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C3S Event Report- Comparison of India-China industrial development: A Japanese perspective

C3S Report No: 008/2017

The Chennai Centre for China Studies conducted a lecture-discussion held on March 29th 2017 at C3S, Athena Infonomics Building, Chennai. Asma Masood, Research Officer of C3S welcomed the gathering and introduced the speaker for the event. Prof. Moriki Ohara, Assistant Professor at Ryukoku University, Kyoto, Japan spoke on ‘Position of India’s industrial development and trade in comparison with East China’. He is also a Senior Research Fellow at Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO). Prof.Ohara is a scholar on the Chinese economy and doing research on the comparative industrial development between China and India. His areas of research interest include economic and industrial business development in China.

The talk on the theme began with the graphical representation of the size of Asian economies based on its population, GDP and export. Japan with the population of 120 million has GDP rate of 4.6 trillion USD and export value of USD 0.69 trillion  whereas India with the population of 1290 million has GDP of 2.1 trillion USD and export of USD 0.27 trillion . China overrules all the other Asian economies with a GDP of USD 11 trillion  and USD 2.34 trillion  as export rate with a population of 1370 million.

After the 1990s, Japan had a static growth whereas China had a sudden increase in their GDP since 2005. Japan was much pressurized by China and China’s development became prominent from 1998. In the 1980’s the GDP size of China and India were almost the same but the gap widened due to various reasons. The P/C GDP of the Asian countries threw light upon two important steps of change that challenge these countries. The first one is Transition A (2000~3000 USD) where basic economic growth and good education are some of the major strengths and the second one is Transition B (9000~17000 USD) where innovation dynamic policies companies of high income are some of the achievements. China is at Transition B and is much capable of growing further whereas India is still lingering in the Transition A not having signs of going beyond.

With reference to the Export Dependency Ratio, Prof. Ohara stated that China has a high dependency export after the 1990s because of global market, increase of foreign currency and similar factors. He observed that various countries had different ways to develop where some countries became ambassadors of export. Japan is an export oriented country but is dependent on domestic market and India also has a similar approach to the same. The ratio of Foreign Direct Investment (FDI) over Domestic Fixed Asset Investment was explained in comparison with Thailand, Vietnam, China, Taiwan, Korea, India and Japan. The graph of the same was complex in nature as observed by Prof. Ohara. The inferences conveyed that Thailand and Vietnam are highly dependent on the capital, where the ratio was higher than other nations. Japan had the least ratio due to domestic market. By the 1990s China possessed the highest position of holding capital and by 2008 India also had a rise due to its intake and utilization of capital.

A questionnaire survey report was presented to understand the highly evaluated countries for FDI in Japanese companies. Three hundred countries participated in the survey which analyzed their interest in making investment in a foreign country. 80% responded that China is a promising country for investment and is identified as the best since 2004 which remained the same till 2010. From 2003 to 2009 India developed a good image for investors. After 2009 China had challenges in making investment as China’s development pace was commendable. This in turn became the reason for considering India after 2010.

The survey analyzed the advantages / problems perceived by the Japanese FDI (2016). With China, industrial agglomeration, domestic market growth and its size are major advantages whereas India’s domestic market was considered more favorable with cheap labor and export base for third countries. The problems perceived by Japanese FDI in China are rise of labor cost, intellectual property right, harsh competition where in India, infrastructure, unclear legal system, complex tax system, social unrest are prevailing.

In terms of holding the share in the world export, Japan was the topmost country in Asia. After 1980s it became stagnant not because Japanese industries had collapsed but some industries did not fit to the system in Japan and shifted to neighboring Korea and Taiwan. This record then transferred from Korea and Taiwan to ASEAN and later to China. After the 1990s the rise of share in the World Export enhanced the industrial development in China. According to the Japanese point of view, the East Asian dynamic movement has not reached India yet.

The export competitiveness in labor intensive goods 1995 to 2014 was graphically represented where the East Asian competitiveness appears as an inverted U on the graph. The application of 1< (export- import) / (export + import) <1 was explained. Based on this Japan had a low export which marked -1. Two interesting phenomena derived from the same where, China being strong, sustaining and on the top unlike to the East Asian development and India having a decreased competitiveness after the 1990s.  Prof.Ohara states that infrastructure development and mass production became the focus for India since the 1990s.

While explaining the Export Specialization Index of high-tech/high skill goods, Japan’s case scenario is that the assembly of high-tech goods moved to China but the technology remains in Japan even when the place of export was changed. The structure of China’s export and import with Japan implied on various commodities. Electrical machinery like mobiles, computers and machinery like appliances are the major exports from China to Japan whereas IC chips, factory equipments etc. which are required to make the final product is being imported to China thus complimenting each other.

UAE and USA are India’s major export partners while China ant the Middle East are import partners. India’s main import products are oil, diamonds etc. India import crude oil and export its products. The various processes associated to the export industry that leads to its competency was explained with examples. Prof.Ohara commented that India’s Service Export is 6.7% of GDP which is less than China but is quite appreciable. The business outsource is 34% which demands highly educated people and this fact implies that India s doing well.

The R&D expenditure ratio to GDP pointed out that South Korea and Taiwan maintain a high status where India shared the same level with them in the 1970s and is remaining stagnant and China had a rapid increase in the 1990s as new companies were emerging. Prof. Ohara concludes that India should put more interest in industry and said that Japan is also trying to invest in R&D. He conveyed that India’s domestic market is not easily approachable and has scope to improve brand loyalty. From a Japanese point of view, in India it takes a long time for dealership and investment.

The talk by Prof. Moriki Ohara was followed by an audience interaction session. Mr. L. V. Krishnan, Member, C3S delivered the vote of thanks.

(Compiled by Ms. Lilu Susan George, Intern, C3S & M.Phil Scholar, Madras Christian College, Chennai.)

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