New patterns of development and the new development “miracles”

Defining the success of India and China High and sustained rates of growth of

aggregate and per capita national income; Occurs in the context of integration through

trade, investment and financial liberalization; Also in a context of changing patterns of

growth in the global economy.

A new international context in manufacturing High-technology manufacturing industries are

key contributors to economic growth in the United States and around the world The global market for high-technology goods is

growing faster than that for other manufactured goods.

Over close to a quarter of a century (1980–2003), world (real) output in high-technology manufacturing industries grew at an average annual rate of 6.4%, whereas output by other manufacturing industries grew at just 2.4%.

China’s emerging presence

Throughout the 1990s and continuing through 2003, U.S. industry supplied 12%–14% of the world’s general manufacturing exports. By comparison, during the 1990s, U.S. high-technology industries accounted for 19%–23% of world high-technology industry exports

However, gradual drop in the U.S. share partly due to competition from emerging high-technology industries in newly industrialized and industrializing economies, especially in Asia.

China stands out, with its share of global high-technology industry exports reaching 7% in 2003, up considerably from slightly more than 1% in 1990.

A new international context in services Knowledge-intensive service industries are

key contributors to service-sector growth around the world: Global sales in knowledge-intensive service

industries rose consistently during the same period and exceeded $14 trillion in 2003.

Business services, which includes computer and data processing and research and engineering services, is the largest of the five service industries, accounting for 35% of global knowledge-intensive revenues in 2003.

India a successful player

The United States was the leading provider of knowledge intensive services, responsible for about one-third of world revenue totals during the 24-year period examined.

US exports of business, professional and technical services rose from $43.9 billion to $77 billion between 1997 and 2004. But US imports also rose during this period from $20.8 billion to $40.7 billion

India’s presence in this area has been significant and rising.

Questions

Are India and China successfully exploiting aspects of the changed pattern of global growth?

Does this provide the trajectory for growth miracles in the current conjuncture?

What are the implications of that trajectory?

India and China Relative to the World

India and China Relative to the World (Percentage Shares) 1978 1985 1995 2000 2003

Exports of goods and services (Constant 2000 US$)

China 1.4 1.9 2.6 3.5 5.8 India 0.4 0.4 0.7 0.8 1 GDP (Constant 2000 US$) China 0.9 1.5 2.9 3.8 4.6 India 0.9 1 1.3 1.4 1.6 GDP, PPP (Constant 2000 international $)

China 2.9 4.5 8.8 11 12.9 India 3.6 3.8 4.9 5.4 5.9

Obvious Importance of Trade

Exports of goods and services (% of GDP)

6.64

10.71 10.00

19.17

23.07 23.3322.60

25.13

29.56

33.95

6.19 6.285.38

7.15

11.00

13.89 13.5415.26 14.93

19.12

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

1978 1980 1985 1990 1995 2000 2001 2002 2003 2004

China

India

Difference 1: Trade structure

Exports of Goods (% of GDP)

8.2

14.5

17.6

20.820.1

22.4

26.7

4.2

5.8

8.89.5 9.4

10.0 9.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1985 1990 1995 2000 2001 2002 2003

China India

Difference 2: Growth structure Of the cumulative increase in GDP between 1990

and 2004, while 55 per cent was accounted for by manufacturing in the case of China, as much as 60 per cent was accounted for by services in the Indian case.

In India, while services accounted for 43 and 48 per cent respectively of the increment of GDP at current prices in the 1970s and 1980s, the figure rose to 58 per cent and 62 per cent respectively during the 1990s and the years 2000-01 to 2004-05.

Difference 3: Current Account

China's Current Account

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1982 1985 1990 1995 2000 2004

Transfers

Income

Services

Goods

Difference 3: Current account

2001-02 2002-03 2003-04 2004-05

Merchandise Trade Deficit -11574 -10690 -15454 -38130

Net Invisibles 14974 17035 26015 31699

Of Which

Software Services 6884 8863 11750 16626

Private Transfers 15398 16387 22833 20459

Current Account 3400 6345 10561 -6431

FDI 4734 3217 3420 3037

Portfolio Investment 1952 944 11356 8907

Loans -1261 -3850 -2848 11661

Banking Capital 2660 10135 6699 4107

Total Capital Account

8551 10840 20542 32175

A new pattern involving the new economy Idea that India and China are exploiting the benefits

of the new knowledge economy. Improvement in the quality of human and other

forms of ‘intangible” capital rendered possible by the knowledge revolution a crucial determinant of productivity differentials across sectors and nations.

Transmission of these intangibles from the pure knowledge domain to commodities must be mediated by labour of different kinds which must acquire the necessary intangibles

Requires investment geared to the production and dissemination of knowledge (i.e., in training, education, R&D, information and coordination).

Role of Knowledge 1

Share in World industry value added, by selected country 1980 1985 1990 1995 2000 2003

All manufacturing industries Total value added ................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% United States...................... 22.86% 23.58% 22.46% 24.23% 25.60% 23.84% European Union-15............. 36.05% 31.83% 31.41% 28.94% 26.86% 26.33% Japan................................. 15.67% 17.85% 19.34% 17.93% 16.07% 14.72% China ................................. 1.96% 2.50% 2.50% 4.48% 6.71% 9.42% India................................... 0.62% 0.74% 0.89% 1.08% 1.20% 1.35% High technology industries Total value added ............... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% United States.................. 24.56% 25.93% 24.67% 25.47% 39.58% 42.49% European Union-15 ........ 34.22% 30.27% 27.95% 26.66% 20.10% 18.45% Japan............................. 14.37% 22.41% 24.89% 23.10% 15.86% 12.07% China ............................. 0.94% 1.26% 1.25% 2.62% 5.30% 9.32% India............................... 0.14% 0.13% 0.24% 0.38% 0.35% 0.36%

Role of Knowledge 2

161.6

64.9

131.8

80.1

2.8

23.5

124

64.3

216

0 50 100 150 200 250

China

France

Germany

Hong Kong

India

Italy

Japan

UK

USA

High Technology Exports, 2004 (Current US $ billion)

Trends in services production

Share in World service industry data, by selected country Total production ...................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% United States....................... 35.54% 34.76% 34.35% 33.32% 34.89% 35.16% European Union-15.............. 29.92% 29.45% 29.16% 29.34% 28.86% 28.54%Japan...................................14.58% 15.21% 15.81% 15.52% 14.15% 13.66% China .................................. 0.52% 0.75% 0.92% 1.17% 1.51% 1.61% India.................................... 0.52% 0.60% 0.71% 0.87% 1.00% 1.14%

India an exported of knowledge-intensive services IT and ITeS Exports from India:

IT services exports estimated at around $23 billion in 2005-06 by RBI

During the period 1990-91 to 2004-05, exports have been growing at 47.5 per cent per annum or doubling every 21 months.

IT-based Growth in India

In absolute and relative terms the size of the IT sector in India is now impressive. NASSCOM estimates the size of the industry in 2005-06 at

$36.3 billion, of which $29.5 billion consisted of revenues from software and services. $23. 4 billion of these were export revenues: comprising of $17.1 billion of software and services export revenues and $6.3 billion of revenues from exports of IT-enabled services and business process outsourcing (BPO).

The ratio of gross IT sector output to GDP rose from 0.38% in 1991-92 to 1.88% in 1999-00 and 4.5 % 2004-05

National Socioeconomic Technological Productive Country orientation infrastructure infrastructure capacity Total United States ...................................................... 79.8 86.4 92.7 82.8 341.2 Japan ................................................................. 76.4 67.6 73.8 80.3 298.1 Germany............................................................. 75.6 78.2 65.5 65 284.3 Taiwan................................................................ 83 84.4 45.3 59.6 272.2 Israel .................................................................. 79.5 85 52.3 49.4 266.2 Ireland ................................................................ 84.1 80.7 44.2 53 262 South Korea........................................................ 80.4 81.1 45.2 52.3 259 China.................................................................. 63 55 55.2 49.6 222.7 Hungary.............................................................. 66.7 67.9 40 42.2 216.7 Poland ................................................................ 63.7 68.3 36.6 42.5 211.1 Czech Republic................................................... 64.6 64.4 34.7 44.6 208.3 Malaysia............................................................. 73 64.9 28.8 39.1 205.9 India ................................................................... 62.5 49.3 37 47.8 196.6 Philippines.......................................................... 59.3 55 24 45 183.3 Brazil.................................................................. 52.5 50.5 35.4 35.8 174.2 Mexico................................................................ 55.2 49 28.7 35.4 168.2 Argentina............................................................ 44.9 52.4 31 32.5 160.7 Thailand ............................................................. 47.7 54.2 23.9 30.9 156.7 Indonesia............................................................ 45.1 39.1 20.7 27.7 132.6 Venezuela........................................................... 37.2 46 19.5 20.3 123 Science and Engineering Indicators 2006

Leading indicators of technological competitiveness: 2003 (Index)

Dissociation of knowledge and production Knowledge in production separate from

knowledge for production. Knowledge in services separate from

knowledge for services.

K4P: Domestic R&D

China France Germany India Italy Japan UK US

0

0.5

1

1.5

2

2.5

3

1

2.18

2.49

0.85

1.07

2.99

1.86

2.72

Source: US National Science Board, Science and Engineering Indicators 2006

Research and Development Expenditure, 2003 (Percent of GDP)

China France Germany India Italy Japan UK USA

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

18142

3096043440

1004721038

5541349485

196221

Source: US National Science Board, Science and Engineering Indicators 2006

Scientific and Technical Journal Articles, 2000

China France Germany India Italy Japan UK USA

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

107

4066 4453

25 525

1227110245

48137

Source: World Bank, World Developmet Indicators

Royalty and Licence Fee Receipts, 2004 (US $ million)

Retaining K4P: Absorbing talent

Foreign graduate student enrollment in U.S. universities, 2004 All locations........................................................................................................... 279,076 India................................................................................................................... 63,013 China ................................................................................................................. 50,796 South Korea........................................................................................................ 24,757 Taiwan ............................................................................................................... 15,015 Canada............................................................................................................... 12,129 Japan................................................................................................................. 8,681 Turkey ................................................................................................................ 6,912 Thailand ............................................................................................................. 5,708 Mexico ............................................................................................................... 4,225 Germany ............................................................................................................ 3,915 Other locations ................................................................................................... 83,925

Retaining K4P : Retaining talent

Plans of foreign recipients of U.S. S&E doctorates to stay in United StatesDoctorate recepients 2000-03 Plans to stay Definite plans to stay

All non-U.S. citizens............................................... 37,608 73.6 51.1 East/South Asia ................................................. 21,215 79.9 54.8 China ........................................................... 10,089 92.5 63.6 India.............................................................. 3,238 89.2 66.6

Retaining K4P : Global R&D

Transnational corporations (TNCs) account for at least 70% of global business R&D. In 2002, the top 700 R&D spenders reported R&D expenditures of more than $300 billion (WIR 2005).

Ford, Pfizer, DaimlerChrysler, Siemens, Toyota and General Motors each spent more than $5 billion on R&D in 2003. In comparison, among the developing economies, total R&D spending exceeded $5 billion only in Brazil, China, the Republic of Korea and Taiwan Province of China.

Retaining K4P : Internationalizing R&D A rising share of these companies' R&D

expenditures are undertaken in developing countries. Between 1994 and 2002, the developing-country share of all overseas R&D by US TNCs increased from 7.5% to 13%. Today, more than half of the world's top R&D spenders conduct R&D activities in China, India or Singapore.

Role for foreign firms in India and China China’s trade surplus with the US rose to

$114.2 billion in 2005, up from $80.2 billion in 2004. Exports to the US rose by over 30 per cent to $162.9 billion and imports totaled $48.7 billion. But dominant share of exports from foreign invested firms.

More than 60 per cent of India’s IT services exports are to the US. But more than 50 per cent of ITeS exports from captive units.

Increase in US Presence in Asia In Asia and Pacific, value added of foreign

affiliates in 1999–2004 grew at an average annual rate of 9 percent, and the region’s share increased 1.2 percentage points, to 19.0 percent.

The largest increases in shares were in China, India, and Japan.

The China Boom

In China, value added of affiliates in manufacturing accounted for more than two-thirds of the value added of all Chinese affiliates in 2004, and during 1999–2004, value added of Chinese affiliates in manufacturing grew at an average annual rate of 23 percent.

In 2004, more than two-thirds of the sales by Chinese affiliates in manufacturing were to customers in China, and only 7.4 percent of these sales were to U.S. customers, down from 16.3 percent in 1999.

India and Japan

In India, the growth in value added was widespread by industry, but it was most notable in manufacturing and wholesale trade, in which affiliates sell almost exclusively to local customers, and in computer systems design and related services (part of professional, scientific, and technical services), in which affiliates sell mainly to customers in the United States.

In Japan, most of the growth in value added was in manufacturing, mainly reflecting acquisition of firms or establishment of new foreign affiliates to serve the local market.

Impact on trade 1

Table 4.4: US intra-firm imports in ICT goods and services, 2004 USD millions and percentage shares

Total Related Share imports party

trade %

All goods 1460160 697561 47.8 Computer equipment 73733 51731 70.2 Communication equipment 38733 28106 72.5 Audio & video equipment 37054 24282 65.5 Electronic components 65351 43690 66.9 Magnetic & optical media 4096 2160 52.7 ICT products 218967 149969 68.5 ICT share of total 15 21.5 .. All services 258069 54693 21.2 Computer & information services 5804 3800 65.5 ICT share of total 2.2 6.9 .. Source: OECD, Information Technology Outlook 2006

The distributed value chain

2000 2004

China’s exports of EDP and office equipment

5.02 20.73

China’s imports of integrated circuits and electronic components

6.80 22.40

Semiconductor market shares

United States49%

Japan37%

Europe13%

ROW1%

US Cross-border and affiliate sales of services US International Trade Commission

Exporting knowledge

The United States continues to be a net exporter of manufacturing technological know-how sold as intellectual property: On average, royalties and fees received from foreign

firms were three times greater than those paid out to foreigners by U.S. firms for access to their technology.

In 2003, U.S. receipts from the licensing of technological know-how to foreigners totaled $4.9 billion, 24.4% higher than in 1999. The most recent data show a trade surplus of $2.6 billion in 2003, 28% higher than the prior year but lower than the $3.0 billion surplus recorded in 2000.

K4P: Are things changing?

Gross Domestic Expenditure on R&D (billion current PPP $), 1981-2006

050

100150200250300350

Source: OECD, Main Science and Technology Indicators, 2006.

Japan United States EU-15 China Germany

R&D in China

Since 1995, China has not only more than doubled its R&D spending as a percentage of GDP from 0.6 to 1.3% of GDP, but the number of researchers was also increased by 77% between 1995 and 2004

China will spend some €102 billion on R&D in 2006, a little more than Japan's forecast of €97 billion. The United States is expected to remain the world's top R&D investor in 2006 with some €248 billion, whereas the EU-15, is expected to invest around €173 billion. The EU-25 R&D expenditure in 2004 amounted to 1.9% of GDP, some €195 billion.

Implications

Emergence of a new global division of labour. Interpreting the Chinese and Indian miracles:

Instruments of battle rather than warriors. Miracles always exist, but they are never the

same. There are, however, some signs of change in

China.