The world's most populous country is not running from the robot revolution. It is embracing automation, and all that goes with it.

Last week, 533,000 visitors packed the World Robot Conference in Beijing. The western media focused on bionic flying foxes and tiny soccer-playing robots. The bigger story is China's growing prowess in smart machines.

Indeed China is preparing for the next industrial revolution.

We should have seen this coming. In 2014, Xi Jinping, the Chinese president, welcomed a robot revolution in manufacturing. In only two decades, cheap labor pushed the country from relative poverty to the second largest economy in the world.

In the process, wage growth exploded higher. In Shanghai, a hotbed of manufacturing, monthly incomes have increased 250% in the last decade alone. Economists see no end in sight as birthrates slow and the working Chinese get a taste of western-style consumption.

Xi's plan is to boost productivity through aggressive automation. In theory, the manufacturing world will gravitate to China for its robotics expertise, and stay to serve its growing consumer economy.

In 2016, the International Federation of Robotics reported Chinese automation sales volume reached the highest level ever recorded for a single country. For perspective, at 87,000 units, Chinese buying was around the same as Europe and the United States combined.

Growth was driven by the electronics industry. In 2016, Foxconn, a leading contractor, began outfitting its factories with artificially intelligent robots. By May of that year, the South China Morning Post reported the Apple (AAPL) iPhone builder eliminated 60,000 jobs in a single factory on the outskirts of Shanghai.

In 2018, another suburban Shanghai facility pushed the limits of automation even further. JD.com (JD) , a major e-commerce company, unveiled a warehouse capable of fulfilling 200,000 orders per day. Products are picked, packaged and routed for shipping all day, every day, under the watchful eye of only four humans. And their role is merely robot servicing.

Scenes from the World Robot Conference in Beijing.
Scenes from the World Robot Conference in Beijing.

As productivity increases, JD.com is building out warehouse distribution at a frenetic pace. In 2018, warehouse space grew 85%, to 10.9 million square meters. It is even experimenting with drones so proficient they can carry 60 pound payloads, while speeding across the Chinese countryside at 60 mph.

With a workforce of 998 million, the politics of automation might get in the way of strategic long-term economic planning. In China, not so much. In March, President Xi became a leader for life as term limits were removed.

And despite the ongoing trade war with the Trump administration, he is pushing forward with Made in China 2025. The plan is to move the country up the value chain with state investments in aerospace, clean energy cars, advanced basic materials and especially robotics. In doing so, China would move from an economy of low value, low wage industries toward high tech.

Investors need to understand the context. They also need to see the opportunity.

The Play

Cadence Design Systems (CDNS)  makes flexible, scalable systems used to design tiny integrated circuits, the building blocks for the next generation of intelligent electronic products.

Semiconductor design is becoming more complex than ever. Cadence makes the tools to design the intellectual property central to Made in China 2025.

In July 2018, Cadence announced it was selected by the Defense Advanced Research Projects Agency, the Pentagon research group, to help build a new unified platform to automate the design of next generation processors and printed circuitboards.

Its current business is growing steadily, with strong cash flow. In 2017, operating cash flow surged to $471 million, on $1.9 billion in sales.

According to a slide deck posted this month for use at the Oppenheimer technology conference, Cadence services all of the top semiconductor enterprises. It has 4,100 research and development engineers and 1,500 professionals in the field, including innovation centers scattered throughout South Eastern Asia.

Diminutive, consumer-friendly robots are cute. However, a battle to control the future of smart machines is heating up. Cadence is in the right places, at the right time. Consider buying on pullbacks in the shares.

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Jon Markman owns a position in Cadence.