October 09, 2015      

“The nation that wastes time will be abandoned by time itself.”
— He Zhaofa, Manifesto

Is all of Asia in jeopardy?

Cans of spray paint have been busy in Asia as of late.

The graffiti scrawled on the drawn silk curtains of Asia’s recent economic downturn seems foreboding: China’s stock market crash, banking shenanigans, the myth of China’s GDP, currency devaluations across Asia, murky headhunting of corrupt officials, TPP anxiety, and even the Tianjin mega-explosion is thrown in as a bad omen.

The financial world, nearly every market nearly everywhere — heck, the entire global economy for that matter — all find it hard to believe what has happened to Asia’s rosy glow of hyper success.

Seems everyone is taking a turn with the spray paint to scrawl their disappointment, especially with the Chinese.

However, pull back those paint-soaked curtains and an astonishing vista — “Factory Asia,” rather, “New Factory Asia” — glitters everywhere. There’s no sign of disappointment anywhere. The affected are too busy building the future to take note of their plight.

Factory Asia is still hard at work making trillions of dollars for itself and the world, but now is aiming ever higher. By 2025, robot-driven automation will have transformed the old hives of factory workers beyond recognition.

“New” Factory Asia will be something heretofore never seen on the planet.

Just for the record

factory asia stats

Something to keep in mind: “In 1990, Asia accounted for 26.5 percent of global manufacturing output,” noted The Economist. “By 2013, this had reached 46.5 percent.”

“China accounts for half of Asia’s output today,” it said.

“The region’s share of the global trade in intermediate inputs — the goods that are eventually pieced together into final products — rose from 14 percent in 2000 to 50 percent in 2012.”

As astonishing as that is, Asia intends to top those numbers. Can it?

Consider this: When Evan Osnos, author of the book on China’s “Age of Ambition,” first arrived in Beijing in 2005, he wrote, “The last time I had been in China, per capita income was $3,000 — equivalent to the U.S. in 1872. The U.S. took 55 years to get to $7,000. China did it in 10.”

In 2005, he continued, “every six hours, the People’s Republic was exporting as much as it did in the calendar year 1978; China was building the square-foot equivalent of Rome every two weeks.”

Seems Asia has the will and the wherewithal to pull off almost anything.

However, “New” Factory Asia will not arise because Asia is just interested in topping its own amazingly prodigious output. “New” Factory Asia will arise because Asia has no choice.

Asia is in trouble.

Asia’s trouble becomes its motivation

Tepid economies, lack of productivity, and shrinking worker populations affect all of Asia simultaneously, especially East Asia. Southeast Asia similarly suffers from the same afflictions but is far less developed, and therein hovers the salvation for them all.

Southeast Asia, with a population of 640 million and massive agricultural output, represents huge new markets for East Asia. East Asia, with capital to burn and proprietary high-tech in the trillions of dollars, represents the ideal investment partner.

Both East and Southeast have vivid memories of how the Asian financial crisis of 1997 ravaged their economies and the nearly seven years it took to fully recover. None want a repeat performance, especially when long-term prosperity for all is so close at hand.

Each of the combined fourteen nations in the region is well aware of the way out of their collective dilemma, and all have been busy building friendships tied to trade agreements for a decade or more.

east asia

Asian economic integration

In fact, Shang-Jin Wei, former Chief of Trade and Investment Division from the International Monetary Fund said, “Intra-Asia trade has been growing much faster than world trade as a whole over the last three decades. Asian economic integration is becoming a reality.”

The Economist’s “Future of Factory Asia: A tightening grip” displays the unique relationship between Asian countries that has evolved into a fraternity that neither the U.S. nor Europe can match, but which is a prime catalyst going forward: “The success of Factory Asia over the past two decades is a sign that Asian countries have been able to put business ties above political disputes. Commerce has brought them closer together.”

“ASEAN nations have a free-trade agreement with China. Japan, China and South Korea are negotiating a deal among themselves,” said The Economist. “There are also talks, still early, about a broader pact that would tie all countries in the region together, including India.”

“America has left China out of talks to create a pan-Pacific trade zone [Trans-Pacific Partnership or TPP] for now, but its eventual inclusion seems inevitable.” In many respects, Asia can be looked upon as a single, vast country-continent, encompassing nearly 3 billion people (including India).

Up, down, and then up again — in context

Asia’s recent economic downturn doesn’t mean at all that “New” Factory Asia needs to start again from ground zero: even in a downturn it?s GDP is still well ahead of the U.S. and Europe.

As the McKinsey report ably points out in “How Asia can boost productivity and economic growth,” success is there for the taking: “For the past 50 years, most countries in Asia have grown faster than their North American and Western European counterparts.”

“China is only the most noteworthy, growing more than 7 percent a year, but it’s by no means alone. Korea, Indonesia, and India are all growing more than 5 percent per year. Even Japan, at 3.3 percent over the past 50 years, has been growing faster than the US and Western Europe.”

Now that Asia’s rising fortunes have hit a bump in the road is when Asia needs to take action; and it is doing just that.

To re-accelerate productivity for the foreseeable future, “New” Factory Asia needs help.

Enter the robot

As an indication of their serious intent, the three kingpins of East Asia — China, Japan, and Korea — have each launched massive government programs for robot-driven automation. Although each is unilateral and competitive, that three such powerful GDP leaders are simultaneously undertaking such automation plans is wholly without precedent anywhere in the world.

In a place where losing face is tantamount to becoming a non-person, each of these Asian behemoths is putting billions of dollars and its national prestige behind these programs.

With the specter of 1997 nipping at its heels and the potential for social upheaval looming ahead if no action is taken, Asia has no choice but to move ahead as fast as possible.
The recent report from the Boston Consulting Group, “The Robotics Revolution: The Next Great Leap in Manufacturing” puts a definite glow back into the Asian economies specifically because of robot-driven automation. Here’s a bit of the uptake:

1. Adoption will vary by industry and economy. Among high-cost nations, Canada, Japan, South Korea, the UK, and the U.S. currently are in the vanguard of those deploying robots; Austria, Belgium, France, Italy, and Spain are among the laggards.

Some economies, such as Thailand and China, are adopting robots more aggressively than one might expect given their labor costs.

Four industrial groupings — computers and electronic products; electrical equipment, appliances, and components; transportation equipment; and machinery
— will account for around 75 percent of robotics installations during the next decade.

2. Savings in labor costs will be substantial. As a result of higher robotics use, the average manufacturing labor costs in 2025 (when adjusted for inflation and other costs and productivity-enhancing measures) are expected to be 33 percent lower in South Korea and 18 to 25 percent lower in, for example, China, Germany, the U.S., and Japan than they otherwise would have been.

3. Manufacturing productivity will surge. Wider adoption of robots, in part driven by a newfound accessibility by smaller manufacturers, will boost output per worker up to 30 percent over the medium term. These gains will be in addition to improvement from other productivity-enhancing measures, such as the implementation of lean practices.

National programs by country:

China
Made in China 2025
13th Five-Year Plan 2016-2020

Japan
PM Shinzo Abe’s “Revitalization Strategy
No. 5 Stimulate Innovation Through Science Technology and a “Robotics Revolution

Korea
Article 5: Intelligent Robot Distribution and Promotion Act; Plan No. 2 2014-2018