Robo-Boomers: Automation and Middle Class Could Earn China $5 Trl by 2030

Robo-Boomers: Automation and Middle Class Could Earn China $5 Trl by 2030 © REUTERS/ Stringer

14:42 22.04.2016Get short URL

If China can change to a consumption-driven economy and “streamline its operations” by employing more robots, its annual GDP in 2030 could be $5 trillion larger than that provided by investment-led growth, McKinsey & Company consultant Jonathan Woetzel wrote in Project Syndicate.

China has a consumption-driven path towards greater growth, which gives it an advantage over other global economies. The new trajectory could be worth an extra $5 trillion by 2030, Jonathan Woetzel, a researcher specializing in Chinese economic trends for McKinsey & Company, wrote on Tuesday in Project Syndicate.

“If China carries out a sustained, comprehensive effort to raise productivity, it can address its growth challenges, reduce the risks of financial crisis, and complete its transition to a consumption-driven, high-income economy with a large and affluent middle class. If it does, its annual GDP could be an estimated $5 trillion larger by 2030 than it is likely to be if policymakers continue to pursue investment-led growth,” Woetzel wrote.

However, if China does not undertake the reforms Woetzel envisions, the consultant believes that the Chinese economy faces “a continuation of the status quo, with poorly performing companies propped up in the name of job preservation and social stability,” making the country less globally competitive.

According to Woetzel, the level of productivity of Chinese labor is only 10-30 percent of that in developed economies, and businesses in the service sector are just 15-30 percent as productive as their counterparts in OECD countries.

“In addition to streamlining existing operations (for example, by introducing self-checkout systems in retail businesses), China has opportunities to complement its manufacturing sector with high-value-added business services in areas such as design, accounting, marketing, and logistics.”

In the manufacturing sector China could increase productivity by using more robots. Though China is the world’s largest purchaser of robots, it still has only 36 robots per 10,000 workers, compared with 164 in the United States and 478 in Korea, Woetzel writes.

“The car manufacturing industry in particular offers scope for growth, and is capable of producing 40 million cars per year for a market that currently consumes 26 million.

Woetzel believes that some of China’s biggest productivity opportunities are in industries which suffer from overcapacity, such as steel manufacturing.

“Restructuring industries like steel, by letting uncompetitive players fail and encouraging consolidation, could raise productivity dramatically without compromising the ability to meet demand,” he wrote.

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