In China, the domestic economy is struggling just like the rest of the world with slow sales and declining construction. The cost of labor has also increased drastically, with wage rates increasing upwards of 15% in some cases, year over year. Compared to May of last year though, exports have increased 15.3 percent, twice as fast as economists had predicted. How are Chinese companies finding success when Europe is in a debt crisis and the United States is still recovering from rampant unemployment though? Easy – exporting and automation.
To curb off recent rising labor costs and slumping domestic profitability, many of China’s businesses have cut costs and increased efficiency by investing in fixed assets that automate processes. One manufacturer of home saunas in China installed a $25,000 drill press that replaces up to 8 workers. This move to automation is the central reason that Chinese imports to the United States (one of China’s largest importers) continue to grow. The cost of product is decreasing because of increased efficiency and lower overhead, and also due to some manipulation of the Chinese currency against the dollar. The currency, controlled by the State, saw its largest drop since the government allowed the country’s currency to be unpegged from the dollar in 2005. It fell 1% against the dollar, making Chinese goods less expensive in foreign markets and makes imports less affordable in china. This has been an issue of contention with many governmental officials in the United States.
The question that remains is how long can China rely on investments in automation and currency manipulation to stave off a slowing global economy. You can only invest so much in automation to receive the long term benefits, and not everything can be automated. The future will tell.