Will the “Fourth Industrial Revolution” put China Inc out of business?

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story in today’s Wall Street Journal rehearses some facts that have been reported elsewhere (including in this essay on its own Op Ed page). But the key points of the article hold such important implications for China that they are worth considering carefully:

  • In 2013, China overtook the United States to become the world’s largest market for industrial robots, according to the International Federation of Robotics. 
  • In 2015, Chinese manufacturers bought 67,000 robots, about a quarter of global robot sales.
  • China’s demand for industrial robots is projected to more than double to 150,000 robots per year by 2018.
  • In May, Chinese home-appliance maker Midea Group launched a $5 billion takeover bid for Kuka, Germany’s most innovative engineering firm, and now owns about 86% of the company.

There’s a big debate raging among experts now about how artificial intelligence and advanced robotics — trends that, thanks to a big branding push by Klaus Schwab and the good folks at the World Economic Forum this January is now often referred to as “The Fourth Industrial Revolution” or “Industry 4.0” — will affect China. Will China, the “world’s factory,” be blindsided from these technologies? Or will it benefit from them?

Those who believe the former include some of the world’s most distinguished economists and savviest technology experts. In essence, the pessimists argue China is about to get walloped by AI and robots even harder than workers in the United States and Europe were hit by the double whammy technology and trade (mostly from China).

In the July/August issue of Foreign Affairs. Routine, economists Erik Brynjolfsson, Andrew McAfee and Michael Spence argue that China is uniquely vulnerable to the disruptions of Industry 4.0 because repetitive jobs, the staple of factory work in China…

…involve exactly the type of tasks that are easy for robots to do. As intelligent machines become cheaper and more capable, they will increasingly replace human labor, especially in relatively structured environments such as factories and especially for the most routine and repetitive tasks. To put it another way, offshoring is often only a way station on the road to automation.

In a recent New York Times essay, Martin Ford, author of the best-selling Rise of the Robots: Technology and the Threat of a Jobless Future, suggested China will be particularly traumatized by AI and robots not only because its economy is so dependent on the kind of jobs they will assume, but also because China’s authoritarian political system will prove too brittle to accommodate the labor unrest that will inevitably result as people get thrown out of work:

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.

Proponents of this view sometimes talk about “reshoring.” If robots, unlike humans, will cost roughly the same no matter where they’re located, why not install production lines in developed economies closer to final demand, not China where products have to be shipped vast distances to customers in the US, Europe and Japan. Proponents of this idea cite Adidas’ recent decision to begin large-scale shoe production next year a highly automated facility in Ansbach, Germany.

McKinsey’s Kevin Sneader and Johnathan Woetzel argue China the robots are unlikely to dethrone China as global manufacturing king, partly because China itself will adopt robots on a vast scale. But that assessment turns partly on a political judgment that mass unemployment won’t be a byproduct of all those machines–or even if it is, that China’s communist rulers will be able to figure out a way to take just disruptions in stride.

 

 

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