November 13, 2012 | St. Louis Mo.
Chien, and Coughlin, Ravikumar continue to answer questions from the audience.
Cletus Coughlin: Okay, yes?
Q: I'm wondering about the impact of education in both China and India and if it has any effect on limiting the growth? Normally increasing productivity implies increasing education, at least in my mind. And I'm looking at the statistics on India, and you said, what, 400 million people in the age 20 range? That obviously implies a tremendous secondary education issue there. Do you have difficulty finding skilled workers to support growth?
B. Ravikumar: It's certainly true that the education system is kind of hitting a bottleneck in terms of there are 500 million people below age 25 and they can't find teachers fast enough. That is, even looking at very premier and elite institutions in India, they've not grown any more than the normal pace that they used to grow relative to what's happened to the shift in the demographics, shift in the population distribution. So in some sense, these skilled training institutions need to grow much faster. So that's not there. So you see the reaction of that in various places, partly because it's a lot more open now. You can see Indian in the graduates in the U.S. which would have been very, very rare 20 years ago. So the wealth is kind of manifesting itself in finding alternative locations to get educated. But you're also seeing it in the reverse. Now you can see U.S. institutions kind of setting up shop with particular Indian universities' collaboration so that they can bring in the skilled labor in order to provide the training that's needed. Still, it is a bottleneck and something needs to be done very soon over the matter of next 10 years.
YiLi Chien: Okay. So in terms of China, actually I remember probably 10, 15 years ago, the Chinese common realized that they need to improve the human capital in terms of quality, also in terms of quantity. So Chinese government spent a lot of money to build up the post-secondary education with college, university. But the problem with that is that you can build up the building, you can set up a school really fast, but you cannot build up the human capital as fast as you build up the building. So the lack of the good teachers, the lack of the good professors, all of that in China is the big problem. So right now you're going to see that there's a lot of college graduates in China, but they didn't endow with or equip with high skill. So there's some gap over there. Even though you can improve the hardware, but the software staff still cannot catch up in China. So it's also created a lot of problems in China that those college graduates cannot find a job in China today. So there's several documents and there's some research also indicates this problem.
Cletus Coughlin: Okay, yes?
Q: If 50 percent of the population in China is involved in agriculture, how is that going to limit the total GDP growth over time? And what are the comparable numbers or facts in China?
B. Ravikumar: So more than 50 percent are in agriculture in India. So as far as the GDP growth is concerned right now, unless they change something about the labor regulation and open up manufacturing in a big way, the growth is going to come only from services. The agricultural productivity as it increases, the share of agriculture in GDP is going to go down. That path is almost set right now. So it's gone from 30 percent to 20 percent. If I give the stock 20 years down the road, it will be down to 10 percent. So that path is kind of set. Now the service is the part that's growing. So to make the GDP grow any faster than what it is doing now, you can't rely on the service sector. Service sector is almost very capital intensive and very skill intensive. So going back to his question, we would have to train huge masses of people in a hurry to become skilled workers for the service to keep growing at the rate it's growing. So there's not a whole lot of option other than kind of opening up manufacturing to absorb large scales of agriculture. So without that, you can't speed up the growth. I don't see any way around it.
Q: How about in China? Are they heavily involved in agriculture?
YiLi Chien: Right. So this is—I see a documentary on PBS a few weeks ago. It document that the immigration worker found agriculture through the manufacturing sector—yearly basis. So every year you're going to see in China, especially during the Chinese New Year, this huge amount of immigration workers are going to move from the manufacturing sector back to the farming sector and spend the New Year here. So a lot of high growth in China actually depends and is dependent on the huge immigration workers from the agricultural sector. So that part is one source of the high Chinese growth rate. So the moving people from agricultural sector to manufacturing is one of the keys.
Q: Thank you.
Cletus Coughlin: Okay, back?
Q: China and India both by themselves exporting into countries where the potential for inflation or the existing inflation conditions are extremely high—the euro, the dollar, the yen. And we see countries of China in particular buying hard goods around the world to get rid of some of these dollars so that they can take some of the risk off their back. But they're still burdened with huge amounts of currencies, our own at the top of the list. How are they dealing with that? How are they likely to deal with that in the future?
YiLi Chien: So the large holding of the Chinese central government in terms of dollar is where is the treasury bank has caused both concern, not only in the United States but also in China. So you specifically asked about how Chinese government deals with that. The obvious is they cannot. The problem, there is special unique positioning of dollars as international currency today. So the dollar itself and why people use dollar because not only U.S. is the largest economy, but also, people trust U.S. government and U.S. has huge reputation in the past. Of course, look forward, we have some physical problem and there's probably some inflation. So the Chinese government, one way to deal with that, they want to switch the international currency from the U.S. dollar to Chinese again. But this has really long way to go. So if you're going to ask Japan to hold Chinese yuan instead of dollars, no. It's really hard for China to build up its reputation so fast. You can think of euro. Euro has been out for over 20 years, but right now a still small fraction of international trade is coming as euro. So it's not that easy for the Chinese government to diversify their currency holding portfolio. So all they can hope is that now inflation is not going to happen.
Cletus Coughlin: Okay. Right there, and I see you, Ben.
Q: India in particular has a large history of high achievement in sciences—Nobel prizes going back all over the century. Your perspective, Ravi, coming from both engineering and physics. Where do they stand in terms of any concrete measures compared to U.S. or, say, England today?
B. Ravikumar: You probably heard this. So in India if you are one in a million, there are 1,000 people like you. So finding rare talent is kind of that much rarer in India. But the premier engineering and science institutes are still functioning very, very well. They're very selective, very elite in terms of how many people get educated in those particular institutions. And if anything, the competition is a lot more intense. So in terms of qualifications, if you look at U.S. engineering or science-based programs, they're taking in Indian students pretty much at the same rate as they used to let's say over the past 30 years. So in some sense, the qualified students from India that are available to the world market at large on science and engineering is still very, very high. So that part hasn't declined.
The problem is in terms of keeping up with the increases in population. So currently the number of elite institutions should be something like quadruple what they were when I was growing up, but they are nowhere near that. So I would say it's a problem with the numbers, not in terms of selectivity. So you still have the same skills of the people who are going elsewhere, but you don't have as many of them as we should have, given the population size. So the training institutions are still good, the research institutions are still good, and the quality of the research that's going on is still pretty high. So that part hasn't changed, but there are not as many of them as there should be.
Q: I guess that's one part of the question. But I guess the second part would be intellectual property is measured by patents and things like that. It doesn't seem like you hear very much about Indian IT these days, even though science still gets high respect.
B. Ravikumar: Right. So on this front, so the numbers that I showed you about total factor productivity growth. So the way these things typically work is if you are a mature economy and very developed like that of the U.S., that's where improvements in technology and moving the growth frontier is important. If you're transitioning as India is doing, it's a question of removing the distortions and adopting the technology out there before you start inventing your own. So I'm sort of less concerned about the lack of patents and intellectual property copyrights that's being produced as opposed to adoption of technologies and removal of distortion. So in some sense, previously when it was closed, there was a lot of this distortion kind of playing into the patents and copyrights. But now that it's open, there is really no need to invent this particular technology per se, not at this stage anyway. The stage will come later. But at this stage it's a question of removing the distortion and adopting existing technologies. So I would say that's where the bang for the buck is.
Cletus Coughlin: Way back in the corner?
Q: Thanks. Two quick questions. First one, there's one of three answers: yes, no or, eh, sort of. Is the nation with the highest-most GDP the winner?
B. Ravikumar: No.
YiLi Chien: No.
Q: Okay. I just wanted to verify that. But my other question is, as far as the St. Louis Fed here, approximately how much does this branch borrow from India and China? Do we know?
Cletus Coughlin: This branch borrows from India and China?
B. Ravikumar: I'm not privy to the accounts, so.
Cletus Coughlin: I would say nothing. I mean, clearly India and China hold U.S. Treasuries.
Cletus Coughlin: And clearly China holds the largest...
Q: Yeah, and I guess I have to figure out my wording for that question, but, all right, thanks.
Cletus Coughlin: Yeah. We're at 8:30, and we promised not to hold you hostage beyond 8:30. But yet we're willing to take more questions so that for those of you that would like to leave, you won't offend us by departing now. But we will stick around for another 10 or 15 minutes to make sure we address all of your questions. For those of you that are leaving, thank you very much for coming. We hope you certainly enjoyed your night. And we hope to see you back in the future.