China’s Growing Middle Class and Automation

Chris Doyle

Consumer behaviour is a force to be reckoned with! While analysts start to dissect how the COVID-19 has changed consumer behaviour globally, the pre-pandemic rise of Chinese automation and its middle class cannot be overlooked.

Its no surprise that automation is a growing force in China, and it directly impacts the international business environment. With China expected to overtake the US as the world’s largest economy within the next two decades, the key is to recognize many of the emerging global shifts. From 2004 to 2016, China’s stock of industrial robots grew from 7,000 to 340,000, with growth projected upwards despite a minor slump in 2020.

Robots are changing how companies manufacture their products, and their effects on the labour market have been enormous. However, as a result workers can be forcefully replaced. This has concerning implications for the 100 million Chinese manufacturing workers who must either upgrade their skills or move to smaller companies without the same levels of automation. Dongguan (GD.) Mayor Xiao Yafei stated that his town had replaced 280,000 workers with 91,000 robots in the period from 2013-2018. How well the market is able to absorb these displaced workers remains to be seen.

The benefits of automation are likely to be realized later as China’s service sector matures. Already the service-sector robots have increased as a share of China’s total robots rose from 18% to 29% in the past four years, shifting the technological advancements from manufacturing to services. These robots are aiding health care and education services. As China’s automation intensifies, what was once an economy centred on manufacturing may develop a significant traction in high tech arenas such as online banking and virtual reality.

Indeed, China’s domestic robot production industry is already bridging the technology gap with US and European production. Automation and AI are storming into China’s economy, with broader implications for the rest of the world.

This automation will undoubtedly change how average Chinese consume in the decades to come. In particular, China’s growing middle class provides opportunities for business. China’s middle class is expected to surge to 1.2 billion by 2027 (McKinsey, 2020) according to The Global China Institute and already makes up the world's largest middle-class consumption segment, spending 7.4 trillion USD in 2020. To cater to these new consumers, consumer discretionary outlets like Walmart have set up shop, matching local rivals like Yonghui Superstores. Service based theatrical content is in “high demand” with Pearl Studio CEO Frank Zhu believing that China will “soon have its own Mickey Mouse”. McKinsey & Company also reports on China’s middle-class consumption transitioning from “overconsumption” in 2019 to “back-to-basics” throughout the 2020s with Joe Ngai emphasizing the role of companies in being more environmentally-conscious.

In conclusion, automation and a growing Chinese middle class will be an overwhelmingly good thing for the global economy. Although jobs programs will be necessary to retrain employees who are displaced by technology, citizens should be encouraged by the introduction of AI, service-sector jobs and globally competitive consumer demand.