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Lord Sainsbury of TurvilleThe Asian Technology Markets Conference |
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Mr Chairman, ladies and gentlemen. Thank you for your kind invitation to deliver the keynote address here, at Chatham House, this morning. The Royal Institute of International Affairs has a long tradition of anticipating the challenging issues which confront the international community and of stimulating debate and discussion. The Asia Pacific Technology Network, its partner in this seminar, has built up a reputation for raising awareness of technology developments in the Far East, through both its well attended series of seminars on particular technologies, and the annual High Technology Fora which it organises in Japan, Korea and the UK. I am therefore pleased to be afforded the opportunity of contributing my own thoughts this morning, and of extending my own welcome to such a distinguished range of speakers and participants at this event. As this audience will be all too aware, the 1970s and 1980s saw a tremendous resurgence of Japanese industry, based, in the first instance, on consumer electronics but, subsequently, on its command of developments in high technology areas such as semiconductors and microelectronics. And this was followed, in an almost identical pattern of development, by the emergence of the Korean chaebol as a real force in world markets. However, the 1990s witnessed a remarkable change-round in the relative fortunes of US and Japanese and Korean business. As the Japanese economy began a long period of relative stagnation, the Clinton era in the USA gave rise to a new phenomenon, namely the growing convergence of IT and telecommunications and the extraordinary growth of the Internet. As a result, the growth of computing power, and of Web based technologies and their application, has transformed the business landscape, not only in the IT sector but across the business world. The last 12 months have certainly seen the crest of the wave of the Internet boom and, indeed, more fundamental questions asked of the resilience of even some of the core players. But, whatever happens over the next 12-18 months, I think it is fairly clear that there has been a paradigm shift in a range of technologies - particularly in ICT and the biosciences - which will affect all our lives. What is perhaps less apparent, at this stage, is the prospect of a paradigm shift in economic development in the Asia Pacific region, which will have a profound impact upon the commercial and political world at the dawn of the 21st Century. It is this which makes today's conference so important. It may seem strange that I refer so confidently to a paradigm shift in economic development at a time when the newspapers are full of the impact that a slow down in the American economy will have on Malaysia, S Korea and Taiwan, not to mention the regular, gloomy prognoses about the prospects for Japanese recovery. But I believe the region is on the cusp of major change. I would draw your attention to the following: The Development of a Cadre of Highly Skilled People within the Region Over a period of time the Asia Pacific region has steadily developed its own capacity to train and educate students to the highest levels ie in doctoral science and engineering degrees. In 1980 there were approximately 5,900 doctoral science degrees awarded in Asian universities and 1,000 doctoral degrees awarded to Asian students in American universities. By 1997 the number of doctoral science degrees had risen in Asian universities to 18.5 thousand and 5.5 thousand in American universities. In China, the numbers of science and engineering degrees awarded in 1990 reached 1,069 - just under the 1,100 Chinese students gaining similar degrees in America. By 1996, the number of Chinese students earning doctoral degrees in science and engineering in American universities had risen to almost 3,000, but fell in 1997 to 2,200. By 1997 the numbers in Chinese universities had risen to over 5,000. To put the overall situation in perspective, universities within five Asian countries (including India) are now producing more engineering doctorates than all the universities within the USA. The gap is even larger because half of the US degrees are earned by foreign students, the majority of whom are Asian. But as we know, generating doctoral degrees does not in itself generate wealth, particularly if those people subsequently move to the USA to pursue their careers. This has certainly been a key feature of the 1990s and accounts for the sustainability of growth in areas like Silicon Valley, at a time when the USA has not been attracting a sufficient number of students into engineering. In 1989 the number of American visas (temporary work permits) issued to qualified specialists was just under 50,000. By 1999, this had more than doubled to 116,000 (and 55,000 of these were Indians, almost 6,000 Chinese, 3,300 from Japan and 3,000 from the Philippines). Incidentally, 6,600 were from the UK. And, in the last six months, the USA has taken steps to open its doors even further, to highly qualified individuals, by raising the limit on temporary work permits to 195,000 per annum over the next three years. While I for one would not bet against the ability of the United States to continue to attract large numbers of skilled workers, there are two developments which, I believe, will act as a brake on America?s ability to retain skilled Asian labour. The Severity of the US Recession The first naturally relates to the severity of the downturn in the US economy. At present, it is not clear whether we are witnessing the beginning of a prolonged recession or simply a major correction in inflated share prices, with the economy bouncing back fairly quickly. A severe downturn would impact upon the whole Asia Pacific region, but it would also make the USA less attractive as a haven for itinerant skilled labour, particularly if there were good prospects elsewhere. China's entry into the WTO And it is the prospect of developments elsewhere on which I wish to focus this morning. Because I believe that China's prospective entry into the WTO represents a tremendous alternative opportunity for growth which will become the real catalyst for change across the region over the next decade. Indeed, it is already having an impact. The prospect of China being allowed to sell its products freely in world markets in exchange for steadily opening up its market of 1.3 billion people (and rising) represents one of the great challenges of the next decade or more. This is not to write off more advanced economies in the region, as you will hear later but let me illustrate with a few examples. According to Professor Robert Fogel (1993 Nobel Prize Laureate for Economics), if one considers the trend in demand for motor vehicles in the USA over a long period and makes reasonable estimates of the growth in Chinese GDP (say 6% pa, since it has been growing at 8% over a number of years) then, by 2015, Chinese families will be purchasing 10 million cars per annum ie the current level of car purchases in America. If China continues to grow at 6% per annum until 2024 then motor vehicle purchases will increase to 45 million vehicles per annum, or nearly equal to the current world total. The impact that this would have on the demand for infrastructure and fuel is significant, if not frightening, and is a compelling case in itself for research and development in environmentally friendly fuels and modes of transport. Another area is mobile telephony. Mobile user growth has doubled in China in recent years so that by the end of last year, subscribers amounted to around 80 million - about the same number as those who speak or are learning English. Internet users numbered several millions. More generally, Professor Fogel suggests a scenario where Europe and the USA continue to grow at present rates while the growth rate of the newly industrialised countries of Asia, including China and Indonesia, grow at 6-7% per annum. The result is that by 2030 the NICs would have a collective GDP some 15% greater than Europe and the USA combined. Of course, a 3% growth rate differential is very difficult to maintain over an extended period, so that day is much further off than Professor Fogel suggests, but the immediate prospects for China are already attracting a large number of highly trained Chinese, working in Europe and the USA, to return home. The prospect of WTO entry has focussed minds. I would like to focus on just three elements, which I believe form the key components of success. The first is that there is a very clear commitment on the part of the Chinese Government towards developing the high technology sectors, particularly in areas relevant to the needs of their society. For example, they estimate that they need to improve grain yields by 30% to alleviate food shortages and to cope with population increases. Thus, there is an emphasis on the biosciences for food and health. There is also a commitment to improving environmental technology, advanced materials and information and communication technologies. This is reflected in the Science Ministry's 5 Year Plan to 2005, which has raised the research budget, focussed on these areas, to £1.25 billion over the period 'a figure which excludes researchers' salaries. Over the last few years, and particularly with the prospect of WTO entry, there has been a significant shift in culture within leading Chinese establishments, driven by the influence of Chinese with overseas experience. State funding of technology, and its attendant bureaucracy, is no longer the sole source of money for people with ideas. Venture capital is not a dream, as it is in Russia; it is real, managed by Chinese with West Coast experience and growing rapidly. There is also a much greater recognition of the need to collaborate with outsiders to achieve their goals. But while many leading technologists have studied or worked in the USA, it is also understood that collaboration with America offers a strictly limited choice, and there is a strong desire on the part of the Chinese to work with European firms and research teams. This is also reflected in Government funded research programmes, whereby Chinese researchers will be funded to participate in European Union Framework Programme projects. And, perhaps most importantly, there is a recognition that to collaborate successfully with outsiders, and to attract inward investment, the Intellectual Property Rights regime has to be effective and policed rigorously. This is beginning to happen already, not as a response to Western demands but out of healthy self interest. For example, when Chinese venture capitalists were asked on a recent DTI Mission, what proportion of their portfolio of firms relied on internally generated IPR, the answer was 80%. Thus, they already have a strong vested interest in policing intellectual capital and the means to do so. The key to innovation in technology markets is first, the availability of highly skilled people with international experience; second, the commitment by the Government to research and development; third, a culture of enterprise underpinned by intellectual property rights; and fourth, access to global markets. I believe that China has now put those elements in place and we would be foolish in the extreme not to explore the opportunities which that affords. Japan But, while I have focussed on China, I have not forgotten, nor should British industry forget, the largest economy in Asia, namely Japan. For all the macroeconomic problems experienced over the past decade, the Japanese commitment to science and technology is truly astonishing. Overall R&D spending is 3.24% of GDP or £90-100 billion per annum. This is over 5 times the level of R&D expenditure in the UK and almost all of it is civil research. Last year, although industrial R&D fell by 1%, it still amounted to over £70 billion. To put this in context, Fujitsu spends £2.4 billion per annum on R&D ie more in one year than the UK Research Councils and HE Funding Council put together. Over the next 5 years, the Government plans to increase public expenditure to a target of 1% of GDP by 2006, an increase of 40%. The priorities will be similar to those in the UK - life sciences, ICT, environmental sciences and materials including nanotechnology - and they will encourage technology transfer from universities and research institutes to industry. It is also worth recalling what Japan has achieved with its investment in R&D. In 1996 it accounted for 17.6% of European Patent Office applications behind the USA and Germany, but way ahead of the UK at 5.4%. In the USA it accounted for 20% of patents granted, behind the USA but ahead of both Germany and the UK, at 6% and 2% respectively. But perhaps the most telling statistic is Japan's trend in technology trade ie in trademarks and patent rights. According to the OECD, in 1985 Japan was an importer with net payments of $270 million, while the UK was a net exporter with net receipts of $163 million. By 1998 the UK's performance had improved to net receipts of $2.6 billion but Japan had overtaken the UK with a figure approaching $3 billion. As I said earlier, regardless of its economic problems, Japan remains committed to science and at the forefront of technology developments, particularly in the broad field of ICT including optical networks, liquid crystal displays, data storage media and mobile handsets. But this does not do justice to Japan's commitment to "big science" across a broad field: it has the world's most powerful synchotron; it is proposing to take the lead in a global partnership to site a fusion reactor in Japan; it has the world's largest supercomputer for global climate modelling; and it is investing heavily in research in the life sciences, such as ageing and the human brain. Judging from the growth in the number of research institutes established by Japanese firms in the UK, and from my own trips to Japan, there is clearly a healthy respect for the UK's research capability and this is something upon which we should build. Korea It is only for reasons of time, that I skim over Korea's capability in the field of technology. On a visit I made last autumn it was clear that, notwithstanding the problems faced by the large companies, investment in technology remains a high priority. Indeed, a highly sophisticated technology market is emerging through the rapid growth of SMEs who are keen to broaden their links with Europe. What should the UK do about it Now, let me finally turn to the issue of what this means for the UK and what we should do about it. By any analysis, the Asian technology market merits serious consideration and, in a region where for cultural and language reasons it can be difficult to access, you would be right to be wondering what role the Government is playing to help UK business identify opportunities for partnership. At present we have a fairly extensive network of Commercial Posts in the region and also Science and Technology attaches in Beijing, Tokyo, Seoul and Taipei. The British Council is also active promoting university links. In addition, there are three International Technology Promoters ie businessmen with experience of the developing technology partnerships in the region: two focussed on Japan and one on Korea. These have proved to be very effective in identifying opportunities for corporate collaboration and reducing the cost of search for British companies. These efforts are supplemented by our sponsorship of the APTN which plays an important role in keeping British business abreast of developments through its seminars and international high technology fora. As a result of the Science and Innovation White Paper published last July we are significantly increasing the amount of focus we can give to technology developments in the region and the leads we can give to British hi-tech firms. In the light of my earlier remarks about China, it will come as no surprise to you that we are seeking to recruit two new Technology Promoters to cover the greater China, including Taiwan and Singapore. Furthermore, following Robin Cook's announcement of a doubling of the network of S&T attaches overseas, I shall be discussing with John Battle, the FCO Minister responsible, the allocation of this resource. Under Chatham House rules, I can say that it looks likely that we shall be expanding our S&T capability in Beijing, Shanghai, Singapore and Taipei. But while Government can help, the challenge has to be taken up by British business. As you are all aware, it does require patience and a long term view but I believe there are real opportunities in the region, which merit early entry into the market, and I trust that the Seminar today bears out this view. It only remains for me, Mr Chairman, ladies and gentlemen, to wish you a most successful day. Thank you for your attention. |
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Other speeches by Lord Sainsbury of Turville
(the following are available from the archive) |
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