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30 Jun 2020

Econ Digest

Artificial intelligence (AI) -- a catalyst for China's post-COVID economy

         Over the past two to three months, another wave of COVID-19 has occurred in some areas of China, including a new round of the pandemic in Jilin and Heilongjiang provinces in mid-May 2020, along with a new cluster of infections in Beijing recently. However, China has adopted strict prevention and control measures as quickly as they did during the large-scale outbreak in February-March 2020, such as community quarantine in areas with high-risk of infection, restriction of the movement of people in these areas, and the carrying out of mass testing. Taking the above-mentioned factors into account, it may be inferred that China will be able to contain the pandemic within a limited scope.
          Having studied the experience of China’s effective prevention and control of the first round of COVID-19 pandemic, we have found that in addition to adopting strict prevention and control measures and rapid actions, the use of next-generation technologies developed in China, especially AI innovation such as machine learning technologies and big data analytics to effectively control the spread of the virus and allowing companies to conduct business as usual, has also become another factor promoting China's world leadership in economic recovery. Noteworthy applications of AI during COVID-19 include the use of deep learning technology to diagnose pneumonia by reading chest x-rays in 20 seconds or less. The diagnosis time is only 1/60 of the time required for manual diagnosis by doctors. At the same time, large computer and electronic product manufacturers in Wuhan are also applying AI to the Internet of Things in their automatic production systems to reduce their dependence on labor during lockdown. China's use of new-generation technologies to effectively prevent and control the domestic epidemic prompted a rapid rebound in China's business confidence index. In May 2020, the Caixin China Manufacturing Purchasing Managers Index rebounded to 50.7 points, indicating that China's manufacturing industries tend to resume growth. In February 2020, the index fell sharply to a trough of 40.3.
          However, the COVID-19 pandemic has accelerated the innovative development of China's AI and its deep integration with the real economy to adapt to changes in consumer behavior. As Chinese consumers began to reduce physical economic activities, contactless consumption and production behavior became the new normal. In the future, the innovative development of AI in China to be applied to the real economy may cover the following areas:
  • FinTech that helps reduce physical financial activities: Virtual banking such as Tencent’s WeBank and Alibaba’s MYbank must rely on big data analysis to successfully provide customers with digital products and service experience, and to more accurately meet the needs of diversified customer groups, so AI will play an important role in this regard.
  • Intelligent manufacturing: AI will be applied to industrial robots and automatic systems in the manufacturing sector, such as applying machine learning technology to industrial robot systems to make them suitable for the working environment of workers, or adjusting the working procedures of industrial robots in a timely manner to meet the limitations of machinery.
            China's manufacturing industry has gradually deployed industrial robots and automated production systems. In 2018, the cumulative number of industrial robots in China reached 650,000, with an average annual growth rate of about 35% during 2008-2018, of which more than 55% were deployed in the electronics and automotive industries. It is expected that the COVID-19 pandemic will become a catalyst for the Chinese manufacturing industry to shift towards more intelligent manufacturing using industrial robots and automation systems to reduce the risk of operational interruption, in response to the increase in labor costs in China’s manufacturing industry that exceeds the increase in labor productivity due to its entry into becoming an aging society.
            It is worth noting that the period of time when the employment in China's manufacturing industry was in decline is a similar period of time to when industrial robots emerged. During 2016-2018, the employment rate of China’s manufacturing industry fell by an average of 2% per year. If compared with the increase of industrial robots at the same time, it can be estimated that an industrial robot can replace about 30 workers, as 60% of China's industrial robots are handling robots and welding robots that could replace some workers during that period. The employment challenge, whether it comes from the economic impact of COVID-19 or the structure of China's labor market, has stimulated the corporate sector to shift to more use of automated systems and industrial robots. Employment stability was listed as one of the “six stabilities” at the NPC and CPPCC annual sessions in May 2020.

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