As China faces demographic challenges, policymakers are increasingly turning towards automation as a solution. However, given the historically high youth unemployment rate of 21%, the implementation of automation will need to be conducted carefully.
China’s working-age population peaked at around 1 billion in 2014 and has since declined, exacerbated by a 40-year shortfall in births and an increase in elderly retirees. By 2050, China’s working-age population is expected to decline by approximately 260 million.
This could severely affect China’s manufacturing and supply chain capacity. To mitigate economic impacts, Beijing is responding in three primary ways, the first being raising the retirement age from the 60 for men and 55 for most women.
The proposal to gradually increase the retirement age has faced significant backlash on social media, not only from those approaching retirement but also from younger workers dealing with high unemployment, who prefer not to face additional competition. Beijing seems reluctant to make a stand on this, since conceding that any change would have negligible effects on the labour force.
Additionally, China is looking to emulate countries like France and Sweden, which have seen some success in boosting birth rates through pro-natalist policies, though they still fall below the replacement rate. Despite China’s shift from a two-child to a three-child policy, there has been little impact on population growth. Even if successful, the impact on the workforce would not be immediate, requiring at least two decades to be felt.
Automation
Therefore, the third and most effective strategy is automation. Automation is widely agreed to be the most successful strategy to tackle ageing and low fertility.
In 2022, the Chinese government unveiled a five-year plan with the ambition of establishing China as a global leader in industrial automation. The implications could be profound. Automation could offset more than half of the anticipated future labour shortage, a figure that doesn’t even factor in the potential productivity improvements that automation could bring.
China has already seen substantial progress in this area, emerging as the fifth most automated nation globally in terms of robot density, with around 392 robots per 10,000 employees, according to the International Federation of Robotics (IFR).
While it lags behind South Korea (1,012 per 10,000 employees) and Singapore (730), China’s rapid growth in robot density suggests it may soon surpass Germany (415) and Japan (397). In 2022, China installed 290,000 units, accounting for more than half of the industrial robots installed globally that year.
Automation Won’t Save Low-Margin Manufacturing
The effects of automation will be spread unevenly across China’s manufacturing sector. It is unlikely to rescue China’s low-margin manufacturing sectors, such as clothing and footwear, which are increasingly moving to countries like Vietnam and Bangladesh.
The reason China’s low-margin manufacturing sector can’t adjust to automation has to do with layout, according to Daniel He, Int’l Business Development Director at Dongquan international Technology Commercialization Center.
“A lot of Chinese low-margin manufacturing is still heavily based on a craftsmanship tradition rather than the Western industrial system,” explains He. “Therefore, the structure is different in each company, lacking middle-level management. This makes the widespread implementation of automation across such an informal structure challenging.”
However, automation can aid companies in ascending the value chain. For instance, the city of Dongguan in south China, has offered incentives for companies to transition from low-end production to advanced manufacturing, while not needing to retrain or find many new workers.
The increasing adaptability of robotics to advanced manufacturing means that China is witnessing greater automation in its rapidly growing sectors, such as new energy vehicles, photovoltaics, electronics, and lithium batteries.
Automation Risks Exacerbating China’s Youth Unemployment Crisis
The impact of automation higher up the value chain is more complicated. One of the widely agreed upon reasons for China’s current youth unemployment crisis is the fierce competition for comparatively few high-paid segments.
Increasing automation opportunities for high-value, skilled employment are diminishing, exacerbating the youth unemployment crisis.
The preference among Chinese graduates for high-value jobs, combined with the automation of these roles, creates a paradox. Automation aims to address labour shortages and boost efficiency but may limit career options for a well-educated, driven young workforce.
Experts disagree on the impact of automation on high-value jobs in China: McKinsey predicts up to 220 million workers may need new occupations by 2030, while PwC anticipates much disruption but an actual net job increase of 90 million. However, these estimates, by far the most widely cited by optimists and pessimists, predate the generative AI revolution, adding more uncertainty to the impact.
Despite potential labour disruptions, China needs to pursue automation, so Beijing is going to have to learn how to balance automation with enough opportunities for its young people.
The answer will probably come in a series of targeted interventions, including re-skilling initiatives, educational reforms, and policy measures, to bridge the gap between the jobs being displaced by automation and the career aspirations of China’s workforce.
