Some interesting article from Australian newspaper.

Why India will rock our world

Barry Hughes
January 2, 2008

The giant Chinese rock tossed into the Asian production pool this decade is about to be followed by another from India. Given time it is likely to be of similarly large import. The first rock profoundly changed Australia, setting up huge economic waves that swamped some (including many manufacturers) while others surfed to prosperity (miners and tax collectors). Watch out for the second rock.

On the surface Australia now appears hooked on swapping rocks for Chinese boxes. True, but fairly glib and deceptive all the same. The content of these boxes is normally not Chinese at all and many of our rocks (particularly coal) go elsewhere in Asia.

What is different this decade is a revamp of Asian production, with bits and pieces made everywhere being finished off in the Middle Kingdom. China is still largely an assembler, not a manufacturer. Those who do these sums reckon only about 25 cents in every dollar in the boxes is in fact Chinese. The majority comes from elsewhere, especially Japan, Taiwan and Korea.

A China-based banker tells of his colleagues stripping apart a Chinese-made iPhone to find not a single mainland part. Unlike the original lowly paid Chinese assembler, the highly paid bankers could not put it back together. More generally, Japanese, Korean and Taiwanese exports to the US have been broadly flat this decade, many of their goods taking a Chinese detour. Feral US politicians now vent their anger on the Chinese, much to the relief of diplomats from Tokyo, Seoul and Taipei.

What caused this change to a pan-Asian production process was a foreign investment-friendly Chinese Government armed with a seemingly endless supply of young peasants stuck on the farm with no prospects of doing anything productive. The switching of unproductive farm labour into factories has been behind most growth take-offs since the British industrial revolution.

So, Chinese teenagers and twentysomethings poured into dorms, factories and building sites on the coastal strip to be employed mainly by foreigners. In the process, for example, the Korean textile industry, which used to supply David Jones's house-brand shirts a decade ago, was destroyed, just as it had earlier gazumped the Japanese. At the start of this decade nearly 15 per cent of Korea's exports were textiles, bags, toys and other entry-level, low-value industrial goods. Now the slice is under 5 per cent. Why do you think Korean policymakers are so keen on high-speed broadband?

Nothing lasts forever. The seemingly endless Chinese reserve army of rural underemployed is dwindling, partly because of previous success, partly because the one-child policy is beginning to bite, and partly because policymakers realised their grip on power would be tenuous if the rural hordes turned green with envy over better incomes on the coast.

That doesn't mean the end of the Chinese boom (and its Australian consequences), as the politburo strives to spread prosperity westwards. Urbanisation continues apace, but increasingly to inland cities few in Australia had heard of a decade ago, though a city 1000 kilometres from the sea is not the ideal place from which to import Asian components and re-export to the US or Europe, even if it is on the Yangtze.

China is going upmarket to justify higher wages, its strategy being to convert its 25 per cent share of the export box into 30 then 40 per cent. It is becoming a value-added manufacturer, not just an assembler. There will be cheap Chinese cars on our streets before long. Meanwhile, global manufacturers are looking around for new sources of cheap assembly workers. Vietnam has been a favourite, and Indonesia could fit the bill if it ever got its act together.

Enter an India that discovered early last decade its inability to afford "Hindu-style" non-materialism. Now its economy is growing about 9 per cent a year. And it isn't simply a place from whence pesky phone calls emanate or to where back-office jobs disappear. Manufacturing has been growing even more rapidly than services, and for now there is still a vast supply of labour.

But India has been too much trouble, in the form of lousy infrastructure, red tape, endless court cases and labour rigidities. Not for much longer. Highways covering 5846 kilometres and connecting the Golden Quadrilateral of Delhi, Mumbai, Chennai and Kolkata are almost complete, and the Government is seeking to nearly double economic infrastructure investment over the next five years to 9 per cent of national income.

Chief executives of the globe's 1000 biggest firms nominate India second only to China as the best place for foreign investment (Australia is eighth). The chart of dollar inflows snakes upwards, eerily like China's in the first 15 years after that country opened its doors in 1978.

Australia's miners have little reason to fear a slowing China while India rapidly rolls down the same tracks. But the rest of us have reason to wonder how we will fit in to yet another revamp of the pan-Asian production process. The Rudd Government knows we need the human and physical skills to continue carving out niche roles. This year is about replacing rhetoric with details.

Barry Hughes is a financial markets consultant who was a professor of economics in an earlier incarnation.

This story was found at: http://www.smh.com.au/articles/2008/01/01/1198949814438.html

India is also famous for high quality education for children, especially in mathematics. 9% is pretty good. It seems that India got their kick-off start.

Not so true, India is far behind being "Education" nation list.

India has a few key infrastructure problems but it should be a power to be considered with a few decades down the line

It depends on how you mark them (are they really that behind?). I've heard from Indians how they found math in North America quite easy compared to what they have been doing in India.

http://www.washingtonpost.com/wp-dyn/conte...1401139_pf.html

Most Indians do well in education because of their asian desire to be smart, well-off and earn high salary when they look out for career.

But by country; India is failing miserably. But I'm sure they will do well in near future as India is also developing nation.

unless and until india solves its infrastructure problems and have proper population control there will be no future for india

majority of our resources these days goes to:

1) population control

2) infrastructure

3) education

if we get it right everybody is happy .......... if we get it wrong indians everywhere are screwed .........

I think this applies to all of east Asia

And why is this doing in the K-Chat?

USA high school math is a joke.

I'd say that's both correct and incorrect. India's education system is poor as such, but not enough people are well educated (hence Kyushin's argument), though this is steadily improving. On the other hand, the quality of education is of fairly high standard, and those considered "important" subjects (such as maths as you point out) are given far more emphasis. Generally speaking, Asian nations are better at Maths than many Western nations (which to be honest, are often farcical). That said, I do know India has a very high level of maths, which is why so many have excelled at scientific subjects and computing. That reminds me of a news article I read online a while back where Indian Software developers were doing very well in Japan, and it mentioned how the Indian developers were impressing with their math skills (I think it was on Japan Times).