Changing the Industrial Geography in Asia

Changing the Industrial Geography in Asia

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A great burst of globalization brought the 20th century to a close, creating upheaval in the world economy from roughly 1995 to 2008. And now a second upheaveal is in the offing following the severe financial crisis that plunged the global economy into recession in 2008-09. The first upheaval witnessed a massive migration of manufacturing and certain business services that transformed Asia into the industrial heartland of the world. The second upheaval will likely consolidate Asia's industrial preeminence and could result in a concentration of industrial activities in the two most populous and fastest-growing Asian economies -- China and India.
As the two Asian giants become the industrial equals of the United States, Germany, and Japan, the ramifications will affect trade and growth worldwide, the future of development in China and India, and industrialization throughout Asia. This book examines these developments, focusing specifically on China and India. Its analysis and conclusions will be of particular interest to policy makers and academics, as well as anyone with an interest in how China and India are likely to reshape industry thruoghout Asia.

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Shahid Yusuf
Kaoru Nabeshima
CHANGING THE
INDUSTRIAL
GEOGRAPHY
IN ASIA
THE IMPACT OF
CHINA AND INDIAChanging the Industrial
Geography in AsiaChanging the Industrial
Geography in Asia
The Impact of China and India
Shahid Yusuf
Kaoru Nabeshima© 2010 The International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org
All rights reserved
1 2 3 4 13 12 11 10
This volume is a product of the staff of the International Bank for Reconstruction and De-
velopment / The World Bank. The findings, interpretations, and conclusions expressed in
this volume do not necessarily reflect the views of the Executive Directors of The World
Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work. The
boundaries, colors, denominations, and other information shown on any map in this work
do not imply any judgement on the part of The World Bank concerning the legal status of
any territory or the endorsement or acceptance of such boundaries.
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to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433,
USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.
ISBN: 978-0-8213-8240-0
eISBN: 978-0-8213-8438-1
DOI: 10.1596/978-0-8213-8240-0
Library of Congress Cataloging-in-Publication Data
Yusuf, Shahid, 1949–
Changing the industrial geography in Asia : the impact of China and India / by Shahid
Yusuf and Kaoru Nabeshima.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-8213-8240-0 — ISBN 978-0-8213-8438-1 (electronic)
1. Industrialization—China. 2. Industrialization—India. 3. Industrialization—Asia. 4.
China—Economic policy—2000- 5. India—Economic policy—1991- 6. China—Foreign
economic relations. 7. India—Foreign economic relations. I. Nabeshima, Kaoru. II. Title.
HC427.95.Y867 2010
338.095—dc22
2010022089
Cover design: Edelman Design CommunicationsContents
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
About the Authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xix
Chapter 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
China Awakens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
India Gathers Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Puzzle of Growth Miracles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Enter Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
China Sets a New Benchmark 12
India in the Global Scales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Savings, Investment, Technology, and Growth: A Comparison . . . . . . . . . . . . . . 15
In a Class of Its Own. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
References 26
Chapter 2. Development Experience of China and India . . . . . . . . . . . . . . . . . 29
China’s Industrial Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
India’s Development Experience 54
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Chapter 3. Trade Dynamics in China and India. . . . . . . . . . . . . . . . . . . . . . . . 69
Asian Intraregional and Intra-industrial Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Investing to Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Wages and Labor Productivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Competitive Advantage and Its Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Role of FDI and Processing Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
China and India as Importers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Chapter 4. Unfolding Industry Dynamics in East and South Asia. . . . . . . . . . 125
Industrial Trends in the Rest of Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Trade Competition: China, India, and the Rest . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Technological Capabilities and Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . 184
vvi Contents
Future Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200
Chapter 5. The Drivers of Asia’s Industrial Geography . . . . . . . . . . . . . . . . . 203
Rebalancing the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Savings and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Major Technological Shifts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Clustering of Industrial Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Shift in Global Production Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
References 221
Chapter 6. Industrial Strategy at a Crossroads . . . . . . . . . . . . . . . . . . . . . . 225
Scenario 1: Business as Usual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Scenario 2: Concentration of Economic Activities in China and India . . . . . . . 229
Scenario 3: New Industrial Epoch, New Opportunities. . . . . . . . . . . . . . . . . . . . 237
Concluding Observations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Figures
1.1 Per Capita GDP Growth of Germany and Japan (Deviation
from World per Capita GDP Growth) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Perowth of China, India, and the Republic of
Korea (Deviation from World per Capita GDP Growth) . . . . . . . . . . . . . . . 9
1.3 Gross Capital Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.4 Gross Domestic Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.5 Exports of Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.6 Share of World GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.7 Global Share of Nominal GDP 14
1.8 Share of FDI in GDP 18
1.9 Per Capita GDP Growth and Labor Force with Tertiary Education . . . . . 19
1.10 Perowth with Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.11 Peroworce with Tertiary
Education: China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.12 Per Capita GDP Growth and Labor Force with Tertiary
Education: India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.1 Relationship between GDP Growth and Growth in Manufacturing
Value Added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.2 Percentage Point Contribution of Real Net Exports to GDP
Growth in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.3 Composition of GDP (Supply Side), China. . . . . . . . . . . . . . . . . . . . . . . . . 33
2.4 Industrial Composition by Type of Manufactures of China,
1981, 1990, and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Contents vii
2.5 Output per Worker by Sector, China, 1978–2004 . . . . . . . . . . . . . . . . . . . . 38
2.6 Share in Global Output, Textiles, 1981 and 2002 40
2.7 Shar Wearing Apparel (except Footwear),
1981 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.8 Shar Leather Products, 1981 and 2002 . . . . . . . . . . . . 42
2.9 Share in Global Output, Electric Machinery, 1981 and 2002 . . . . . . . . . . . 43
2.10 Export Composition of China by Technology Class. . . . . . . . . . . . . . . . . . 44
2.11t Co Japan by Tec 47
2.12 Export Co the Republic of Korea by Technology Class . . . . 48
2.13 Average Tariff Rates, China and India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.14 Composition of GDP (Supply Side), India . . . . . . . . . . . . . . . . . . . . . . . . . 56
2.15 Industrial Composition by Type of Manufactures of India,
1981, 1990, and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2.16 Contribution of Leading Sectors to Growth, India, 2002–03 through
2007–08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.17 Output per Worker by Sector, India, 1978–2004 . . . . . . . . . . . . . . . . . . . . . 59
2.18 Contribution to Growth (Demand Side), India 61
2.19 Export Composition of India by Technology Class . . . . . . . . . . . . . . . . . . 62
2.20 Gross School Enrollment, 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.1 Changes in Intra-industry Trade of East Asian Economies . . . . . . . . . . . . 73
3.2 Intra-industry Trade by South Asian Economies . . . . . . . . . . . . . . . . . . . . 74
3.3 Intrry Trade in Auto Parts by Asia Region . . . . . . . . . . . . . . . . . . . 78
3.4 Intra-industry Trade in Electronics and Electrical Machinery
by Asia Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
3.5 Intra-industry Trade in Furniture by Asia Region. . . . . . . . . . . . . . . . . . . . 80
3.6 Intrry Trade in Garments and Textiles by Asia Region. . . . . . . . . 81
3.7 Intra-industry Trade in Auto Parts within the Region
by Asian Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.8 Intra-industry Trade in Electronics within the Region
by Asian Economy 83
3.9 Intra-industry Trade in Furniture within the Region
by Asian Economy 84
3.10 Intra-industry Trade in Garments within the Region
by Asian Economy 85
3.11 Trends in Direct Threat Faced by the Republic of Korea
in EU15 Market from India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
3.12 Trends in Partial Threat Faced by the Republic of Korea
in EU15 Market from India 106
3.13 Product Space of China, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3.14 Pre of 2006 110
3.15 Product Space of India, 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
3.16 Pre of India, 2006 111
3.17 East Asia Inward FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115viii Contents
3.18 South Asia Inward FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
3.19 Average Tariff Rates, East Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3.20 Average Tariff Rates, South Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
4.1 Industrial Composition by Type of Manufactures of Japan:
1981, 1990, and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
4.2 Industrial Coy Type of Manufactures of the
Republic of Korea: 1981, 1990, and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 133
4.3 Industrial Composition by Type of Manufactures of Taiwan,
China: 1981, 1990, and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
4.4 Export Composition of Japan by Technology Class . . . . . . . . . . . . . . . . . 135
4.5t Co the Republic of Korea by Technology Class . . . 136
4.6 Export Co Taiwan, China, by Technology Class . . . . . . . . . 137
4.7 Product Space of Japan, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
4.8 Pre of Japan, 2006 138
4.9 Product Space of the Republic of Korea, 1987. . . . . . . . . . . . . . . . . . . . . . 140
4.10 Pre of the Re Korea, 2006 140
4.11 Product Space of Taiwan, China, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
4.12 Pre of Taiwan, 2006 142
4.13 Share of Exports Destined for China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
4.14 Product Space of Singapore, 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
4.15 Pre of Se, 2006 145
4.16 Manufacturing, Value Added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
4.17 Industrial Composition by Type of Manufactures of Indonesia:
1981, 1990, and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
4.18 Industrial Coy Type of Manufactures of Malaysia:
1981, 1990, and 2002 149
4.19 Industrial Composition by Type of Manufactures
of the Philippines: 1981, 1990, and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 150
4.20 Industrial Coy Type of Manufactures of Thailand:
1981, 1990, and 1994 151
4.21 Product Space of Indonesia, 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
4.22 Pre of Indonesia, 2006 156
4.23 Product Space of Malaysia, 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
4.24 Pre of Malaysia, 2006 159
4.25 Product Space of the Philippines, 1987 . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
4.26 Pre of 2006 161
4.27 Product Space of Thailand, 1987 163
4.28 Pre of 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
4.29 Share of Manufactured Exports of Southeast Asian Countries
Destined for the United States, EU15, and China . . . . . . . . . . . . . . . . . . . 166
4.30 Composition of Exports from Southeast Asia to India,
1987 and 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167