1. The Emerging High Tech Competitors from Asia, Contrasts between the national systems of innovation and its performance of China and India Professor Sunil Mani Centre for Development Studies Trivandrum-695011, Kerala, India E-mail: Mani@cds.ac.inMani@cds.ac.in

2. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 2 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

3. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 3 Contribution of China and India to Word GDP

4. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 4 Technological competitiveness of China and India are increasing, but China is catching up with the other leading countries quite rapidly

5. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 5 Both China and India have increased their share in the world exports of merchandise

6. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 6 Share of China and India in World Exports

7. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 7 Exports of high technology manufactured products from China and India, 1992-2004

8. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 8 China has emerged as one of the leading exporters of telecom equipments in the world (Value in millions of US $)

9. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 9 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

10. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 10 Exports: India is increasingly an exporter of services

11. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 11 Exports India: IT exports is increasing very rapidly and its share in the county’s exports is increasing too.

12. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 12 India is the second largest IT exporter in the world, 2004

13. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 13 In India Knowledge Process Outsourcing (KPO) is fast catching up with Business Process Outsourcing (BPO) (US $ Millions)

14. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 14 India: R&D outsourcing is increasing rapidly

15. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 15 Contribution of technology to economic growth in China and India (Eestimates of TFP growth rates for India and China )

16. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 16 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.

17. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 17 Transformation of the Chinese Innovation System (share of total R&D in per cent)

18. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 18 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

19. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 19 Transformation of the Indian Case (R&D expenditure is in millions of Indian Rupees at current prices; Share is in per cent)

20. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 20 GERD to GDP ratio, China and India, 1991- 2004

21. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 21 GERD to GDP Ratio: China and India compared to OECD and other emerging economies, 2004

22. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 22 Industrial R&D in India, 1991-2003 (Value in Rs Millions)

23. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 23 India: Industrial R&D is increasingly dominated by those by the pharmaceutical sector

24. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 24 Patents granted to inventors from China and India in the US, 1991-2004

25. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 25 Share of Domestic Inventors in Chinese and Indian patents in the US

26. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 26 Share of Individually Owned Patents in Total US Patents Granted to Chinese and Indian inventors

27. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 27 The top 15 emphasized patents by Chinese inventors in the US

28. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 28 The top 15 emphasized patents by Indian Inventors

29. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 29 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.

30. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 30 China: Total R&D personnel and its density, 1991-2004

31. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 31 India: Scientists and Engineers engaged in R&D (number on an FTE basis)

32. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 32 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.

33. Sunil Mani,BRICS Conference, Rio de Janeiro, April 25 2007 33 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.