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Why China Will Kneel To The West In Next-Gen Manufacturing

REUTERS/Aly Song

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Ryan Pickrell China/Asia Pacific Reporter

The future of “made in China” appears uncertain as the very practices that China hopes will improve its manufacturing capabilities are steadily eliminating its competitive edge in production.

China is furiously attempting to salvage its manufacturing sector and restore its edge through automation. By flooring it on industrial automation, China is accelerating the downfall of domestic manufacturing and pushing opportunities back into the arms of the West, reports Vivek Wadhwa, Director of Research in Duke University’s Center for Entrepreneurship and Research Commercialization.

The Purchasing Managers’ Index (PMI) for China’s manufacturing sector rose to 50.6 in July, marking the first time China’s manufacturing industry has experienced growth since February 2015. Even with this momentary improvement, China is still on the line between growth and contraction, and forecasts for August suggest that the manufacturing industry will once again contract and push the PMI down into the 40s. Manufacturing in China hasn’t just stalled; rather, it is shrinking.

To counter undesirable trends, China is investing billions of dollars to upgrade its waning domestic manufacturing sectors, but it may be a lost cause.

Guangdong province, the epicenter of China’s robotic revolution, announced last year that it will invest $150 billion to outfit factories with robots and develop centers for advanced industrial automation. China’s Ministry of Technology reports that China will build 100,000 industrial robots by 2017 to improve manufacturing through technological innovation. Zhang Peng, vice director of the Economy and Technology Bureau in Shunde, Foshan, said, “If manufacturing companies don’t improve, they won’t be able to survive.”

The ten-year Made In China 2025 plan, which is designed to modernize factories, was launched in May 2015. Two months later, China launched its “Internet Plus” program to incorporate mobile Internet technology, cloud computing, big data, and the Internet of Things into domestic manufacturing. These modernization projects are backed by significant Chinese investments, but outrageous spending on automation may be threatening domestic manufacturing in China.

Wadhwa argues that no matter how much money China dumps into its manufacturing industry, it will not be able to gain a competitive advantage in next-generation manufacturing. He writes, “[China] built its dominance in manufacturing by offering massive subsidies, cheap labor and lax regulations.” When it comes to robotics and advanced manufacturing, China doesn’t have an edge. Investments into advanced manufacturing, put Western countries and China on an even playing field.

As China automates its manufacturing operations, it will be forced to raise its manufacturing costs, especially considering that China often has to import high-end robots because industrial robots produced domestically tend to be poor-quality machines which produce shoddy products.

As China loses its advantage, Western companies may choose to move their high-end manufacturing operations back to the West. “American robots work just as hard as Chinese robots,” explains Wadhwa. “They all consume the same electricity and do exactly what they are told.” If high-end automated manufacturing can be done in the West for roughly the same cost, then there is no logical reason to let China manufacture products and then ship them back to the West for sale.

Wadhwa expects manufacturing to return to the U.S. in a big way in 5 to 10 years. He argues that China, with its significant investments in advanced manufacturing, is merely hastening the demise of its export-oriented manufacturing industry and paving the way for the reemergence of Western manufacturing.

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