Rise of the machines: China’s next revolution

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As its once-limitless supply of labour begins to shrink, China is witnessing the rise of the robot. The country that has become the world's factory is on the cusp of dramatic change that could see some industries replace nearly half of their workers with automation in just a decade.

This change is readily apparent at the STEP Robotics factory on the outskirts of Shanghai, where glass surrounds robots of all sizes, their metal elbows flexing in inhuman ways and at inhuman speed. They are being put through their paces before taking their place as a new generation of factory workers.

"People are testing it out. They want to get a sense for it because they've never done it before," says Zhou Shuopeng, the company's vice-general manager. "It's a very important time."

In 2013, after years of trailing other nations, Chinese factories tripled the number of robots they'd ordered just the year before, suddenly making China the world's biggest buyer. Yet, the International Federation of Robotics expects Chinese orders to triple again by 2017.

The move to automation is part of an economic reckoning in response to the turbulent after-effects of decades of population control that are creating worker shortages and driving up wages.

Just 15 years ago, average salaries in the richest Chinese cities were still only $200 (U.S.) a month, so it's unsurprising that China has leaned heavily on human labour. Then, in 2008, the number of young people joining the work force began to shrink, soon followed by the total number of workers. In 2013 and 2014 alone, the work force contracted by more than 6 million people.

Population control and the one-child policy were "overkill, and the chicken is coming home to roost," says Joan Kaufman, a Harvard lecturer on global health and social medicine who, in the early 1980s, was in Beijing with the United Nations Population Fund.

Calling low-cost manufacturing "the engine of the economic juggernaut," she says, "I don't know how the whole country is going to make the transition. How is the manufacturing sector going to maintain itself if there is a drop-off in the supply of cheap labour?"

The impact is being felt outside the manufacturing sector. Rising real-estate prices have been a major source of wealth in recent decades. But urban growth has not only stopped in some places, it has begun to reverse. U.S. researcher Victor Shih examined data for cities with more than a million residents (there are about 250 ) and says between 50 and 60 have had "negative population growth in the past five years." The migration that for so long drove the economy is grinding to a halt.

Enter the robots.

At CHIC Group, a sprawling Shanghai agriculture conglomerate, technology, efficiency gains and automation have already brought striking adjustments.

"We reduced the requirements for hand labour by about half already in the last six or seven years," says Edward Zhu, founder and chief executive officer of the company, which now has 12,000 employees. The demographic hit has been so hard, he says, that it's now "very difficult to grow any business in China that requires intensive labour."

Making those adjustments, he warns, is a matter of survival. "China really needs to shift to a high-productivity, automation-type production. Without that in place, China absolutely is not a competitive place to do business."

Beijing has sought to speed the transition, orchestrating an explosion in minimum wages – up more than 80 per cent since 2009 in some cities – to force manufacturers to make better, more valuable products, rather than forever fighting to be the cheapest.

"There is no panic any more in Beijing if another shoe manufacturer closes down," says Louis Kuijs, chief China economist at the Royal Bank of Scotland, "because what they want to see is that move up the value chain."

Also, as wages have gone up, the price of robotics has gone down.

In a recent report, RBC Global Asset Management compared automation costs with the average annual salary at Foxconn, the world's largest electronics manufacturer, which employs more than a million people in China to assemble iPhones and other electronics. In 2003, a robot was 2.5 times more expensive. But today, according to the report, "it is likely" the cheaper option.

Beyond short-term savings, the shift to automation is a bet on the future. Justin Rose of the Boston Consulting Group, which is assembling a major report on global robotics, says China is making the switch "more quickly than you would say makes economic rational sense ... a clear sign they're trying to get ahead of what they see as long-term structural trends."

By 2025, he says, robots may make up half the work force in some sectors, versus as little as five per cent today. It is, he says, "nothing short of a revolution."