So we don't like the notion of an overheating China--yet a slowing China, with GDP expected to grow only at 7.5% (eek!) this year, scares a global economy still in a fragile recovery, even more so.
China's ability to be most things to most economies--primary producer of cost-effective goods, primary consumer of oil, steel and luxury handbags--has rested on a carefully cultivated platform of infrastructure and industrial clusters which has, for the better part of 20 years, allowed China's export-oriented manufacturing to maintain double-digit, year-on-year increases in value-added productivity.
Yet it is wrong--or rather, insufficient--to claim China's long economic boom has only been due to its labour-arbitrage manufacturing juggernaut. As is often pointed out, capital investments, property and infrastructure construction actually make up a far greater slice of its economy. But that's all of a piece: such investments create the clusters, which create the domestic wealth which China sees as the cornerstone of a new, self-sufficient, wave of growth (The economic journalist and EIU alumnae Joe Studwell has deftly analysed the capital efficiency which explains the rapid and robust growth of North-east Asia in his most recent book: http://howasiaworks.wordpress.com/about/).
So the conventional wisdom has it that China's virtuous cycle is soon to crash down, as its fewer, older, pickier workers will be unable to sustain it, no matter how much they buy in China's fancy new malls. Except that China-based manufacturers are likely to continue to exploit the other economic benefits of its robust, convenient industrial clusters while derisking themselves from rising wages by automating more. China is already second only to Japan in its purchases of industrial robots, and many mainstays of China's contract manufacturing ecosystem, such as Foxconn, have increasingly jumped on the robotics bandwagon. Foxconn may be trying to spin its commitments to robots a little too slickly; the company boasts of plans to ultimately have a million robots in its plants--as many as it has factory workers today, although only 20,000 are as yet installed (http://www.mis-asia.com/tech/industries/foxconn-to-speed-up-robot-army-deployment-20000-robots-already-in-its-factories/).
Yet again, this is seen as a defense against China's growing cost-incompetitiveness, rather than as a critical step in the capital-intensive (and technology-intensive) journey China has long been on. I reckon we easily can add another year of competitiveness to China's manufacturing ecosystem with every million robots installed.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
