End of the line for cheap labour The rows of rectangular capsules lined up in a factory in Dongguan in southern China look like sleeping compartments for astronauts. The 24 Japanese-made knitting machines in the factory of Hong Kong-based Milo's Knitwear will soon be joined by four more. In total, the machines cost the family-owned company $1.8m. A factory with neat rows of machines and just two workers is the antithesis of the typical image of Chinese manufacturing. At other facilities in the industrial province of Guangdong, just across the border from Hong Kong, thousands of workers are typically hunched over their work stations making everything from iPhones to running shoes. But the automation on display at this factory is emblematic of a new industrial revolution in China driven by the changing nature of the labour force: the three-decade old one-child policy has led to a shortage of labour; competition for workers is so fierce that employers have had to dole out raises in the high teens annually to retain them; and many youngsters increasingly prefer working in China's restaurants and stores to the tedium of making widgets. The labour shortage is likely to worsen because China is ageing fast. Less than 20 per cent of the population is under 14, down from almost a quarter a decade ago, according to the World Bank. Last year, Terry Gou, the boss of Foxconn, the Taiwanese company that makes iPhones and iPads, which employs about 1m people in China, interrupted a party for his workers to say he planned to introduce 1m robots across the company's Chinese factories in three years. While few bosses are making such grand pronouncements, more and more are weighing the pros and cons of automation. "The electronics industry (in particular) has started to look for automation opportunities," says Per Vegard Nerseth, head of robotics for ABB. By 2014, the International Federation of Robotics predicts that China will become the world's largest market for automatons. Willy Lin, who owns Milo's Knitwear, says the reason his Dongguan factory has just 150 workers is simple: "We couldn't find any more." This problem is not confined to the south. In Jiangxi province in northern China, where the company has another factory with 250 workers, the local Communist party secretary inquires every year what Mr Lin's business needs. "I say: "I need workers." The party official goes away and the other government officials say, "You are joking, right?"" says Mr Lin. Machine's don't cry Last month's riot at a Foxconn plant with nearly 80,000 workers is a reminder of the frustration that can build up when workers are forced to do tedious, repetitive tasks. In a perfect world, robots would at least be able to take on the dull work of making our mobile phones and iPads. Preparing workers for the possibility of lay-offs is thus far proving to be less of a hurdle in China than in the west. Turnover at many factories across southern China until the current slowdown in the exports sector was as high as 10 per cent a month. Moreover, says Willy Lin of Milo's Knitwear, workers in the textile industry are accustomed to periodic efforts to automate parts of the factory. So, he says, his workers did not react negatively to management introducing machines into the factories. The natural corollary to using robots and expensive machinery to boost productivity as wages rise in China means that some jobs will probably migrate back to countries such as the US, especially with the advent of 3D printing. Proximity to markets in North and South America from suppliers in Mexico, say, will count for more over the long term than the fast-narrowing differential between wages in Mexico and those in China. But in the near term, greater automation promises employers in China fewer headaches recruiting and managing a more restive generation of Chinese workers. Quips Roger Ngan of toymaker May Cheong, "Machines don't cry." He regards his company's push to automate as a return to what Milo's Knitwear was doing in the early 1980s in Hong Kong, when wages there were rising steeply. Then, China began to allow foreign investment and its low labour costs made it more competitive to rely on cheap workers instead. Both past and future coexist at the Milo's Knitwear factory. On the floor above the space-age-styled knitting machines, about 150 workers huddle over machines, sewing the panels of knitted wool that make up a sweater or ironing the final product. Mr Lin says the shift to automation has been in the works for two years and thoroughly discussed with the union. Workers, meanwhile, have been offered the option to train on the new machines. Sewing sweater panels together is labour intensive and pays well for the most skilled workers at the factory, who earn as much Rmb6,000 ($955) per month, about twice as much as the workers who monitor the knitting machines. Milo's has no plans to automate the process. Automation and robotics are increasingly seen by the farsighted Hong Kong and Taiwan entrepreneurs - who own and operate many of the factories in the province of Guangdong that first sparked the boom in the country's exports - as a way to keep China's industrial base competitive. The shift is unlikely to happen in the three-year timeframe Foxconn's Mr Gou predicted. This is not just because of the massive capital expenditure required but also because robots do not yet exist that can replicate all the tasks carried out by China's dexterous and diligent migrant workers. Robots have traditionally been used in the automotive industry in Detroit and elsewhere to do the heavy lifting - hoisting large body parts of a vehicle and welding them, for instance. The challenge for China's electronics factories, who produce the majority of the world's smartphones and computers, is to develop robots that can manipulate flexible wires and calculate how much force is needed to insert that wire into a delicate motherboard. Consumer electronic products also evolve much faster than car models, which means the next generation of robots have to be easily reprogrammable. Those who have invested early are already seeing a payback. AAC, which makes audio components for products such as iPhones, recently invested in automating its plant in Changzhou, near Shanghai. According to a report by Credit Suisse, to produce 1.5m pieces per day using the less automated manufacturing process requires 150 workers. By contrast, the company's fully automated lines need only two to three people to do it. Roger Ngan, vice-president of May Cheong Group, a toy manufacturer that owns the Muscle Machines car brand, says that his company has seen its workforce decline from 12,000 a couple of years ago to 10,000 in 2011, even as sales rise. "This year we are hoping to reduce the number of workers to 8,500," he says. Some companies are trying to tap into this burgeoning market by developing the nimble machinery capable of dealing with delicate tasks. About a 45-minute drive from Mr Lin's knitwear factory are the offices of Shima Seiki, a Japanese knitwear machine maker. On the ground floor of its showroom are the kind of knitting machines Mr Lin has invested in. China, says Jerry Li, the showroom's manager, accounts for almost three-quarters of Shima Seiki's sales as the country's companies try to hold on to work in garments and textiles by automating, amid increasing competition from lower-cost countries such as Bangladesh and Cambodia. Order sizes to Chinese factories are declining, leading to lower margins and less money to invest in the business. This has led some owners across southern China to close rather than automate. Indeed, in recent years, Mr Li adds, Shima Seiki has seen a sharp increase in exports to Bangladesh as garment factories there automate. Such sophisticated automation may be coming to the aid of a world with an increasing shortage of workers - or at least of those willing to sew garments.