China's Looming Labor Problem

January 29, 2018

 

China has a labor problem.

 

Sure, there are plenty of people to do the work. World Bank estimates point to a labor force of over 785 million people. That’s seven times larger than the United States and dwarfs the UK’s 34 million workers.

 

And therein lies the issue. There are too many people.

 

Last week I reposted an innocent-enough article on LinkedIn. The article was talking about China besting Amazon Go to AI-enabled shopping. Commenters were less interested in the technological innovations of businesses like BingoBox and more in the labor economics behind these seemingly innocuous changes to society. In short, what happens to 785 million people when robots replace them?

 

I immediately thought of Guangdong Province, with aspirations of automating 80 percent of its factories by 2020. It ticks all the business boxes perfectly: lower overheads; fewer errors; round-the-clock productivity. The element nobody is really talking about, though, are the people themselves. There are hardly enough service-sector jobs to take an influx of this proportion. Even if migrant workers were to travel back to their home villages, what opportunities would there be? China’s shut down all the provincial mom-and-pop factory operations that could have housed them. Now, they’ll likely have to return to the land, hardly earning the salary most have become accustomed to.

 

Innovation, particularly technological innovation, therefore puts people out of work. This is not a new revelation. As we also know, out of work people tend to become aggravated when they can’t earn a living to feed their families. The recourse is to air grievances to the powers that be. In any other market this would be fine, but this is China. Innovation leads to unemployment, which in turns leads to grievances and a loss of Beijing’s right to govern. That’s unacceptable.

 

So, does this mean there will be a limit to how much innovation China allows?

 

While it’s too early to tell, there are a few things to consider.

 

  • First, innovation will be needed in a few key industries if China wants to achieve its 2025 targets. These include agricultural technology, aviation, and information technology.

  • Second, it’s unlikely the Government will hamper the aspirations of Tencent or Alibaba. These representatives of a new Brand China, as well as their peers, will have free reign regardless of their societal impacts.

  • Finally, innovation will not impact all sectors evenly. Light manufacturing is decades away from adopting industrial robotics, while traditional agriculture can always use more hands on deck. In essence, some areas are safe for now.

 

For businesses in or looking to China, it’s critical to understand how your operations impact the labor market. If you’re in a safe zone, congratulations. If not, how are you helping prepare for a future more reliant on industrial robotics and white-collar workers? What measures are you taking today to up skill your workforce to meet the challenges of a dynamically changing environment?

 

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