China has grown to be the leading producer in most advanced-technology industries of strategic importance, the US-based Information Technology & Innovation Foundation (ITIF) think tank says.
ITIF highlighted that China’s rise has come at the expense of the US and other OECD economies, and added that China’s decision to outperform in these key industries was followed by a decrease in manufacturing growth experienced by developing countries.
These findings are published in ITIF’s report titled The Hamilton Index, 2023: China is Running Away With Strategic Industries released on Wednesday (December 13).
The Hamilton Index ranks the performance of countries in terms of their output in ten advanced-technology industries, including IT services, computer and electronic products, transport equipment, machinery, pharmaceuticals and chemicals.
According to ITIF, China was the leading producer overall in these ten industries as of 2020 and individually in seven. The US led production in the ‘IT and information services’, pharmaceuticals and ‘other transportation’ industries.
China produced a quarter (25.3%) of the global output in these industries, the highest of any individual country, ITIF said, adding that its output had surpassed that of the rest of the world outside the top 10 producers for the first time.
Its share of the global output in these industries increased from 3% in 1995 to 25% in 2020, while in the same period, the share of OECD economies fell from 85% to 58%, ITIF said.
It also pointed out that the ten industries’ collective global output has represented a similar share of the world’s economy for the last 25 years, which it said “underscores the zero-sum competition between nations” – in other words, that when one country increased its share, others lost theirs.
The Asian giant’s strongest performance was in the ‘basic metals’, machine equipment, and computers and electronics industries.
When considering the Hamilton index industries other than ‘IT and information services’ between 2017 and 2020, Chinese output increased by $363 billion while that of the rest of the world fell by $107 billion, the think tank said.
Nominal change in advanced industry output from 2017 to 2020, China vs. the rest of the world.
This is because IT is one of the few industries identified by ITIF where China lags behind, as is the pharmaceuticals sector.
“But that [China’s outperformance in these sectors] might not last, as the Chinese government has targeted biopharmaceuticals and artificial intelligence as key industries for development,” the report’s authors said.
Within the OECD grouping, the ITIF said that the market share of the G7 countries in the Hamilton index industries dipped as well, decreasing by close to 28 percentage points between 1995 and 2020. On the other hand, China’s share went up by 21.9 percentage points.
As for the developing world, ITIF said although global production in all ten industries has shifted away from OECD countries in the 25 years in consideration, China’s growth made up the lion’s share of the non-OECD bloc.
Its gain has come “at the expense of most of the developing world”, the report added, pointing out that manufacturing growth in developing countries has slowed or stagnated since China’s rise.
‘Can India get out of its own way?’
A section of ITIF’s report profiles India, which is one of the top ten producers in the Hamilton index industries.
The think tank noted that while India exceeded China’s workforce, its advanced industry output was only 13% of China’s; and that China has exceeded India’s advanced industry output due to long-standing development policies, which India has lacked.
But it said that while “virtually every nation in the world must fight and claw to gain global market share and momentum,” India might be the only country that “simply must get out of its own way”.
The report’s authors explained that India could emerge as an alternative to China and reap high foreign investment if it ‘assured the basics’ to investors.
“If India could assure investors of the basics (working infrastructure; a pro-business climate including reasonable taxes, regulations, and trade policy, and a modestly skilled workforce), then the advantages it enjoys as an alternative to China that is large and has low wages should lead to massive inward foreign investment,” they said.
India’s three strongest performing industries relative to the rest of the world were the basic metals, IT services and pharmaceuticals industries, where its share of the global output was higher than the global average share, ITIF said.
India’s relative performance in Hamilton Index industries (2020 LQ). A value of 1.1 means that India’s share of global output for that industry is 110% the expected level.
The weakest three out of the ten Hamilton industries were computers and electronics; fabricated metals; and machinery and equipment.
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