Asia Tomorrow

China says hello to Mr. Roboto

A robot manufacturer in China's Harbin Economic and Technological Development Zone.
ChinaFotoPress | Getty Images

An increasing number of Chinese factories are ditching human workers for machines as a robotic revolution gets underway in the world's second-largest economy.

In the past month, two companies in the southern province of Guangdong, a major manufacturing hub, have reported plans to fill their factory floors with robots.

Evenwin Precision Technology is building a factory that will boast more than 1,000 industrial robots, China Daily reported in May. A maker of mobile phone components, Evenwin told the newspaper the move would reduce the number of frontline workers by at least 90 percent.

Meanwhile, home appliance maker Midea recently replaced 14 workers on one of its major assembly line, according to a Caixin report last month. Soon, it plans to replace quality-control supervisors with robots too.

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China is already the world's largest industrial robot market - the country also manufactures the robots it uses - and it's expected to boast more industrial robots by 2017 than both Europe and North America combined, the International Federation of Robotics said earlier this year.

A trio of factors is behind the recent industrial upgrade, according to a recent report by HSBC: "It's a potent mix -an ageing work force, rising wages and the all-important support of China's leader, Xi Jinping. This combination makes it easy to be positive about the automation industry in China."

Factors at play

China's populating is ageing rapidly, resulting in a shrinking labor force. That requires Beijing to move from its labor-intensive growth economy to robot-led advanced manufacturing, HSBC explained.

People aged between 16 and 60 - the definition of working age - declined by 3.7 million last year, the government announced in January. The number people reaching 65 will grow 4 percent in China over the next decade, compared to 3.3 percent worldwide, the United Nations forecasts.

But are robots more efficient than humans? According to many researchers, yes. A paper by Uppsala University and the London School of Economics in February revealed that industrial robots do increase labor productivity and raise a country's average growth rate by 0.37 percentage points.

White collar robots are coming for your jobs

Robots are also a cheaper alternative, HSBC pointed out: "The shortened payback cycle makes the investment in robots more economically viable due to rising labor costs."

More than half of China's provinces increased minimum wages at an average rate of 14.1 percent last year, according to government data, faster than the official 13 percent growth target.

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A new government push is also a driving force. A 10-year master plan called "Made in China 2025" unveiled last month by the government outlined plans to bolster sectors like computerized machinery and robotics. Meanwhile, the 13th Five-Year Plan, China's blueprint of long-term policies due later this year, is widely expected to offer tax and government subsidy support for automation companies.

Time to invest?

For market-watchers, stocks in China's A-share automation sector offer the highest growth potential among industrials, HSBC noted. The sector has risen 160 percent so far this year, outperforming the benchmark Shanghai Composite's 52 percent gain.

While valuations are high at 83x price-to-earnings, there is still plenty of upside left for the sector, the bank added.

"We believe industrial robot sales will continue to surge, given that the density of robots in China's manufacturing plants (30 units per 10,000 manufacturing workers) is still less than half of the world average (62 units).