Blue-Collar Labor Shortage and China’s Automation Drive
Why is there a blue-collar labor shortage in China?
As the consequence of the one-child policy as well as rising financial pressure, China’s fertility rate has remained at a low level for years, leading to a rapidly aging population which heavily impacts the available workforce within the country. The population aged 15 to 59 only accounted for 63% of the total population in 2020 – down by around 7% points compared to a decade ago. Since 2017, the labor force has been decreasing and could further shrink by 5% in the next ten years, limiting China’s economic growth potential. Although a three-child policy has been in place since 2021, short maternity leave time, expensive child-care and rising living cost prevent many couples giving birth to another child (see also other China Demographics briefing).
On top of that, with the number of university graduates growing, graduates’ preference for white-collar jobs negatively hit factories, which struggle to find suitable workers. The current covid-19 pandemic further supports this trend as many migrant workers decide to stay in their hometown out of fear to catch the virus in cities or factories. Other migrants are leaning toward jobs in the service industry, which pay higher wages or are less demanding. In 2018, the service industry has been the most popular source of employment for migrant workers.
What kind of opportunities does it provide for automation?
The Chinese robot and automation industry is the largest market globally and has reached a market size of around 16 bln EUR in 2019 with a CAGR of 14% since 2016. As the labor shortage is expected to get worse, it further fuels the demand for increased automation and incorporation of higher technology within factories to increase production efficiency and to balance out the lack of factory workers.
For instance, the home appliance giant Midea has issued a three-years plan to integrate more technologies in its 34 factories, while the German automotive manufacturer BMW aims to install 2,000 new robots in its factories by next year.
Moreover, with the government strongly pushing towards intelligent manufacturing, it has also opened many opportunities and growth potential in this market:
- Mech-Mind Robotics: Founded in 2016, the Chinese start-up focuses on developing intelligent robotic products, integrating 3D camera, 3D visions, deep learning algorithm, and motion planning technology. During its latest funding round in 2021, the company received 155 Mio. USD of funding.
- Hai Robotics: Founded in 2016, the Chinese warehouse robotics company has five subsidiaries overseas and offers autonomous, case-handling robotic (ACR) systems for the logistic warehouse industry. During its latest funding round in 2021, the company received 200 Mio. USD of funding.
- Eoslift: Founded in 2008, Eoslift provides customized solutions to automize logistic processes, including unmanned handling, parcel packaging, distribution, and storage management. The company successfully reduced the number of required employees from 150 to 30 for a client in the electronics sector, helping to save around 1.2 Mio. USD in labor cost within one year.
What does this mean for MNEs operating in China?
China is now at the forefront of artificial intelligence and robotic solutions. As the government supports the shift towards increasing intelligent manufacturing to not only provide countermeasures for the shrinking workforce but also to drive the country’s efficiency and productivity, foreign companies operating in China need to effectively incorporate technology in their business strategy to improve their processes. This allows companies not only to cut operational costs and lower the number of required workforce but will also improve product quality and higher efficiency in material usages, leading to an overall increased competitive advantage.