The International Federation of Robotics positions China as the world’s fastest-growing market for industrial robots. Installation of multi-role robots rose by 136 per cent from 2008 to 2011 and will grow another 15 per cent this year. The country is in a hurry to play catch-up with major industrial powers. Consider this: China uses only 21 robots per 10,000 workers in manufacturing, way behind Germany’s 259 and Japan’s 339.
It is no coincidence that China is now poised to become the world’s largest market for industrial robots. The working class profile is changing dramatically as industries come under increased pressure of rising labour costs. Urbanisation and rise in international prices of resources have weakened the cost advantage China held so long. Urbanisation has crossed 51 per cent, which means more than half of its population now live in cities, demanding better amenities and income. By 2020, there will be 600 million middle class people, whose aspirations the state, market and industry must meet.
The low cost-driven growth model, which gave China spectacular success, has peaked and must necessarily give way to transformation. According to the International Monetary Fund, China’s per capita GDP was $5,414 (Dh19,870) in 2011, which implies that its economic and social development has entered a critical transitional stage. A country is said to be on the verge of advancing from a middle-income to high-income society when its per capita GDP reaches the watershed mark of $4,000. Japan, South Korea and developed Western nations crossed this threshold by changing their industrial structures and transitioning from a labor-intensive to technology-intensive economy.
Will China succeed in doing this? The country is at a critical juncture, but saddled with a population that exceeds 1.3 billion. Economic logic dictates that it should gradually abandon dependence on resources, capital and investment to drive its growth and, instead, use technological innovations to boost its economic and social development.
A per capita GDP of $4,000 or higher usually boosts a country’s service sector and fuels rapid increase in consumption.
A section of analysts are optimistic that domestic consumption will replace investment as the major engine driving China’s economy. A national think tank has estimated that continued urbanisation and increase in middle-class consumers will spur investment demand by at least $6.3 trillion in the next ten years.
As of now, China’s investment rate is about 50 per cent, which is very high compared with other countries, although the growth in consumption has gained some momentum this year. In the first three quarters of 2012, China’s final consumption expenditures — the sum of household and government consumption expenditures — accounted for about 55 per cent of its GDP, indicating for the first time in 10 years that the contribution of consumption surpassed that of the investment.
There is, however, little to indicate that China will give up its three decade-tested formula that relies heavily on manufacturing and infrastructure investment. The emphasis on industrialisation and urbanisation — with a dash of stimulus and subsidy now and then — is likely to remain.
New wave of investments
Infrastructure stimulus no longer makes headlines but is constantly underway. Led by local governments, a new wave of investments in the third quarter ensured that China did not hurtle towards a disastrous slowdown. In early September, the National Development and Reform Commission, approved subway construction projects in 23 Chinese cities, with a total investment of 840 billion yuan. A further 21 road, highway and port projects, 10 environmental protection projects, 76 clean energy projects, and several hydropower station and airport construction projects have also been approved.
Foreign heavy machinery manufacturers in China anticipate that fixed-asset investments in railway, highway, energy and real estate will increase 20 per cent annually over the next four years. These companies, which saw reduced sales and revenue in the past year, believe that there will be growth in 2013. Companies like US-based Terex Corp, see the biggest potential in wind and clean energy projects and in the development of sparsely populated western China which is building everything — from towns to power stations, refineries and chemical plants.
With China planning to keep the wheels of industry in quick motion, it is little surprise that industrial robot makers are sporting a mechanised smile.