Why China’s Multi-Decade Manufacturing Miracle is Over

The Great Equalizer has arrived.

The German government said today that it won’t get in the way of the $5-billion acquisition by Chinese appliance maker Midea of Germany’s high-tech-industrial darling, Kuka Robotics Corporation. Midea, which promised up and down that Kuka would remain independent, has secured 95% of Kuka’s shares. Kuka executives have backed the deal. The German government’s efforts to find a more palatable – that is, European – acquirer have flopped. So this deal, the largest Chinese acquisition in Germany, is going to fly.

With €3 billion in revenues in 2015, Kuka is a significant player in “articulated robots” that can perform different tasks, such as arc welding or assembling. They’re used widely, from automakers to big bakeries. The deal gives the Chinese cutting-edge technologies and is another step forward in China’s efforts to modernize its manufacturing industry.

Chinese companies have been on a buying spree of robot makers, including so far this year:

  • In June, Agic Capital, the Chinese-European private equity firm, announced it would acquire Gimatic, an Italian supplier of robotic end-of-arm tools such as pneumatic and electric grippers.
  • In January, China National Chemical Corp, the Chinese state fund Guoxin International Investment Corp, and Agic Capital purchased KraussMaffei, another German player in industrial robots (among other things), for $1 billion.
  • In the US this year, China robotics manufacturer Zhejiang Wanfeng Technology Development Co. acquired Michigan-based Paslin Co, an assembly-line robotics manufacturer.

China is also developing and manufacturing its own robots. Production and use of robots made it into the most recent five-year plan. Local governments have jumped in with support measures, such as real estate or tax incentives. And Chinese funds are investing in robotics firms around the world.

This is a huge and rapidly growing business – no matter how troubled the global economy may be.

China, coming out of nowhere a few years ago, accounted for 27% of the $32-billion global market for industrial robots, by 2014, the most recent data available, according to the International Federation of Robotics, cited by the Wall Street Journal. China’s vast manufacturing base is the world’s largest and fastest-growing market for industrial robots: In 2015, sales soared 16%, against 9% in Europe and 11% in the US.

Chinese companies are going through enormous efforts and invest large amounts of capital to automate their production and shed the dependence on “cheap labor,” which is getting increasingly expensive and uncompetitive with other “cheap labor” economies.

For example, a year ago, a survey conducted by the commission of economy and information of the city of Kunshan, Jiangsu province, found that 600 major industrial enterprises would replace human labor with robots within five years. At the time, according to the SCMP, the government predicted that the city’s automation and robotics market would reach 80 billion yuan ($12 billion) by 2020. The city is supporting these efforts with 2 billion yuan ($300 million) in annual subsidies. And that’s just one city.

But unlike human labor, robots cost the same everywhere!

The shock waves of this fact are far reaching. By switching to robots, China no longer has a cost advantage over automated manufacturing in the US or Europe. When Chinese companies use robots to manufacture their products, the content of labor becomes minimal, and the difference in the cost of labor becomes insignificant.

Robots are the great equalizer.

Other differences remain, such as subsidies, taxes, environmental rules, the cost and availability of funding, the strength of the currency, etc. But by automating, China is losing the strategic strength that has helped it become the manufacturer of the world. And yet, if it didn’t automate, the manufacturing sector, beset with soaring labor costs, would get hit even harder.

With cost of labor being minimized, the cost of transportation moves further to the foreground. This is an advantage when the Chinese product is sold in China, but a disadvantage when it is sold in other parts of the world, particularly in distant markets such as Europe or the US.

Robots – and automation in general – systematically replace humans, which is their purpose, a problem that has been dogging the US economy for decades. Even as manufacturing output has increased sharply before the Financial Crisis, manufacturing employment has plunged. Since the Financial Crisis, manufacturing output, while up sharply from the trough, has not returned to its 2008 peak. Manufacturing employment has edged up only slightly and, at 12.3 million, is where it had been in 1946.

The chart shows US manufacturing output (index, blue line, right scale) versus manufacturing employment (in millions, red line, left scale) from 1972 through July 2016:


There has been another factor in the collapse of manufacturing employment in the US: outsourcing or “offshoring” to other countries with “cheap labor,” such as China.

But automation is the great equalizer. As China automates its manufacturing plants, replacing humans with computers and robots, its cost structure will approach that of similar plants in the US or anywhere. This effectively kills a big incentive for companies to transfer manufacturing to China except for products sold in or near China.

It’s already happening. Hence the lackluster manufacturing numbers coming out of China. Growth has stopped as China’s manufacturing base is being “equalized.” This isn’t temporary. It’s structural. Any hopes, for example, that the manufacturing PMI surveys will show lasting growth will be disappointed. And the bitter irony: it will get worse as automation progresses.

China will do in a few years with automation what the US has done in three decades. It will be very successful at it. It will automate faster than any country has ever done before. Governments at all levels will provide the fuel. Nothing will be allowed to get in the way.

But these newly automated plants in China have to compete with automated plants in the rest of the world – and the costs are nearly the same. Thus, manufacturing for exports will deteriorate further. Manufacturing for Chinese consumption will grow. Employment in manufacturing will collapse. And a devaluation of the yuan, though tempting as a solution, is going to change the manufacturing equation only at the margins. Hence the astonishingly sudden end of the Chinese multi-decade manufacturing miracle.

In the US, a peculiar economic phenomenon has set in. Read…  This is When the Jobs “Recovery” Goes KABOOM

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  60 comments for “Why China’s Multi-Decade Manufacturing Miracle is Over

  1. Wtquinn says:

    Robots manufacturing products for local or global distribution to who/what consumer/user is the implication, if jobs diminish, humans perhaps go into cyclical bust/war mode again. Glass is either half empty or full. I’ll bet full. Full if globalization, agribusiness and water desalination technology progress alongside human partnering behavior. Fiat money creation is no threat to progress as long as the state and business partner to create and harness same. Look at China constructing new cities next to old and never moving in. All stakeholders got paid and ate for those gigs. Moderns are stuck in stale rigid ideological terms that set people’s hair on fire at the mention of them. At one point in time these words did not exist (Capitalism, Communism, blah-blah). They evolved and came into being. Words reflect the living changing organism describing itself. What, will new words not come into being and be academically and politically worshiped as real to describe the future near perfected state or other human organism dejour? Yes, thinking optimistically beyond dark machine state thought police overlord dystopia. Just add some Homo Empathicus and cooperation and global 5 star dinners among the elite. Is humanity still Homo Necans “Man the Killer” high tech? Sure. They coexist paradoxically side by side. Just as my perhaps foolish optimism coexists with street smart cynicism. More importantly however, what new financial products will be created to profit on greed and fear, safety and security? And can we get in if we act on this offer now? And will the marketing and deal document and financial advise be robotically deployed? Aha! Sounds like exciting Soylent Green days to come! :)

    • OutLookingIn says:


      Not really. Population and demographics will have the ultimate “say” when it comes to consumerism and manufacturing.

      The US has 10 cities with a population of 1 million or more.
      China has 160 cities of such size! With the end user of robotically manufactured products being a consumer – who will consume the most?

      • Gerald Stehura says:

        Who’s going to consume the most? Planet Earth is s going to consume our coastal cities, our drought stricken farm land, our forests, life in the oceans, everything that makes life possible. Eight billion people can’t keep consuming as if Climate Change doesn’t exist. Sorry to intrude with a dose of reality.

        • humpty dumpty says:

          Reality? Climate Change (in capital letters no less) is a manufactured reality of the Left and closet totalitarians to seize power. Planet Earth is in no danger from a bazillion people. Not ever. A bazillion people intruding on each other with alternate realities and standing armies – that will make life impossible.

        • Wtquinn says:

          We have to stop arguing with Climate Change Deniers more interested in profits than human survival! Decisive action is required, not spineless debate societies. Altruism must be mandated for the greater good! For this reason Obama has unilaterally signed an Executive Order based on a joint study with the UN and Islamic Kanamits. The Affordable Climate Care Act will serve man, not corporate greed:


        • d'Cynic says:

          Not contradicting, but this is as good a place to expand on this issue as any.
          The climate change is not a single question but can be arbitrarily broken down to four:

          1. Is the climate change occurring?
          In my short time 20-25 years “going out there”, I have witnessed it with my own eyes. The main indicator is rapidly retreating glaciers.
          If you doubt it, you should go more out there.

          2. Is climate change caused by human activity?
          This is intuitive to many, but I will try to expand on it in a scientific method.
          The thesis behind it is the similar development of the inner planets. Only two of the planets retained an atmosphere: Earth and Venus. But Venus’s could not be more different: 90% CO2, 10% nitrogen. The temperature is around 500C, and the pressure on the surface is enormous because of CO2 molecules bond strongly almost like liquid water.
          What could have made Venus so different from Earth?
          Well, sometime in the distant past it had a chance encounter with life. Billions of years past removing CO2 and producing oxygen before any human even took interest in it.
          It is perhaps easier to comprehend that moving in the opposite direction as a result of human activity will lead to an atmosphere in which humans would not survive.

          3. Can climate change be stopped or reversed?
          Think of climate like a huge ship: it takes an enormous power to get it moving, but once it moves it takes equally enormous effort to stop it.

          4. Does it all matter to you?
          Well, the answer depends on your life circumstances; primarily age, life expectancy, family situation. Needless to say, the older you are the easier to dodge the inevitable bullet, but then what if you care about your family, too?
          And that’s just a selfish view, not counting the idea of “civilization” as a value.

          Still, at this point in the historical financial engineering saga, I tend not to think that humanity will perish because of climate change; there is a far quicker method.

        • interesting says:

          “as if Climate Change doesn’t exist”

          let me guess, you believe “hands up, don’t shoot” really happened too?

          “Climate Change Deniers more interested in profits”

          my god man!! there is so much profit potential in climate change Goldman Sachs is foaming at the mouth for their cut of that “trillion dollar a year” give away via carbon credit trading.

        • wtquinn says:

          What? 8 billion consumers can’t keep consuming? Or else they’ll accelerate climate change inflicted death? But, but how can that be? Isn’t consuming what consumers do? That plus have consumer sex to exponentially reproduce consumers? Yes, that’s what they do. Their name describes their behavior.

          But why do consumers do this? Why you ask?




          The End.

        • ERG says:

          Most of the developed world, with China and India right behind them, will have a plague of diabetes and obesity cripple their societies LONG BEFORE any sort of climate-related calamity takes place – if it takes place at all.



          Sorry, but THAT reality is much more real than your reality.

        • Graham says:

          Climate change? Oh – you mean Global Warming.

          As the IPCC said in AR4, the climate is an equilibrium formed by the solar energy from the sun, the earth albedo (mainly clouds), and the gaseous composition of the atmosphere.

          Until we can predict cloud cover AGW is basically a guess.

          What HAS caused millions of dead and a change in local landscapes in much of the middle east is war, not climate change. What is destroying the rain forests is debt-money central banking economies and US special interests like The United Fruit Company and the logging companies etc.

          But hey, isn’t blaming each other for driving 4x4s and calling each other deniers so much easier than confronting the real issues?

  2. In his “The End of Work” (1995) Jeremy Rifkin cited the “Wall Street Journal” (February 16 1944) in this very respect.
    Still governments do nothing!

  3. Chip Javert says:

    Call me when the Chinese actually invent something new (as opposed to stealing it), use quality materials (so it doesn’t kill you, like their baby formula), and build it without slave labor.

    And they have to do this quickly – because of their “one child” policy, from 2017 onward, China’s population is not only getting older, it’s actually declining in numbers.

    China has done remarkable things in the past 20 years, but they may not have achieved escape velocity from their financial and ecological mess.

    • Wolf Richter says:

      A big part of the components in your favorite car are made in China. Many of the components have been designed in China. US and EU automakers and component makers have design studios in China. Don’t confuse China of today with China in 1996.

      That said, quality control in China is a HUGE deal for foreign automakers, ALL the way up the supply chain to the raw materials. They know why….

      • Round Eye says:

        Yes, but will the Chinese government be able to hold back the explosion that happens when millions of formerly employed Chinese are out of work due to robots? As you so accurately state this is not 1996. Many Chinese be it from travel, working abroad, or the internet (even though censored) have much more information about the outside world and the wealth gap now. I seem to remember reading that there are many, many outbreaks of civil unrest each year where the military is called to restore order. Im thinking this won’t end well.

        • wtquinn says:

          The millions of Chinese workers displaced by robots will become refugees that Hillary Clinton will compassionately import to the United States in exchange for lucrative payments through the Clinton Foundation. But only after forcibly imprisoning anyone that voted for Trump under the new Xenophobe law. Once safely implanted here, they will inspire renewed enthusiasm for bicycle manufacturing which will trigger the Disruptive Fifth Wave of Chinese Food Delivery Tech and purified air through elimination of automobile carbon emissions. Then Dorothy will throw a bucket of water on Hillary when her broom catches fire and her evil flying monkey hoard will watch her melt.

    • Choice says:

      I believe China relaxed the “one child” policy a few years back… https://www.theguardian.com/world/2015/oct/29/china-abandons-one-child-policy

      • roddy6667 says:

        China just relaxed the One Child Policy this year. A friend of mine had one of the first Second Children on August 2. China’s birth rate is about the same as most European and First World countries. America has a higher birth rate because of all the Catholic Hispanic immigrants and the Muslim immigrants. We will see how this turns out in 20 years.

    • d'Cynic says:

      A one child policy was a smart thing to implement when 80% of the population were peasants. China could have ended up like India or Pakistan where population growth is out of control. It allows many Chinese to legally emigrate as first world citizens rather than sailing rickety boats and climbing fences.
      Decline in population is only a good thing for the world. You would need five planets and counting to live like Americans. And I am not afraid the Chinese population will die out any time soon.

  4. Kreditanstalt says:

    The myth of “increasing US productivity” depends on not taking (extremely high) western labour costs into account, but most GDP numbers are still measured in currency units.

    I’m assuming the graph above(“US manufacturing output”) is in widgets produced…? Or in dollars? Or in goods actually profitably sold?

  5. nick kelly says:

    I just want to express my usual caveats about robots. They do play a role in completely repetitive tasks- especially ones requiring little or no physical changes. One of the most successful robots is the ATM, or maybe that is better described as automation.
    But their current role and near future prospects as a disrupter are often overhyped. (I’m not saying that about the piece but about some of the more extreme boosters)
    Take car production: we’ve all seen the somewhat eerie robots welding car frames. But that is about it: the car is assembled by humans, using many power aids of course, but the starter, alternator etc. are bolted on by a human.
    The decline in US auto employment, a key manufacturing sector has nothing to do with robots and everything to do with Asian and German imports.

    Packaging is robot country but making a pair of jeans isn’t. Nor is changing a tap washer. Or making an airplane.

    A few months back a fairly typical hysterical piece in the Guardian pretty much announced the coming end of human labor- one of the doomed jobs: administrator.
    Doesn’t an administrator make decisions, especially in reaction to change? If an administrator’s job can be replaced by a robot the job shouldn’t exist.
    This is not so much a put- down of robots as much as a salute to the incredibly dexterous and versatile human machine.
    No doubt some manufacturing will come back to North America due to robot production of cheap injection- molded or punched out stuff and then packaged by other bots.
    But China’s big problem in apparel for example (and it IS a big one, I will guess without knowing it’s the largest export to the US) is that Sri Lanka, Pakistan, Vietnam, Bangladesh etc. are doing to China what China did to others.
    To end these calm thoughts with a rant- now that Tesla’s BS robotic driver has killed a guy because it didn’t see a semi and trailer the NTSB should should instruct it to recall the units and stop calling the thing an autopilot.
    (Back to the Guardian although this was a comment from a guy, he actually thought the plane’s autopilot did everything. The pilots were just there to harass the attendants. The autopilot would take off, go there, and land. Unless there was a crosswind? )
    One of the questions posed by a major automaker which like everyone else thinks it has to seem involved or be old school: ‘We aren’t sure about the protocol for a situation where the car needs to be returned to human control”
    Ain’t that the truth. (The guy who died was playing a game at the time)

    Outside of driving ore trucks on the owners land, and possibly a bus driving bot ( same route, with sensors in the street, and big designated parking area) I regard self- driving cars as an example of the hype re: robots.
    MIT’s top guy on the file says- not in medium term.

    • Wolf Richter says:

      ==> “The decline in US auto employment, a key manufacturing sector has nothing to do with robots and everything to do with Asian and German imports.”

      That’s why I put two lines in the chart: manufacturing production in the US and manufacturing employment. As you can see, production in the US has soared over the past decades. This is not caused by imports but by manufacturing in the US. The fact that it has soared while employment has plunged is due to automation.

      As I pointed out, there’s a second reason for plunging employment in manufacturing: outsourcing to “cheap labor” countries. But if that were the only reason, as you say, then manufacturing output in the US would have practically disappeared. And that’s just not the case.

      BTW: every global automaker has assembly plants in the US, including Mercedes and BMW.

      • Beard681 says:

        Increase in productivity is a constant feature of capitalism. The gain in productivity due to automation is minuscule compared to previous gains caused by standardization, mechanization and electrification. Early mechanical looms produced textiles with a few workers that would have taken thousands to produce on hand looms. That didn’t cause employment to plummet. Costs went down, demand went up along with demand for higher quality products that cold only be produced by machine.

        The charts and statistics that are trotted to explain away continuous TRADE DEFICITS and DE- INDUSTRIALIZATION out ask Americans to believe in squiggly lines on charts and disregard what is front of their own noses. That is – a landscape dotted with abandoned (not automated) mills and factories and the fact that store shelves are stocked almost exclusively with Asian made products.

    • Coaster Noster says:

      Well, I for one do not believe it is hype, when today, August 17 2016, the CEO of Ford says that in five years, Ford will sell, from production lines, self-driving cars, no gas or brake pedals, no steering wheels, and these will be sold to fleets such as Uber or Lyft, as taxicab equivalents.
      Decide for yourself:

      • nick kelly says:

        I read it- it’s corporate blather. In the software world it would be called vapor ware- the wonderful thing we’ll have some day soon.
        What is the hold-up? What needs to be invented to do this now? Why does the piece not mention a single technical issue and instead dispenses motherhood stuff about what Henry Ford was doing a hundred years ago. Is Ford going into the software business?

        I AM a little surprised the guy ‘promised’ such an incredibly short time frame. A major redesign of an EXISTING car starts two years before production- Ford took almost five years from concept to bring out the aluminum F 150- not exactly revolutionary.

        If you visit this site a lot you will read about the main concern of most large companies- their stock price. Why do Google, Apple and Microsoft? yap about the car biz- which in the opinion of Sergio Marchionne head of FC is inherently a lousy business?
        The big fear re: stock price is being seen as yesterday’s outfit.
        The other topic discussed here recently- the coming correction/ collapse of the auto sector with Ford’s stock taking a hit in the last week.
        This announcement looks like a combination of stock promo and maybe a CEO wanting to look like “I’m on it!”
        And why Uber and Lyft- why invoke the names of these internet phenoms that have nothing to do with self-drivers? Why isn’t the product being marketed to Joe and Jill, who may be Uber drivers and own the cars?
        I would say because with Uber coming from nowhere to have a valuation in the ball park of Ford’s- just invoking the magic name is a Ford stock booster.

        • Humpty Dumpty says:

          Ford started this project over 10 years ago. It ain’t blather or promo and you sound snarky, not informed. Ford will jump (has already jumped) ahead of anything Apple or Google can do, because Ford has car making know how. The market will develop as any new market does, slowly at first, and then by leaps and bounds.

        • nick kelly says:

          It’s NOT car making know how that is required- car making is engines, transmissions, wheels.
          Self Driving is OBVIOUSLY primarily a soft ware problem. That’s what robotics is about.
          If they started ten years ago (i.e. before anyone else) why are they announcing it now?

    • nick kelly says:

      I was wrong about apparel- together with shoes clothing is just over 9 % of Chinese exports. The biggie I should have realized is consumer electronics- TV’s etc.- about 20 %

      • Humpty Dumpty says:

        Ford is responding to press and shareholder enquiries for recent acquisitions of companies who have advanced the software for this project.

    • nick kelly says:

      RE; Toyota’s (world’s leading car co) self- driving car effort. This is aimed not at replacing the driver, but at taking over if sensors detect an imminent accident. In other words not a self -driving car.

      From Forbes tech guy;

      ‘Toyota’s emphasis on helping drivers rather than usurping them sets it well apart from companies such as Google and Baidu that are working on fully autonomous cars. But the philosophy also may hold more appeal both to drivers and government regulators in the short term. It also meshes with an increasing number of artificial intelligence researchers at IBM, Amazon and other companies who believe AI will do best in conjunction with human intelligence rather than trying to completely recreate human cognition.

      And finally; ‘Either way, developing these cars will require automakers to morph from hardware manufacturers into enterprise technology companies. The amount of computer power and data analysis needed to make the cars work looks to be staggering.’

      I.e The task has nothing to do with traditional auto production

    • interesting says:

      thank you for a little voice of reason, robots are over hyped almost as bad as 3D printing.

  6. MC says:

    Here’s a little secret: cheap labor has never been the true key to China’s success. Vietnam, Indonesia and Thailand all had cheaper labor rates when the true boom happened in 2005.

    China’s secret was a combination of factors but what made it especially palatable to Western firms was an often overlooked one: time.
    Chinese contractors can go from receiving blueprints/designs or being asked to design a prototype to full scale production in under two months and on some simpler items even under one month. That’s astonishing and the main reason why, despite countries like Bangladesh being considerably cheaper, the fashion industry still has such a massive presence in China.

    It will be interesting to see how Chinese firms will be able to integrate industrial robots in their system: programming and often retooling a robot is not exactly a simple task, albeit the new generations are making it cheaper and easier than ever before. If China can somehow manage to keep that time advantage however, their position is safe.

    And there’s another problem here, meaning the difference in mentality between Europe and Japan.
    When Japan started investing so heavily in robotics during the late 80’s, they aimed straight away at nothing less than completely replacing human labor. It took over twenty years but the dream of factories fully staffed by industrial robots, with humans merely overseeing them, is now a reality.
    For Europe, instead, robots have always been nothing more than an aid to increase worker productivity. And, truth to be told, I’ve always felt if German companies could pick between robots doing all the job and cheap labor, they’d always go for cheap labor. There’s something in the German corporate mentality that seems to inhibit decision makers from seeing as farther ahead as some of their competitors.

    Part of this mentality is the fact, despite the ECB’s making loans as cheap as never before, no European buyer could be found for both KUKA and KraussMaffei. That’s astonishing.
    In Japan, KUKA’s main bank would have gone to incredible lengths to find a Japanese buyer for it and, failing that, they would have arranged for a member of its own keiretsu to take it over by supplying pretty much free money (courtesy of Kuroda-san). If you can avoid critical technology/knowledge from falling into acompetitor’s hands, you do just that.

    This is nothing new: after WWII, the USSR was attempting building jet engines for its military aircraft by using German designs as a template but was getting nowhere. The British government, which at the time was in no good relationships with the US and pretty much bankrupt, discreetly informed Soviet authorities through its ambassador in Moscow they could “arrange” for Rolls-Royce advanced technology to be supplied to the USSR, together with a building license.
    As the British wanted to be paid in US dollars, Stalin’s personal authorization was needed. Allegedly the Soviet dictator, while signing the permit, acidly commented “What kind of idiot would give away his secrets for so little money?”.

    • nick kelly says:

      Re: German foolishness: you do realize that in dollar terms Germany is in many recent years the world’s leading exporter?
      Re: if Germans’ could pick between cheap labor and robots they’d pick cheap labor. This is not a cheap labor place nor is it a cost competitor.
      Re: Japanese all robot factories. Their cars are built on production lines mostly by humans. There is no robot that can assemble a lawn mower.

      As well as the big guys: Benz, Bosch, BMW, the VW group etc.
      Germany’s middle sized often family owned outfits simply have an unmatched world reputation for quality and customer service. How such an apparently literate person cannot be aware of this is a mystery.
      BTW: here in British Columbia our last ferry was built in Germany. The world’s longest cable car joining Whistler’s twin peaks is being built by German/ Austrian interests.

      Re: the Neen jet engine (first reliable jet) supplied to the USSR- I knew of this and of Stalin’s remark. However I thought it was made available to the USSR as part of the UK- Soviet war time alliance, which may not have been curtailed as soon as it should have been.
      I will look into your account- one thing thing that sticks out- the USSR as far as I know NEVER paid any attention to patents or IP rights. A building license is normally an ongoing deal with payments per unit.
      After Churchill’s Iron Curtain speech- did the USSR make payments or was it a one time payment?

      • nick kelly says:

        PS: no EU buyer could be found for German robot maker, therefore they are stupid?
        Or the technology has not lived up to the hype.

      • MC says:

        OK you are a genius and I am clearly a complete idiot.
        Can you please enlighten more about other topics because I am clearly too idiotic foto think and see for myself.

        • nick kelly says:

          Your piece begins ‘here is a little secret…’
          Which only you know? Aren’t we both playing the professor?

        • nick kelly says:

          BTW: I actually wondered if you knew something about the USSR getting the Neen engine that I didn’t. That’s why I asked if the Brits got all the money up front, or were REALLY stupid and thought they would be paid as units were built.
          The USSR immediately defaulted on helping to feed Germany and bled white Britain had to kick in for that too– while bread was rationed!

        • JerryBear says:

          I have a M.A. in Linguistics and I know we are a long way from fully understanding how human language works. We are much further from understanding how the human mind works. They have been working with a supercomputer on understanding how the mind of a cockroach works which has about a million odd neurons in its whole nervous system and they still haven’t really got it. A general purpose robot would have to be at least as smart as a cockroach to be of any real use. The human brain with somewhere between a 100 billion and a trillion neurons is as far beyond our reach as the stars…..

    • jon livesey says:

      Paranoia always comes with telling little bits of “colour” to let you know that the author knows what he is talking about.

      In reality the Rolls Royce Nene was exported to several countries, including the US. In the US it was built under licence as the Pratt & Whitney J42.

      You can look this stuff up.

      • nick kelly says:

        As Stalin quipped when told of upcoming D-Day: WHEN?
        How would you like Apple’s next big thing before anyone else?

        Of course Neen was exported later on but Stalin got it before the Cold War when it would never have received an export license.
        This was in 1946, and was done by the pro-Soviet labor government of Clement Attlee and his even more pro-Soviet Minister Stafford Cripps.
        The recently departed PM Churchill, who was busy trying to alert the US to the Soviet threat would have scoffed at the idea.
        The impact on the Korean war just 4 years later was huge, with the MIG 15 with the German swept wing technology (not yet in the Sabre) giving it an initial air superiority.
        As Stalin’s remark indicates, the Russians were amazed at the naive Brits, although in last days of the Roosevelt admin they correctly thought much the same of the Americans. Roosevelt’s fatuous claim to Churchill that: ” I think he likes me better than you” in reference to Stalin who eventually bumped off most of his associates is sad, but then Roosevelt wasn’t a well man.

        The Neen was quickly reverse engineered.
        Rolls claimed about 200 million pounds in royalties and were never paid,

  7. Ben says:

    Things are more complicated than this as the cost of the -not rombotic yet- adminisration will come to the foreground by far. Severe currency turbulence ahead.

  8. Nicko says:

    China faces a plethora of problems:

    – quickly aging society (faster aging than the US and nearly as bad as Western Europe)
    – NO social system to speak of, healthcare, family care, education; everything must be funded by individuals.
    – generational divide, demographic distortions, not enough young people, lopsided male/female ratio – skilled labor shortages.
    – endemic corruption and mal-investment at all levels of society.
    – horrible environmental degradation.
    – resistance to immigration.

    India has far better prospects, more balanced demographics, democracy, faster growth-rate. Lastly Africa, of course, is the final frontier.

    As for robots, the basic industrial robot has fallen to nearly $30,000 – the revolution is well under-weigh.

  9. Winston says:

    “There has been another factor in the collapse of manufacturing employment in the US: outsourcing or ‘offshoring’ to other countries with ‘cheap labor,’ such as China.

    But automation is the great equalizer. As China automates its manufacturing plants, replacing humans with computers and robots, its cost structure will approach that of similar plants in the US or anywhere.”

    So, here’s the scenario?:

    1. Cheap labor in China (and elsewhere) causes loss of good paying manufacturing jobs in the US.
    2. Automation causes loss of manufacturing jobs in China and the U.S.
    3. The vast majority in the US and China work in low paying service sector jobs which would greatly lower disposable income assuming there were any disposable income available in the first place.
    4. Wealth inequality continues to skyrocket.

  10. Humpty Dumpty says:

    Textile manufacturing long ago became automated, and clothing manufacturing robots are already in operation in South Carolina. Sweat shops in Asia, etc., will be on their last legs in one generation.

    • nick kelly says:

      A generation is the time it takes for a kid to become an adult.
      If the robots making clothing exist now and are any good the Asians should be done in a year or two. So I will look for Made in USA on jeans, etc.

  11. Intosh says:

    So who will buy all these robot-made products, with all those chinese factory workers out of a job?

  12. Chicken says:

    So let me guess, someone’s interested in dumping their automation and robotic technology stocks?

  13. d'Cynic says:

    The second phase of Chinese expansion has begun.
    In the first phase, China invited foreign companies to invest and make profits while asking them to leave their coats in the cloakroom to be searched.
    In the second phase, it buys up the companies in their home countries. It will be good for the children. /s

    • Nicko says:

      Western countries are wising up, many China buy-outs of western firms are under scrutiny….ie. Australia just blocked the sale of major energy firm to Chinese conglomerate.

  14. Lune says:

    There are other forces besides automation though. To balance automation equalizing costs, you have to realize the staggering amount of intellectual property that China has acquired through its joint ventures, etc. (not to mention outright stealing). IP was supposed to be a U.S. advantage that has now largely “equalized” to China’s benefit.

    Also, there’s a lot of manufacturing that *can’t* be moved out of China because we’ve lost the infrastructure in the U.S. to do it any more. All those corporate executives who waxed lyrical about globally distributed supply chains were lying. Manufacturing benefits from having suppliers nearby. It was a lie expounded to justify why we should move factories out of America, but now that they’re gone, the dirty truth is unless an entire industry is lifted wholesale back onshore, isolated factories won’t come back.

    For example, setting up an electronics assembly factory in the U.S. will be cost-prohibitive if every part needs to be sourced from a dozen factories in Shenzen. And those will be cost-prohibitive to manufacture here if you have to source the rare-earth metals, steel, etc. for those parts from Chinese mills.

    In the 50s/60s, Silicon Valley was legendary because you could walk a few blocks and get any part you needed to build a circuit board (or just go to the original Fry’s :-). You can’t do that in S.V. anymore. But you can in Shenzen. And that’s a far bigger advantage than any reduction in transportation costs.

    • nick kelly says:

      There isn’t enough profit in electronics assembly to justify worrying about it- because no amount of worry or political posturing a la Trump will bring it back.
      As for competition from China, the US was out before China was in.
      The Japanese took out US consumer electronics 20 ish years ago, now China and South Korea have taken out Japan- with Sony exiting the extremely low margin flat screen business. When S Bucks sells you a coffee they are often making more than a factory on the flooded 38 inch panel (sold to assembler)

      As crazy as it is to think the budget apparel and shoes in Wally can be manufactured in the US, given my druthers I’ll take them over consumer electronics. At the height of the Chinese- South Korean microwave shoot out the Pearl River gang may have been grinding them out for a 50 cent per unit margin.
      As for steel, you can choose from: US, Canadian, Belgian, Brit, German, Indian, South Korean, Japanese and yes, Chinese.
      No shortage of steel.

      BTW: I have an electronics tech background and have bought components and boards- but our hobbies aren’t economics.

      • nick kelly says:

        PS: of course for a Silicon V lab prototyping, there is no prob obtaining the requisite components- but the consumer suppliers are gone.

      • Lune says:

        You’re probably right about electronics, but I was just using that as an example that, IMHO, globally distributed supply chains are B.S. There are beneficial network effects from keeping suppliers close, from the obvious ones like ease of transportation, to the less obvious like the easy diffusion of lessons learned and shared expertise when people interact because they live and work close to each other.

        There’s a reason why Japanese car makers frequently have suppliers literally on their factory grounds: running a just-in-time process and fixing quality problems in real-time are dependent on proximity.

        These network effects once helped American manufacturers, but now that we’ve outsourced large chunks of our manufacturing infrastructure, know-how, and workers, it works against us. So even if the labor cost differential between America and China narrows due to automation, this loss of Chinese competitivess, I’d argue, is more than balanced out by their gain in local infrastructure and its network effects.

        Furthermore, while there might not be profit in commodity industries, in the long-term, as a country, it’s still beneficial to have those in your home turf because the next breakout industry is usually spawned from those commodity industries. Intel, for example, started in memory chips. Without that background, there’s no way they would have gone on to create the microprocessors that now power their profits.

        Similarly, “commodity” programming (e.g. routine code jockeys) was outsourced to India in the 90s/00s. Now, they have a burgeoning startup scene and it’s just as likely that the next Google or Microsoft might come from Bangalore as opposed to Silicon Valley.

        Groundbreaking, world-changing, profit-making companies don’t arise de novo. They usually come from a milieu of boring, commodity companies. If we outsourced the manufacturing of coffee grinders and meat slicers in the early 1900s because that was simple work cheaper to perform in e.g. Europe, IBM might have been a European company (those were among the products it sold when it was known as CTR).

  15. Dave Mac says:

    Hungry and angry unemployed ‘cheap labor’ might be a big problem.

    Chinese Revolution 2.0 in the next ten years?

    • JerryBear says:

      Don’t think it couldn’t happen. From the Chinese point of view, the critical point is when people start starving. That was what deep sixed the Nationalists, and if it happens in modern China, no amount of repression by the government will stop the tidal wave of wrath that will overthrow them. But I think the leaders are smart enough to know that.

  16. prepalaw says:

    Wolf’s thesis is well-stated: robotic systems cost the same no matter where they are put into service.

    We design, manufacture and service industrial packaging systems in Michigan. 65% sold in the US; 35% in Canada; and 5% elsewhere. The Canadian Dollar trades at at 30% discount to the US$. But, the sale’s price in Canada for our equipment and service is the same as in the US.

    The Canadian plant is probably cheaper to operate in US$ terms. However, our systems in Canada are used, for the most part, to package products, which are sold in Canada. For example, flour made into bread; and seeds sold to Canadian farmers.

    The Corporate plant owners want efficiency. But equally so, they want product consistency and uniformity. That goes in packaging – the cube of product, encased in stretched plastic and welded to a pallet, has to look good and withstand heavy handling in logistics and transportation.

    Ideally, Corporate wants the same set-up in every plant in world – same configuration and same system components. If a plant manager in Brazil dies, they can send the assistant manager from a Dutch plant tomorrow to replace him. The Dutchman may not speak Portuguese – but he knows and understands the plant layout and equipment and begins to manage things quickly.

    If you make excellent system components, you have a chance to become one of the key go-to vendors to supply components for new plants and plant upgrades. Corporate relies on their suppliers for system design, set-up, operation and maintenance. They got rid of their top-down command and control design and build departments. Today, engineering departments do no tell their vendors how to build something. They say: we need a system or an interface to achieve these production rates for the following products.

    You make little or no money supplying a new system. All money is made in future spare part and service sales. If your products endure, the plant manage is loath to replace it. He will hang onto to what has worked well for him in the past and buy parts and service to keep it working well. “Planned Endurance” is our motto. And, that is why we have a 12 month order backlog.

  17. nick kelly says:

    Informative- especially about there being no profit in the sale- just ongoing, support service and parts.

    And this is a typical example of a robotic operation- it takes bulk stuff and packages it into packages that are all the same.
    It would maybe an idea to drop the term ‘robotics’ and as this guy says use ‘automated’.
    There is something about the word ‘robot’ that sets off 1950’s expectations.

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