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New Characteristics on the Demand Side of Industrial Human Capital in China
2017-08-14
By Liu Lihui
Research Report Vol.19 No.3, 2017
As China deepens the economic transformation and upgrade with the focus on supply-side structural reform, its economic structure is continuously improved with growing quality and benefit. This poses new tasks and requirements for the accumulation, upgrade and allocation of industrial human capital as well as the formation of new demand-supply balance. In the current stage, the goal of “maintaining medium- and high-speed economic growth and pushing industries to the medium and high end” is the main factor that affects the human capital demand. As China has entered the period where working-age workforce is in absolute decline, industrial human capital must have better quality and structure and play a bigger role in boosting total factor productivity (TFP).
At the moment, several characteristics on the demand side of industrial human capital are worth close attention. First, technological progress and “machinery for manpower” is accelerated, medium- and low-end workforce is in structural surplus after being replaced, medium- and high-end talents are in increasingly serious shortage, and the cultivation and education of applied talents is backward. Second, the campaign of “de-capacity, de-stocking, de-leveraging, cost reduction and weakness fortification” channels workforce to new industries, new business forms and other new employment growth points, which, however, faces both great potential and difficulties. Third, labor cost keeps rising, and labor-intensive industries continue to move from coastal areas in east China to central and western regions and from China to Southeast Asian countries of low labor cost. Two trends exist in parallel - migrant workers work in places close to home and medium- and high-end talents swarm into central cities. Generally speaking, the new round of reform and adjustment is just beginning, the supply-demand balancing process is far from over, and human capital has great potential in driving economic growth.
I. Technological Progress leads to the Replacement of Medium- and Low-end Workforce and the Shortage of high-end Talents
The new drive for economic growth largely comes from the competition between technological progress and the supply of human capital. Quickly raising the technological and equipment level of enterprises through technological renovation, particularly through the integration of information technology and manufacturing, is an important way of realizing the goal of “Made in China 2025”. In 2015, Chinese companies spent RMB9.5 trillion on technological renovation, up 13.6% year-on-year, which was 0.3 percentage point faster than a year before. It accounted for 43.2% of the industrial investment, 2.3 percentage points more than a year before, maintaining steady and fast growth. The intensified technological renovation was not only to upgrade the equipment, but also to make the management and service model and the workforce’s knowledge and skill match technological progress.
1. Technological renovation obviously decreases positions of simple skills and increases the demand for talents of advanced skills
An important motivation for traditional manufactories to accelerate the “machinery for manpower” process is to lower the labor cost in low-skill positions, especially labor-intensive private enterprises (Figure 1).
We conducted a field survey in a private clothing enterprise in Guangdong province. With 1,500 employees, the company renovated the cutting procedure in 2016. As a result, the work that used to be done by 300 skilled workers can now be completed by 50 unskilled workers on automatic equipment. After the Spring Festival of 2017, it needed only 80 new workers, half the number of a year ago, mainly skilled workers and technicians for complicated procedures. The rising labor cost forces enterprises to upgrade products to be of high quality and high technical content more quickly. Now this company is moving its low-end product lines to Southeast Asia, and the domestic workshop is focused on producing high-end clothing based on process and skill advantages. This is the typical model for the transformation of labor-intensive enterprises. The demand for medium- and high-level talents hasn’t decreased because of industrial transfer in the “machinery for manpower” process, and the demand/supply ratio of skilled workers has remained on a high level for many years.
The shortage of skilled workforce is a common phenomenon. According to the data of labor markets in 101 cities around the country, the general talent demand/supply ratio in 2016 was about 1.07, but the ratio for highly skilled workers had remained above 2 for many years (Figure 2). In 2016Q1, the ratio for senior engineers, senior technicians and technicians was 2.19, 2.11 and 1.94 respectively, indicating a large gap. Compared with 2015Q1, the demand for senior technicians and technicians increased by 23.4% and 2.2% respectively, but the demand for workers of other technical levels decreased.
2. Development of intelligent enterprises requires faster update and higher quality of workforce’s knowledge and skills
As the cutting edge of enterprises’ technological renovation, intelligent manufacturing and robot have developed rapidly in recent years. During our survey, many industrial insiders believed that AI may exert subversive impact on human employment in the future. In China, there is no evidence to prove that robots will “snatch” jobs from humans on a large scale, but they will replace human workforce in some simple production procedures. The scale of China’s industrial robot market was 72,400 sets in 2016, accounting for 1/3 of the global market. There are 49 robots per every 10,000 workers, as opposed to 531 in the Republic of Korea, 176 in the U.S. and 300 in Japan and Germany each, indicating great potential and vast space for the application of industrial robots in China.
At present, the use of robots affects employment in four aspects. (1) They fill in the blanks. Robots can work in conditions such as high altitude, high temperature, high radiation and clean room. (2) Robots replace manpower. About 10% of the simple and repetitive work in future production lines will be done by robots (Figure 3). For instance, tens of thousands of robotic arms are working along Foxconn’s production lines in simple and boring processes such as painting, testing and welding. (3) They create job opportunities. The rapid development of the robot industry has led to the emergence and development of a group of industries and created new employment growth points. (4) They realize man-machine coordination. Developing AI to help workers improve productivity, scale up production and foster new business forms will be the main approach.
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