<b>WEF NRI</b>: How India and China are faring

Asia's largest emerging economies - India and China - showed a downward trend in the sixth Global Information Technology Report (GITR) 2006-2007's "Networked Readiness Index", with India 4 positions down to 44th and China 9 positions down to 59th.

Notwithstanding some specific clusters of ICT excellence in both countries, their performance overall in leveraging ICT for increased development appears to be particularly hindered by weak infrastructure, with a very low level of individual ICT usage for India and of individual and business readiness and usage for China.

Despite its falling rankings, China is emerging as a world leader in the production and use of ICT, argue the authors of "Made in China: Information Technologies and the Internet" -- Graham Vickery and Sacha Wunsch-Vincent (both at the OECD). They say that starting from the supply side, China has become one of the most important locations in the world for the assembly and production of ICT, a feature mainly driven by foreign firms. Since 2004, China has been the biggest exporter of ICT goods, surpassing Japan and the European Union in 2003 and taking the lead from the United States.

The increase in ICT exports, according to the authors, can mostly be traced to the transfer to China of foreign companies' often low-value-added assembly and production activities. Recently, even ICT firms from Taiwan and Hong Kong have moved manufacturing to mainland China to reduce costs.

OECD countries are benefiting from low-cost ICT assembly in China, which is adding to lower global ICT prices -- and thus to increased ICT use and associated productivity gains across industries. However, there is mounting evidence that ICT-related foreign affiliates are evolving from simple assembly and manufacturing to more complex original design and production and to fulfilling more important roles in global innovation networks.

In general, ICT spending as a percentage of GDP is lower in China (about 4.5% of GDP in 2005) than in leading OECD economies (where it was about 9% of GDP in 2005), but it is catching up rapidly as Chinese firms increase their IT capital stock- especially in sectors outside manufacturing, and as household consumption increases.

In spite of their relatively limited size and technological know-how, Chinese ICT firms are rapidly developing their production and export capacities (especially in the area of telecommunications equipment), state the authors. The Chinese ICT industry faces the challenge of making a successful transition from being low-cost manufacturers to becoming global providers of higher-value-added products and services.

However, the authors also argue that ICT uptake in Chinese firms, its efficient integration in value chains, and complementary innovations (such as organisational restructuring and investment in skills) are lagging. To benefit fully from ICT, its integration in the Chinese economy and society should be high on the Chinese policy agenda.