Transcript Upheaval in the World Economy: China and India as a

New patterns of development and
the new development “miracles”
Defining the success of India and China
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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
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High-technology manufacturing industries are
key contributors to economic growth in the
United States and around the world
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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
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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 hightechnology industry exports reaching 7% in 2003, up
considerably from slightly more than 1% in 1990.
A new international context in services
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Knowledge-intensive service industries are
key contributors to service-sector growth
around the world:
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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
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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 $40.7 billion
India’s presence in this area has been significant and
rising.
Questions
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Are India and China successfully exploiting
aspects of the changed pattern of global
growth?
Does this provide the trajectory for growth
miracles in the current conjuncture?
What are the implications of that trajectory?
India and China Relative to the World
India and China Relative to the World (Percentage Shares)
1978
1985
1995
2000
2003
Exports of goods and services (Constant 2000
US$)
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)
40.00
33.95
35.00
29.56
30.00
25.13
25.00
23.07
23.33
22.60
China
India
19.17
20.00
19.12
15.00
10.71
10.00
10.00
13.54
2000
2001
15.26
14.93
2002
2003
11.00
6.64
5.00
13.89
6.19
6.28
1978
1980
7.15
5.38
0.00
1985
1990
1995
2004
Difference 1: Trade structure
Exports of Goods (% of GDP)
30.0
26.7
25.0
22.4
20.8
20.1
20.0
17.6
14.5
15.0
10.0
9.5
8.8
8.2
9.4
10.0
9.9
5.8
5.0
4.2
0.0
1985
1990
1995
2000
China
2001
India
2002
2003
Difference 2: Growth structure
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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%
1982
-20%
-40%
-60%
-80%
-100%
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
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
Of Which
A new pattern involving the new economy
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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
High Technology Exports, 2004
(Current US $ billion)
China
161.6
France
64.9
Germany
131.8
Hong Kong
80.1
India
2.8
Italy
23.5
Japan
124
UK
64.3
USA
216
0
50
100
150
200
250
Trends in services production
Share in World service industry data, by selected country
Total production ......................
100.00% 100.00% 100.00% 100.00%
United States.......................
35.54%
34.76%
34.35%
33.32%
European Union-15..............
29.92%
29.45%
29.16%
29.34%
Japan...................................
14.58%
15.21%
15.81%
15.52%
China ..................................
0.52%
0.75%
0.92%
1.17%
India....................................
0.52%
0.60%
0.71%
0.87%
100.00%
34.89%
28.86%
14.15%
1.51%
1.00%
100.00%
35.16%
28.54%
13.66%
1.61%
1.14%
India an exported of knowledge-intensive
services
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IT and ITeS Exports from India:
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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
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In absolute and relative terms the size of the IT
sector in India is now impressive.
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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
Leading indicators of technological competitiveness: 2003 (Index)
National
Socioeconomic
Technological Productive
orientation
infrastructure
infrastructure
capacity
Total
Country
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
Dissociation of knowledge and
production
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Knowledge in production separate from
knowledge for production.
Knowledge in services separate from
knowledge for services.
K4P: Domestic R&D
Research and Development Expenditure, 2003
(Percent of GDP)
2.99
3
2.72
2.49
2.5
2.18
2
1.86
1.5
1.07
1
1
0.85
0.5
0
China
France Germany
India
Italy
Japan
UK
Source: US National Science Board, Science and Engineering Indicators 2006
US
Scientific and Technical Journal Articles, 2000
196221
200000
180000
160000
140000
120000
100000
80000
55413
60000
43440
49485
30960
40000
21038
18142
10047
20000
0
China
France Germany
India
Italy
Japan
UK
Source: US National Science Board, Science and Engineering Indicators 2006
USA
Royalty and Licence Fee Receipts, 2004
(US $ million)
50000
48137
45000
40000
35000
30000
25000
20000
15000
12271
10245
10000
5000
4066
4453
107
25
525
India
Italy
0
China
France Germany
Japan
Source: World Bank, World Developmet Indicators
UK
USA
Retaining K4P: Absorbing talent
Foreign graduate student enrollment in U.S. universities, 2004
279,076
All locations...........................................................................................................
63,013
India...................................................................................................................
50,796
China .................................................................................................................
24,757
South Korea........................................................................................................
15,015
Taiwan ...............................................................................................................
12,129
Canada...............................................................................................................
8,681
Japan.................................................................................................................
6,912
Turkey ................................................................................................................
5,708
Thailand .............................................................................................................
4,225
Mexico ...............................................................................................................
3,915
Germany ............................................................................................................
83,925
Other locations ...................................................................................................
Retaining K4P : Retaining talent
Plans of foreign recipients of U.S. S&E doctorates to stay in United States
Doctorate 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
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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
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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
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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
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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
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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
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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
China’s exports of
EDP and office
equipment
China’s imports of
integrated circuits
and electronic
components
2000
2004
5.02
20.73
6.80
22.40
Semiconductor market shares
Europe
13%
ROW
1%
United States
49%
Japan
37%
US Cross-border and affiliate sales of
services
US International Trade Commission
Exporting knowledge
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The United States continues to be a net exporter of
manufacturing technological know-how sold as
intellectual property:
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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
19
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
06
350
300
250
200
150
100
50
0
Source: OECD, Main Science and Technology Indicators, 2006.
Japan
United States
EU-15
China
Germany
R&D in China
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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
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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.