We ought to be careful about judging China as a growth adventure, which have had its time, and thus in the future it will not pay off to produce in China. With the latest initiative introducing the China Manufacturing 2025 plan (CM2025) China is addressing its focus on realizing its still vast unused production potential by including digitization, big data, and robot technology in the production chain.
Source: "China Manufacturing 2025", European Chamber of Commerce
It is correct that China is facing a vast number of current challenges. The production methods and industries that China have been used to rely on, are using a lot of energy, pollute and have had low value add. The Chinese are only 10-30% as effective as the advanced economies. According to the think tank McKinsey Global Institute it is realistic that China can actually uphold a growth of 5.5-6.5% to 2025, however they conclude that one third to half of this growth will have to derive from an improvement in productivity and innovative initiatives. This is what CM2025 address.
The implementation of CM2025 will result in China being far from finished as a production country as predicted/insinuated in the Danish press, due to recent years cost increase. It is only prudent to flag that the myth of China moving away from ‘made in China’ to become a ‘consumer driven society’ does not reflect what is really going on. China in my view is instead focusing on ‘made in China’ (but now in a more efficient way and with a higher quality element), ‘invented in China’, and at the same time becoming a consumer driven society.
The historical low productivity can to a large degree relate to the historical lack of using robots in the Chinese manufacturing process. China in average is using only 49 robots per 10,000 employees, which is only half as many robots as the average Western economies are using in the production and is only one fifth of the United States’ implementation (and Denmark’s).
Implementing the most efficient robots will not only reduce costs, it will in an efficient way also address the demographic challenges China will be facing in the years to come and increase quality as the robots will lead to larger productivity, less errors, improved quality, security, and speed.
Even with such large production potential, China already now accounts for 20% of global production – and this market share have been gained from just year 2001, where China became a full-fledged member of WTO. Fact is that China today dominates many production industries (see infographic above). A situation that China not willingly – one might argue – would want just to give up. China have instead quite naturally chosen to take advantage of this position by focusing on increasing the efficiency through a more coordinated interaction between increased digitization of the production. Big data and cloud computing feed information which is shared and analyzed throughout the entire value chain, in which connected networks of employees and robots interact and work together.
What we haven’t understood in the West is that, if one deems China as a stagnated production country, then you risk making the wrong investment decisions. China’s CM2025 should instead be a warning lamp to the European industry where the next challenges will be, should Europe not adapt to big data, IoT, and robot technology. The view in the West is that we have an advantage due to European industry and universities working closely together. This is an advantage which might be useful when considering Japan but not when addressing China.