear to be in a hurry to write off China as the world’s leading manufacturing powerhouse, based on the US desire to diversify supply chains away from China or, at least, adopt a China plus One strategy, the onset of population decline in China, the sharp rises in Chinese wages and the troubles that have, of late, pulled down China’s growth rate. It would be wise to hasten slowly, going by insights from the International Federation of Robotics’ World Robotics Report 2023, particularly, its volume devoted to industrial robots, and the global trend of arming robots with artificial intelligence of assorted kinds.
Here is a sobering portion from the report’s executive summary: “In 2022, the operational stock of industrial robots was computed at 3,903,633 units (+12 percent). Since 2017, the operational stock of industrial robots had been increasing by 13 percent on average each year. China’s operational stock of industrial robots, which had been growing impressively by 25 percent on average each year since 2017, exceeded the one-million-unit mark in 2021 and 1.5 million units in 2022, when it grew by another 22 percent. This represented 38 percent of the global stock.”
US Policy Moves
The Biden administration has been attempting a major shift in its foreign and domestic policies, in order to conduct effective strategic competition in an interdependent world, leaving behind the assumption of automatic US leadership of the world in the post-Cold War era and the isolationist turn under President Donald Trump. The new thrust is on developing alliances, and domestic capability in areas considered strategic, while seeking to deny access to such capability to strategic competitors, chiefly China. The administration’s National Security Strategy 2022 identified China as America’s systemic rival, downgrading Russia to a regional rival.
A slew of laws — the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act — pour hundreds of billions of dollars of subsidy into advanced semiconductor manufacturing and clean energy technologies in the US. American National Security Advisor Jake Sullivan claimed, in a recent article in Foreign Policy, that these have coagulated a combined, scheduled investment of $3.5 trillion over the next decade. He also claimed that manufacturing construction has doubled in the US since 2021. It is a different matter that other reports make it clear that a paucity of qualified workers is holding back these high-tech manufacturing plans.
Biden has taken forward the Trump administration’s protectionist policies and tightened export controls on high-tech products. Any company anywhere that makes use of American-derived technology stands barred from exporting products and technology to China. This has halted the export of American chip maker Nvidia’s advanced chips used for building artificial intelligence to China, besides of Dutch company ASML’s critical machines used to manufacture microprocessors.
The generous subsidy on offer to advanced manufacturing investment in semiconductors and clean energy, including electric cars, comes with the rider that the bulk of value addition must take place either in the US or in friendly countries with which the US has trade treaties. The Economist concluded that this strategy meets with only superficial success. Chinese companies invest around the world, including in countries with which the US has trade agreements, and the value-added imported into the US might not directly originate in China, but is still controlled by Chinese entities. Europe, meanwhile, has refused to toe the US line on decoupling from China, the biggest market for European companies in cars, heavy engineering, luxury and wines.
China’s Robot Population
As China prospered after joining the World Trade Organisation in 2000, its average wages steadily rose. In 2010, the average annual wage in China was 37,147 yuan or $5,687, at that year’s average exchange rate. In 2020, the average annual wage in China was 97,379 yuan, $13,765 at that year’s most adverse exchange rate. The average Chinese wage had grown 2.5 times in dollar terms in ten years. The population growth rate, already below one percent in 2000, has now turned negative. China cannot remain competitive except by vastly raising productivity. Enter the robot.
The number of robots deployed on factory floors has gone up sharply in China, much faster than in any other country in the world. Between 2017 and 2021, robot density, defined as the number of robots per 10,000 employees in manufacturing, went up from 97 to 322 in China, that is more than trebled. Other economies with a high propensity to use robots saw more modest increases in robot density: from 710 to 1,000 in South Korea, the economy with the highest robot density, from 308 to 399 in Japan, from 322 to 397 in Germany, and 200 to 274 in the US. The Korean and Japanese figures look impressive, till you factor in the number of manufacturing jobs in these economies, compared to the number for China. China has not just the largest workforce in the world, but also the highest share of the workforce employed in manufacturing, 28.7 percent, compared to 9.9 percent in the US, 15.5 percent in Japan and 15.9 percent in Korea. These latter two East Asian manufacturing powerhouses have relatively tiny workforces compared to China’s.
China is almost on par with the US in artificial intelligence capability, and not very far behind in cloud computing capability. Microsoft’s Azure has a Chinese version. Cloud computing is key to hosting and delivering AI software services. And Chinese Huawei is the world’s most advanced 5G provider. AI, cloud computing and 5G, in combination with extensive deployment of robots, promises China a very big productivity boost.
Indian industry and policymakers would do well to keep this in mind, while crafting India’s own strategies to develop manufacturing muscle.
TK Arun is a senior journalist. Views are personal and do not represent the stand of this publication.
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