Advanced Manufacturing and China's Future for Jobs

East-West Center Working Papers: Innovation and Economic Growth Series, no. 8, August 2016

33 Pages Posted: 19 Aug 2016 Last revised: 30 Aug 2016

See all articles by Dieter Ernst

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: August 8, 2016

Abstract

This chapter explores how China’s push into advanced manufacturing and services through robots and other new disruptive technologies might affect the country’s future for jobs.

After decades of rapid-fire growth, China’s comparative advantage in manufacturing and the extraordinary size of its economy explain why China has not followed Dani Rodrik’s pattern of “premature de-industrialization”. However, China now has reached a level of development where catching up through an investment-driven “Global Factory” model is no longer sufficient to create long-term economic growth and prosperity. Chinese firms now need to adopt, absorb and develop advanced manufacturing technologies. At the same time, severe headwinds are constraining China’s growth. International trade, a primary source of China’s rise, has fallen to its lowest level since 2009, and keeps languishing. Since the turn of the century, a declining labor force, rising wages, and skill bottlenecks are eroding China’s international competitiveness.

To break out of this growth impasse, China’s leadership has decided to leapfrog into advanced manufacturing and services. Two policy initiatives are the expression of that ambition: the China Manufacturing 2025 (MIC 2025) Plan, and China’s Internet Plus (IP) Plan both seek to promote innovation-driven development through robots, 3D printing, Big Data, and the integration of manufacturing and services through the mobile Internet.

The chapter examines how these two major policy initiatives might affect China’s Future for Jobs. While China has improved its position and capabilities in advanced manufacturing (especially in robots), the country still has a long way to go to catch up with global industry leaders. A critical weakness of both the MIC 2025 and the IP plans is an almost exclusive focus on technology, and a failure to collect data on possible impacts of advanced manufacturing and services on jobs, skills, income and inequality.

To reduce this knowledge gap, the chapter reviews newly available data for China on unemployment, income inequality, skill requirements, and the development and quality of service jobs. These data show that China still has a long way to go to create the necessary skills (especially for soft and vocational skills), as well as enough well-paying knowledge-intensive service jobs. Forging ahead in advanced manufacturing thus will face major hurdles.

If China fails to upgrade the quality of the new jobs that are being created in its service sector, this might slow down the growth of household incomes and consumption. As China’s push into advanced manufacturing coincides with the “new normal” of a lengthy industrial slowdown, any such slowdown in income might eventually begin to constrain the service sector too, as the profit squeeze in manufacturing companies and declining income of workers might lead to a cut in investment in services and in their consumption. In order to avoid this “worst case scenario”, it is necessary that both the MIC 2025 and the IP Plans are based on realistic projections of employment and other labor market impacts.

Keywords: Advanced manufacturing, Jobs, Skills, service jobs, China development model, China Manufacturing 2025 Plan (MIC2025), China's Internet Plus Plan, premature deindustrialization

JEL Classification: F66, F68, J08, J21, J24, J31, J48, J60, J68, 014, 025, 032, 038, 053

Suggested Citation

Ernst, Dieter, Advanced Manufacturing and China's Future for Jobs (August 8, 2016). East-West Center Working Papers: Innovation and Economic Growth Series, no. 8, August 2016. Available at SSRN: https://ssrn.com/abstract=2820433 or http://dx.doi.org/10.2139/ssrn.2820433

Dieter Ernst (Contact Author)

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

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