middleclass

Feeling the PRD pulse
Special Report: Shop Talk – China, ASEAN and robotics
Relocating overseas saves the most
on wages
A revival in private investment
should add impetus to promising
trends in automation and robotics
We asked our respondents how much they would save with the given cost-saving
options. Unsurprisingly, moving capacity to places like Vietnam and Cambodia saves
the most on wages: almost 40% of respondents planning a move see savings of 20%
or more, over twice as much (in terms of proportion of responses) as for other options
(Figure 27). Automation is the second-highest, with 19% respondents expecting
savings of 20% or more; however, automation also has a high proportion of lowsavings
responses, indicating that its benefits go beyond just cost considerations. We
think the strong inclination to automate is an encouraging sign that China’s much
needed industrial upgrade is well underway.
Automation, robotics and ‘Made in China 2025’
China extended its leading position as the number one sales market for industrial
robots worldwide in 2015, increasing sales by 16% to 66,000 units, according to the
International Federation of Robotics (IFR). While undershooting IFR’s original
projection of 30% growth due to macro headwinds, China still materially outpaced the
8% increase in global sales. China is set to overtake the EU and North America by
2017-18 as the world’s biggest user of industrial robots in terms of operational stock,
according to the IFR. Furthermore, the rise of robotics is just part of China’s story of
rapid adoption of automation in manufacturing.
By boosting productivity, automation both explains and absorbs high wages; it is also
a reflection of the increasing complexity of the goods produced. China’s attempt to
move up the manufacturing value chain requires a great deal of automation, to
achieve accuracy and complexity in high-volume output at affordable costs (in
electrical and electronics production, for example). It also reduces worker stress
caused by repetitive, high-pressure work and can replace humans with machines
where working conditions are unsatisfactory.
China’s transition to high-end manufacturing would be even more remarkable in the
absence of the current economic headwinds, which are curtailing private investment
growth. Reflecting Beijing’s renewed fiscal push to stabilise growth, FAI by China’s
SOEs grew a staggering 23.3% y/y from January-May, while private investment
growth fell sharply to 3.9% y/y over the same period. The overbearing economic
presence of SOEs tends to crowd out private investment, an issue we think can only
be resolved via SOE reforms and banking-sector reforms. The good news is that
Beijing has identified SOE reform as a policy priority, issuing a long-awaited reform
blueprint in 2015. However, the chances of a quick boost to SOE efficiency or swift
deleveraging remain low, in our view. Better risk-based pricing of bank loans and a
fairer competitive environment are also crucial to boosting private investment.
Figure 26: Concerns on relocating to choice destination
No. of respondents
Underdeveloped transport/infra.
Poor labour quality and productivity
Lack of proximity to suppliers
Figure 27: How much would your response save you?
Wage savings, %
< 10% 10-20% 20-30% > 30%
Move capacity overeseas
High non-wage business costs
Future high wage inflation
Uncertain political/social outlook
Underdeveloped legal system
Strong labour unions/labour laws
Moving overseas
Moving inland
Move capacity inland
More capital investment
Automation/streamlining
0 5 10 15 20 25 30
0% 20% 40% 60% 80% 100%
Source: Standard Chartered Research
Source: Standard Chartered Research
19 July 2016 18