Technology trade in India-China relations: divergent dynamics and implications.

• Author: Dolla, Varaprasad S.
• Position: Sino-Indian Relations - Report

The recent and growing technology trade among India, China and the rest of the world is punctuated with distinctive trajectories and dynamics. Propelled by the simultaneous phenomena of impressive economic growth and increasing technological capabilities, the two countries under review have made a paradigmatic shift from being predominantly technology-importing countries in the 1980s to technology-exporting countries at the beginning of the 21st century. The consequent outcome of this process is the changing composition of technology exports wherein the share of technology-intensive products is increasing in their overall export baskets, which is a clear indication of the two countries' growing technological prowess. A key element in this growth is that the technology component in the overall bilateral trade between India and China is increasing both in volume and diversification. A considerable part of China's exports to India consists of technology-intensive products, but primary goods dominate Indian exports to China, revealing China's edge over India. This is likely to change as India strengthens its comparative advantage in software and begins to catch up with China in sectors such as manufacturing. These developments have several implications not only for their economies, but also for those in both developed and developing countries.

**********

Technology trade, a critical component of trade of late, is recognized as a key indicator of the development of economies that are increasingly knowledge-driven and information-based. Acknowledging this, India and China have been orienting their trade architectures to factor technology into their global and bilateral trade relations, and they are benefiting from the process. India and China have emerged as the twenty-first and largest merchandise exporters with trade-to-GDP ratios of 46.2 and 58.6 respectively during 2007-2009. A trend worth noting is the growing size of technology-intensive exports in their export baskets, a potent sign of the maturing of their technological capabilities. (1) Another trend is that technology trade between India and China is beginning to acquire a competitive dimension as both countries witness a steady rise in their technological capabilities.

As these trends evolve, the future of technology trade among India, China and the rest of the world will be much more complex and variegated. One of the implications of the growing Indian and Chinese technology trade is that hitherto established technology giants such as the United States and Japan find their technology trade diminished, putting enormous pressure on their current technological capabilities. The result is that they are trying to find ways and means to further climb the technological ladder. This is an excellent opportunity for the growth not only of technology, but also of trade. At the same time, the technological rise of India and China, has motivated some technology laggards such as Fiji, Nepal, Jordan and Kenya, to name a few, to invest in the development of technology, which in turn will impact the growing Indian and Chinese technology trade.

Given these remarkable developments, examining the technology trade between the two countries will provide interesting clues to the unfolding global technology trade, which is growing in its share of overall trade. Prior to this examination, two qualifications need to be made. First, a discussion on the nature of the symbiotic relationship between technology and trade is required in order to locate technology trade between India and China in the larger context of the increasing role of technology in trade. Second, a brief analysis of their technological capabilities, with a focus on their foundations and strengths in specific areas, and of their global technology trade more generally is imperative to better understanding technology trade between the two countries. (2)

TECHNOLOGY AND TRADE: CHANGING TRENDS

A number of recent studies have convincingly articulated the mutuality between technology and trade, particularly in terms of impact. (3) According to Hans Verhulst, this mutuality is determined by the availability of technology "in technology rich countries, where there is a vast pool of know how, waiting to be untapped. In emerging markets, there is an enormous demand for know how, waiting to be filled. This 'trade in technology' could well be one of the answers to a changing world." (4) As new studies continue to unravel the unfolding trends, there is a clear consensus on the increasing role of technology in the growth of trade. The more technology--especially sophisticated and capital-intensive technology--a country possesses, the more capable it is of exporting. Moreover, when a country lacks technology, including advanced technology, and is able to successfully import it in large quantities, assimilate it and translate it into productivity, that country's ability to export increases. In fact, importing technology itself constitutes a kind of trade in technology. At the same time, trade also contributes to the augmentation of technological capabilities. As trade gets robust and increases its ratio to GDP, there is an enhanced ability to upgrade existing technology through greater investment in technology development and innovation in order to remain a steady and strong trading country. Andersson and Ejermo further find that the export specialization of regions corresponds to their technology specialization. Regions with more sophisticated technology export products of higher quality. Furthermore, export flows to countries with high technology specialization include products of higher quality in the specific technology. (5) More recently, the exponential growth of information and communication technologies (ICTs) and the current phase of globalization in general, and globalization of science and technology (S&T) in particular, have added a new dimension to the mutuality between technology and trade. They provide robust linkages between the two by facilitating a faster flow of technology and trade. This phenomenon is likely to continue as new processes and innovations are introduced into the market.

Of the two--technology and trade--technological capability is a prerequisite for emergence as a strong trading country. The countries that have developed their national technological capabilities by carefully calibrating S&T policy, laying strong foundations for research and development (R&D), enhancing scientific skills, and acquiring and assimilating advanced technologies have seen the indelible impact of these measures on their trade. This, in turn, is dependent on the larger context of S&T and human resource development through education. The countries that strike a fine balance between technology and trade thus reap rich dividends in the world economy. This is amply demonstrated by countries like Japan in the 1960s and some of the newly industrializing economies (NIEs) like South Korea, Taiwan and Singapore in the 1970s and 1980s, which imported advanced technologies from technology leaders such as the United States, Germany, Britain and France. Japan has been the most successful in maintaining a balance between technological advancement and trade--with the exception of the 1990s and thereafter--leading to some deceleration of its economic growth. Chances are that it can improve provided that the balance between technology and trade is maintained by strengthening both in today's ever-changing context. Since the 1990s, some developing countries have joined this club, making technology and trade much more diverse.

The impact of these developments can be seen in the growth of global technology trade in terms of volume, the scope of technology fields and the diversification of regional specificities. In the realm of volume, the total export volume of high-technology products grew faster than gross production, bringing exports to almost 60 percent of production in 2007.

This increase reflects the broadened international base of high-technology manufacturing, the expansion of multinational firms' overseas production, and a shift in the nature of production to increasingly specialized and geographically dispersed suppliers. (6) In terms of the composition of global technology trade by field, communications and semiconductors had a share of $445 billion, pharmaceuticals $319 billion, scientific instruments $189 billion, aerospace $153 billion, and computers and office machinery $114 billion of a total $1.2 trillion in 2007. (7) With regard to regional specificities, one of the findings of the RAND report entitled The Global Technology Revolution 2020 is pertinent for our purpose here. In the report's foreword, Lawrence K. Gershwin highlighted one of the conclusions of the report as: "regional and country-specific differences in social need and S&T capabilities are resulting in differences in how technology is revolutionizing human affairs around the world." (8)

TECHNOLOGY TRADE IN INDIA AND CHINA: TWO CONTEXTS

Following the general trajectory of technology and trade as briefly delineated above, China and India, the second and the fourth largest economies respectively, have in the last two decades begun to emulate what Japan and the NIEs managed to accomplish in the 1970s and 1980s, with certain distinctive features in their...