Country report

world trade grew from 0.5 to 0.7 percent, while China's share rose steeply from 1.8 to 4.0 percent. In 2001, China's total exports were $259 billion, compared to India's $40 billion. China's fixed-telephone and PC penetration rates are over four times greater than India's, and cell phone penetration is over 13 times greater (see table 1). Yet China has failed to catch up with India in one area: commercial software. This industry is very important for developing countries such as China and India because it can be started with much less investment than manufacturing industries. The gap between the two countries' software industries is substantial. India's software exports exceeded $12 billion in 2003, compared to China's $2 billion. Global software industry analysts disagree, however, as to this gap's future direction. Some, including the president of India's National Association of Software and Service Companies (NASSCOM), believe that China lacks the skills and manpower it needs to catch up in the race. 17 Another school of thought maintains that China's status as a regional and potentially global economic superpower and its leadership in the electronics industry will help to close the gap. A Gartner Group study, for instance, suggests that by shifting technological gears, China could catch up with India in commercial software by 2006. 18 What will be the magnitude and the direction of the gap between the two nations' software industries in the future? Given that China and India account for two-fifths of the world population and are among the few developing countries that have established good track records in exporting high-technology products, this question is important. While feature Structural Shifts in the Chinese Software Industry F ollowing the post-1978 economic and political reforms that provided incentives for private and foreign investments, China has left India behind in terms of almost all economic and technological indicators. Between 1980 and 2002, China's per capita gross domestic product (GDP) increased from US$134 to $960, while India's increased from $262 to $470 (see table 1). From 1978 to 2003, China's inward foreign direct investment exceeded $400 billion. 1 In the 1990s, India's share in The Chinese commercial software industry, although lagging behind India's, has recently been undergoing major structural shifts that could make it the Asian industry leader.