Professor Sunil Mani Centre for Development Studies Trivandrum-695011, Kerala, India

The Emerging High Tech Competitors from Asia, Contrasts between the national systems of

innovation and its performance of China and

India

Professor Sunil ManiCentre for Development Studies

Trivandrum-695011, Kerala, IndiaE-mail: [email protected]

Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007

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Outline China and India in the world economy Exports from China and India Contribution of technology to economic growth in China and India Transformation of the Chinese and Indian innovation systems Innovative performance of China and India Human resources devoted to S&T Two success stories from manufacturing

China: Telecom Equipments

India: Software and Pharmaceuticals Summing up


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Contribution of China and India to Word GDP


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Technological competitiveness of China and India are increasing, but China is catching up with the other leading countries quite rapidly

1999 2002 2005India 214.2 196.6 217.5China 206 222.7 271.9Israel 274.9 266.2 274.9Germany 274.9 284.3 286.3Japan 304.5 298.1 295.9United States 349.4 341.2 344.1


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Both China and India have increased their share in the world exports of merchandise

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Share (%)

China 0.89 1.22 1.29 1.01 1.21 2.50 5.95 7.50

India 2.21 1.31 1.04 0.50 0.50 0.59 0.78 0.94

1948 1953 1963 1973 1983 1993 2003 2005


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Share of China and India in World Exports


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Exports of high technology manufactured products from China and India, 1992-2004


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China has emerged as one of the leading exporters of telecom equipments in the world

(Value in millions of US $)


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India on the contrary is focusing more on exports of knowledge services especially in

pharmaceuticals

Currently (2006), India is ranked number one in contract research in pharma industry.

As per Chemical Pharmaceutical Generic Association’s recent report, contract research in the country was valued between US$100 Million and US$120 Million in the year 2005, representing a growth rate of about 25% year on year.

Italy follows next at about US$60 Million-US$70 Million. The third competitor in Asia is China, which accounts for

nearly US$23 Million-US$28 Million in this business


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Exports: India is increasingly an exporter of services

0

20000

40000

60000

80000

100000

120000

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

Mill

ion

s o

f U

S $

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Rat

io o

f se

rvic

e ex

po

rts

to m

erch

and

ise

exp

ort

s

Merchandise exports Service exports Ratio of service exports to merchandise exports


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Exports India: IT exports is increasing very rapidly and its share in the county’s exports is

increasing too.

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Sh

are

of

IT (

%)

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Share of IT in Merchandise Share of IT in Services


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India is the second largest IT exporter in the world, 2004


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In India Knowledge Process Outsourcing (KPO) is fast catching up with Business Process

Outsourcing (BPO) (US $ Millions)

KPO BPO Ratio of KPO to BPO 2004-05 1638 4600 0.362005-06 5159 6300 0.82


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India: R&D outsourcing is increasing rapidly

0

100

200

300

400

500

600

Mill

ion

s o

f U

S $

R&D Outsourcing 221 519

2004-05 2005-06


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Contribution of technology to economic growth in China and India

(Eestimates of TFP growth rates for India and China )

1989-1995 1995-2003

GDP growth

TFP growth

GDP Growth

TFP growth

China 9.94 6.33 7.13 2.49

India 5.03 2.06 6.15 2.49


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Contribution of technology to economic growth in China and India (based on TFP growth

estimates)

The Table suggests that while India experienced an increase in TFP growth from 2.06% to 2.49% per year between the two periods, China’s TFP growth declined from an astonishing 6.33% per year to a reasonable 2.49% between the same two periods.

The contribution of TFP growth to GDP growth remained virtually unchanged at 41.0% and 40.0% in the two periods in India, while it declined from 64.3% to 34.9% between the two periods in China.

It is probable that the decline in GDP growth in China in the second period was in part the impact of the East Asian financial crisis of 1997.


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Transformation of the Chinese Innovation System

(share of total R&D in per cent)

1985 2004

Business enterprises

29.3

66.8

R&D Institutes 54.7 22.0

Universities 15.9

10.2

Others 1.0

Total 100 100


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Transformation of the Chinese and Indian Innovation Systems

The Chinese Case

China is in the process of converting its innovation system into a more market and production oriented one.

During the period up to 1979 and even up to the early 1990s, the innovation system was dominated to a large extent by a large number of government research institutes distanced from the production system.

The production system itself was dominated by state-owned enterprises.

Currently much of the innovation is undertaken by business enterprises A similar picture is seen in India as well with private sector enterprises

accounting for about 2/3rds of the total R&D investments in the industrial sector


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Transformation of the Indian Case(R&D expenditure is in millions of Indian Rupees at current prices; Share is

in per cent)

Public sector enterprises GRIs Government Private sector enterprises Total industrial R&D Share of private sector enterprises 1986 1986 1623 3509 2519 6128 411990 4129 2395 6524 4906 11430 432000 7576 7809 15385 21781 37166 592001 8429 8641 17070 24114 41184 592002 7674 8923 16596 27875 44471 632003 8090 9513 17602 30649 48251 64


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GERD to GDP ratio, China and India, 1991-

2004


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GERD to GDP Ratio: China and India compared to OECD and other emerging economies, 2004


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Industrial R&D in India, 1991-2003 (Value in Rs Millions)


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India: Industrial R&D is increasingly dominated by those by the pharmaceutical

sector


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Patents granted to inventors from China and India in the US, 1991-2004


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Share of Domestic Inventors in Chinese and Indian patents in the US

0

10

20

30

40

50

60

70

80

90

Share of domestic inventors

in total US patents

India 79 85 74 67 63

China 61 50 54 56 59

2001 2002 2003 2004 2005


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Share of Individually Owned Patents in Total US Patents Granted to Chinese and Indian inventors


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The top 15 emphasized patents by Chinese inventors in the US


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The top 15 emphasized patents by Indian Inventors


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Human resources devoted to innovation Although both China and India have a large pool of technically

trained personnel, the actual number of scientists and engineers engaged in R&D, measured in terms of the density of scientists and engineers, is very low in both the countries.

The demand for R&D as a career appears to be low in both the countries. This may in turn due to the relatively low incentives that are available for R&D scientists;

In addition there appears to be a problem with supply as well. Quality of available human resource is sometimes below what is required;

Fortunately both the countries appear to be aware of the problem and have responded to it in various ways.


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China: Total R&D personnel and its density, 1991-2004


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India: Scientists and Engineers engaged in R&D (number on an FTE basis)

1980 1998 2000

Total R&D personnel (a+b+c) 184096 308392 296343

a. Personnel engaged primarily in R&D

64875 95428

93836 b. Auxiliary personnel 58142 100656 90045

c. Administrative 61079 112308 112462

Ratio of R&D (a) to Non-R&D (b + c)

0.53

0.45

0.46


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Two successful cases from China and India As was argued above, the Chinese have done exceedingly well in manufacturing and

within it specially in the area of telecommunications equipments. Currently China accounts for 20 per cent of the world market in this particular product

The Chinese success in this area can be traced to the constitution of its sectoral system of innovation (SSI);

The SSI for telecom equipments have at its center, domestic manufacturers who are highly research intensive. These local manufacturers be befitted from positive spillovers that the Chinese state was able to engineer from affiliates of MNCs operating in the country.

• India on the contrary has done exceedingly well in IT software industry, although most of the innovations (in the traditional sense) have emanated not from local firms, but from affiliates of MNCs. Some of the local firms have very strong research capabilities. Here again the SSI has business enterprises as its center stage

• In addition, India has done very well in the manufacture and exports of pharmaceuticals. Here too the SSI is dominate by business enterprises and these were supported stronly by pro active government policies.


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Summing up The Chinese and Indian economies are getting increasingly integrated

with the rest of the world although Chinese economy is much more integrated than India’s ;

Both the economies are going up the technology ladder in terms of exports;

Although Indian performance appears to be behind that of China on a number of parameters, there is some preliminary data to believe that India’s productivity in research is better than that of China;

Both the countries have similar problems in maintaining their improved performance wrt innovations- the density of R&D personnel is low and questions have been raised about its quality as well.

An examination of the two cases where both countries have succeeded shows that the success could be attributed to the constitution of their respective SSI and the presence of pro active innovation support policies.

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Professor Sunil Mani Centre for Development Studies Trivandrum-695011, Kerala, India