When Foxconn, the world's largest electronics manufacturer, cut 60,000 staff in China during 2016, people thought it was going through hard times. Instead, the company was investing in its future by replacing workers with automated production lines.
Geoffrey Wong, UBS-AM Head of Emerging Markets and Asia-Pacific Equities, says this is a gathering trend because "with China's aging demographics, the number of young workers is getting fewer and fewer. China is responding with a heavy emphasis on automation."
China is taking the lead in automation
And China is taking the lead in automation, installing 110,000 of 380,000 robot systems built globally in 2017, taking China's total to 451,000, or c.20% globally (1).
As Geoffrey points out "China installs more robots than any other country […] each year, and this proportion is only growing"
"If you go to a factory in China today and compare it to twenty years ago, it's totally different: the factories look very similar to ones in Germany, Japan, Korea, with fewer workers and many more robots. This is the future of manufacturing in China."
And potential growth for automation in China is huge. Robot penetration in China is low, with 97 robots per 10,000 workers, compared with 658 in Singapore and 710 in South Korea, according to the International Federation of Robotics (1).
What does this mean for investors?
Three thoughts for investors
- This is the opportunity to uncover value in companies that aggressively automate and boost efficiency.
- Innovative robotics companies can sell into China's manufacturing base, which is the world's largest (2) and still relatively underpenetrated.
- Automation raises productivity and China's long-term economic growth potential. If, as is likely, China continues on its automation path, it will boost GDP by 20% between 2018 and 2037 (3).
So, there are many ways that China's automation process creates opportunities for investors and selecting the right ones is crucial.