Measuring National Competitiveness of China and India

The rapid economic advancement of China and India has sparked considerable interest and uncertainty about the measurement of their economies and productivity advancements. In the case of China, some scholars contend that official estimates of China’s GDP, GDP per capita, and productivity growth have been overstated because of the difficulty and inaccuracy of estimating economic output within China’s industry and service sectors.

Official estimates by the Chinese government and most international organizations suggest that labor productivity growth rates, as measured by real GDP per person employed, increased by an average of 7.3% between 1995 and 2004. Although a more conservative estimate by the Groningen Growth and Development Centre (GGDC) and The Conference Board (TCB) indicates an average productivity growth rate of 5.6% during the same period, this estimate also finds faster growth from 2000 to 2004 (8.6%) than official sources (7.6%) (table 6-2).

GGDC and TCB estimate that India’s productivity growth averaged 4.4% during this period, as measured by GDP per employee (table 6-2). This is slower than China’s growth, but significantly faster than the United States or other industrialized economies.

Despite uncertainties over the size of China’s economy and its level of productivity, GGDC and TCB estimate that China’s GDP and productivity are between 4 to 5 times higher on a purchasing power parity (PPP) basis than would be determined using China’s official exchange rate. A PPP adjustment implies that China and India’s GDP levels are about 71% and 28%, respectively, of the U.S. GDP level (table 6-2). China’s and India’s levels of productivity, however, remain far below that of the United States, estimated to be 13% and 10%, respectively, of U.S. 2004 levels.

U.S. Global Market Position in Education and Health Services

Many nations’ governments serve as the primary provider of education and health services. The size and distribution of each country’s population profoundly affect delivery of these services. For these reasons, global comparisons based on market-generated revenues are less meaningful for education and health services than for other service industries.

Education services include governmental and private educational institutions of all types that offer primary, secondary, and university education, as well as technical, vocational, and commercial schools. In 2005, fees (tuition) and income from education- and service-related operations amounted to $1.3 trillion in world value-added revenue (table 6-3; appendix tables 6-4 and 6-5). The U.S. education sector generated the most value added by far (41% in 2005), with the EU second (29%) and Asia third (14%). Asia’s world share of education services revenues increased by 3 percentage points during the past decade, led by China and India. China’s world share doubled from 3% to 6%, and India’s share increased from 0.8% to 1.2%, coinciding with the rapid expansion in these countries of university-level enrollment and graduation of students in S&E and other fields. (See Chapter 2, section "Global Higher Education in S&E" for discussion about trends in S&E higher education in Asia and other countries.)

The United States, with arguably the least government involvement, has the largest health-service industry in the world, followed by the EU and Asia (table 6-3). In 2005, the U.S. health-service industry accounted for 38% of the $1.7 trillion in world revenue (value added) of the healthcare sector, whereas the EU share was 29% and Asia’s share was 19%.

Comparison of Data Classification System Used

This chapter incorporates several thematically related but very different classification systems. These measure activity in high-technology manufacturing and knowledge-intensive service industries, measure U.S. trade in advanced technology products, and track both the patenting of new inventions and trends in venture capital investments. Each classification system is described in the introduction to the section that presents those data. This sidebar shows the classification systems used in the chapter in tabular format for easy comparison.

Consumption of High-Technology Manufactured Goods

Production of high-technology goods feeds both domestic demand and foreign markets. A broad measure of domestic use is provided by adding domestic sales to imports and subtracting exports. Use so defined encompasses two different concepts: consumption of final goods and capital investment for further production (intermediate goods). Available data series do not permit examining these two concepts separately.

During the past decade, use of high-technology goods has more than doubled after accounting for inflation, from $1.6 trillion to $3.5 trillion (table 6-8). The strong U.S. economy registered higher growth, more than tripling from 1995 to 2005, compared with below-average growth for the EU and almost no change for Japan. In China, use of high-technology manufactures rose ninefold, approaching the level of the EU.

The Chinese trend underscores the difficulty of teasing out final consumption from use as intermediate goods. The strong rise in the Chinese trend is considered by many observers to reflect the rising inflow of intermediate goods, often previously produced in China, from other Asian manufacturing centers into China for further assembly and ultimate export.

Patterns of the world’s use of high-technology manufactures have changed considerably over the past decade. Bearing in mind the difficulty of breaking these trends into final consumption versus investment, the U.S. share rose from 22% in 1995 to about 30% in 2000 and has largely stayed at that level (figure 6-11). The EU’s share fell from 27% to 21% during the same decade (1995–2005), and Japan’s declined by nearly half from 23% to 12%. China’s share accelerated from 7% in 1999 to 20% in 2005.

U.S. IT Investment

Information technology (IT) was a major contributor to innovation and productivity gains during the 1990s. In addition to technical changes within the IT field, companies used IT to transform how their products performed and how their services were delivered. IT applications also improved the flow of information within and among organizations, which has led to productivity gains and production efficiencies.

From 1992 through 2006, U.S. industry purchases of IT equipment and software exceeded industry spending on all other types of capital equipment (figure 6-16). Despite the bursting of the dot.com bubble beginning in the spring of 2000 and the economic downturn that began in March 2001, U.S. companies continued to place a high value on investments in IT. Industry spending on IT equipment and software accounted for 41% of all industry investment (including structures and equipment) in 1997, 53% in 2002, and 57% in 2006.

U.S. Global Market Position in Other Industries

Agriculture, construction, mining, and utilities are not classified as either manufacturing or service industries and are not categorized by their level of technology or knowledge intensity. Like those in the manufacturing and service sectors, however, these industries incorporate and use S&T in their products and processes. For example, agriculture relies on breakthroughs in biotechnology, construction uses knowledge from materials science, mining is dependent on earth sciences, and utilities rely on advances in energy science.

In construction and utilities, the United States produces more than a fourth of the world’s value added (table 6-11). The U.S. share of the global construction industry, valued at $1.7 trillion in constant dollars in 2005, rose from 23% to 27% during the past decade. At 17%, however, the U.S. world share of mining in 2005 was 5 percentage points less than a decade ago. The U.S. world share of agriculture edged up from 8% to nearly 11% during this period.

Classifying Products in Trade

The characteristics of goods in international trade can be determined from either an industry or a product perspective:

• Industry perspective. U.S. industry exports and imports are collected from government surveys of companies with physical operations in the United States, where respondents are asked to report the value of foreign shipments and purchases from abroad. These shipments, both exports and imports, are classified by the primary industry of the responding company. Under this scheme, whether Ford Motor Company exports automobiles or tires, both types of exports would be classified under Ford’s primary industry code "manufacturer of motor vehicles and parts." The value of industry exports includes the value of components, inputs, or services purchased from domestic industries or imported from other countries. The value of industry imports includes the value of components, inputs, or services that may have originated from a different industry or country than the country of origin.
• Product perspective. Data on product trade, such as that reported below in the section about U.S. trade in advanced technology products, are first recorded at U.S. ports of entry. Each type of product is assigned a product trade code by the customs agent according to the harmonized system.* Exporters generally identify the product being shipped and include its proper code. Because many imported products are assessed an import duty and these duties vary by product category, the receiving country customs agent inspects or reviews the shipment to make the final determination of the proper product code and country of origin. The value of products entering or exiting U.S. ports may include the value of components, inputs, or services classified in different product categories or originating from other countries than the country of origin.

U.S. Patents Granted by State and Type of Ownership

Examination of USPTO-issued patents provides information on patenting activity by U.S. states and type of ownership. More than half of USPTO patents issued to the United States come from seven states: California, Texas, New York, Michigan, Massachusetts, New Jersey, and Illinois (table 6-19; appendix tables 6-34 and 6-35). These seven top patenting states are among the top 10 states that accounted for almost two-thirds of U.S. R&D expenditures (see Chapter 4). California, which has the largest single share of any state, has showed a steady increase in its share from 15% in 1993 to 24% in 2005.

When patent output by U.S. states is adjusted for their population, however, the rankings change considerably. Two states with small populations, Idaho and Vermont, are ranked first and second, respectively, in their per capita output of U.S. patents in 2005 (figure 6-33; appendix table 6-36). Two of the six top patenting states, California and Massachusetts, however, remain highly ranked on a per capita basis.

Patents granted to U.S. inventors can be further analyzed by patent ownership at the time of the grant. Ownership is assigned on the basis of the first-named organization listed on the patent. Corporations own the majority of patents granted to U.S. entities, and their share has been steadily increasing since the early 1990s (figure 6-34). The PTO defines the corporate sector to include U.S. corporations, small businesses, and educational institutions. U.S. universities and colleges owned about 4% of U.S. utility patents granted to corporations in 2003. (For further discussion of academic patenting, see chapter 5.)

Almost all patents are issued to either corporations or individuals. In 2005, U.S. corporations owned 86% of patents issued to U.S. inventors, with individuals owning 14%; in 1992, the respective shares were 74% and 24%. Corporations also own the majority of U.S. patents issued to the rest of the world, and that share also has been increasing over the past decade. The share of individual ownership in patents issued to the rest of the world, which is about half of the level in the United States, has also fallen since the early 1990s.