Will China and India Return to Their Science Glory Days?

Includes: CAF, FXI, IIF
by: Carl T. Delfeld

China and India comfortably led the world in scientific exploits before the 15th century. China surpassed Europe in its understanding of chemicals, industry and shipbuilding while India leapt ahead in mathematical ingenuity.

Why did they both lose their steam? And now that they have regained their mojo, what impact will technology have on their economies and stock markets tracked by exchange-traded funds like the iShares China (NYSEARCA:FXI) and the Morgan Stanley India (NYSE:IIF) and China (NYSE:CAF) funds?

A great article in the Economist by Simon Cox addresses this issue and what the furure might hold. In his book “The Lever of Riches”, Joel Mokyr settles on a simple explanation for China's technological stagnation: the country's imperial state lost interest. Its purposes were better served by continuity than by progress, and there was no rival source of power and patronage to pick up the threads it dropped. Roddam Narasimha of India's National Institute of Advanced Studies reaches a similar conclusion for India. “Up to the 18th century, the East in general was strong and prosperous, the status quo was comfortable, and there was no great internal pressure to change the global order,” he writes.

Ironically, while one out of every three software engineers in the world are Indian, India has only 24 personal computers for every 1,000 people, and fewer than three broadband connections. China has impressive numbers in terms of budgets and educating engineers and such but some question whether the quality of product is world class. Nevertheless, it presses on and by 2020, China aims to spend a bigger share of its GDP on research and development (R&D) than the European Union.

An unexpected twist of the tale may be that the challenge presented by the rise of India and China will lead to America, far from complacent, to redouible its efforts and maintain its lead. Keep in mind that all the Nobel prizes for science went to Americans in 2006.