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%.

Chinas emerging presence Throughout the 1990s and continuing through 2003, U.S. industry supplied 12%–14% of the worlds 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 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 But US imports also rose during this period from $20.8 billion to $40.7 billion Indias 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

Obvious Importance of Trade

Difference 1: Trade structure

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 to

Difference 3: Current Account

Difference 3: Current account Merchandise Trade Deficit Net Invisibles Of Which Software Services Private Transfers Current Account FDI Portfolio Investment Loans Banking Capital Total Capital Account

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

Role of Knowledge 2

Trends in services production

India an exported of knowledge-intensive services IT and ITeS Exports from India: IT services exports estimated at around $23 billion in by RBI During the period to , 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 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 to 1.88% in and 4.5 %

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

Retaining K4P: Absorbing talent

Retaining K4P : Retaining talent

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 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 Chinas trade surplus with the US rose to $114.2 billion in 2005, up from $80.2 billion in 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 Indias 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 regions 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

The distributed value chain Chinas exports of EDP and office equipment Chinas imports of integrated circuits and electronic components

Semiconductor market shares

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 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?

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.