New Areas for United States Economic Growth

China International Studies | 作者: Zhen Bingxi | 时间: 2014-09-15 | 责编: Li Xiaoyu
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by Zhen Bingxi

  

Global economic development has experienced significant changes in recent years, with developed economies generally witnessing a recovery, and some economies like the United States witnessing accelerated growth, which will likely unleash a new round of global economic reshuffling. Currently, emerging economies are confronted with severe transformation challenges and thus need to study and learn how the United States managed to create its new economic growth areas.

 

Four Main Growth Areas for the United States

 

Six years after the outbreak of the global financial crisis, the American economy is now gaining some momentum, with the unemployment rate declining and the real estate market regaining strength. The United States banking sector is back on a healthy development track, with corporate profits increasing and the stock market continuously hitting record highs. In the future, the United States’ economic development is expected to be in high gear, and the world economic power structure will likely experience some new changes. All of these developments can, to a large extent, be attributed to the United States’ four new areas for economic growth.

 

Alternative Energy Revolution

The alternative energy revolution refers to the widespread trend of American energy companies taking advantage of hydraulic fracturing, horizontal drilling and other advanced technologies to exploit new energy reserves buried deep in the ground or sea, such as shale gas, tight oil, deep-water oil and gas, oil sands and heavy oil. The alternative energy revolution in the fields of oil and gas has not come very rapidly. Hydraulic fracturing existed as early as 1947, but its application to the exploration of compact shale oil did not take place until the early 1980s in Texas. Hydraulic fracturing specifically targeting shale, along with horizontal drilling, only came to maturity in the late twentieth century and the early twenty-first century.[1]

The new energy revolution was caused by increased interactions between technology and policy. A series of technological innovations and applications helped catalyze this process. The comprehensive application of hydraulic fracturing, horizontal drilling and seismic forecasting and preventative technologies by American energy companies has helped drive the development of alternative energy.

Active efforts to promote the exploitation of shale oil and gas resources by the United States federal government have also helped facilitate a technological revolution in this sector. The 2005 Energy Policy Act stipulates that the Department of Energy is responsible for coordinating and promoting the commercial development of shale oil and gas resources. In 2009, the Obama administration put forward a plan aimed at accelerating the exploitation of domestic oil and natural gas resources. In June 2012, the Obama administration once again announced the widening of the area in Alaska and the Gulf of Mexico to be open for exploitation of offshore oil. In addition, appropriate policies at the state level, especially regarding land use, have also extended reasonable rewards to energy developers and owners. At the same time, the American capital market has also extended a helping hand to small and medium-sized American enterprises, which serve as the main force for the development of alternative oil and gas. Soaring oil prices have also made the exploitation of alternative energy more profitable than in the past, resulting in more participation by energy enterprises.

The ongoing alternative energy revolution that the United States is now undergoing is on the same scale as the industrial and information technological revolutions that mankind previously experienced in history. With the application of advanced technologies, the United States has witnessed explosive development in its alternative energy sector, an area that has already caused and will continue to exert significant influences on United States energy and overall economic landscape.

 

Return of Advanced Manufacturing

Since experiencing two “prime time” decades following the end of the Second World War, the United States’ manufacturing sector has been on the wane. In recent years, however, there are signs that the sector has once gain regained some strength. It turns out that the manufacturing sector is in large part responsible for spearheading the United States’ economic recovery in recent years. From the second quarter of 2009 to the fourth quarter of 2013, manufacturing output in the United States increased by 20 percent, nearly 2.2 times the GDP growth rate (9 percent) during the same period.

The United States has also managed to check its declining contribution to the global manufacturing value at roughly 20 percent.[2] The manufacturing sector has created 520,000 new American jobs in the past three years, initially reversing the long-term contraction of the United States employment sector over the past 20 years.[3] The United States has once again become an investment destination for global transnational companies, prompting numerous foreign manufacturing enterprises overseas to shift some of their overseas production back to the United States.

The rejuvenation of the American manufacturing sector is closely intertwined with the Obama administration’s “re-industrialization” strategy. First, the improvement in the manufacturing sector is related to the Obama administration’s support for technological innovation. By supporting investment in manufacturing research and infrastructure, the adoption of preferential tax policies, the Obama administration has provided substantial support for scientific and technological research and development in the manufacturing sector.

Second, the United States’ manufacturing revival is also related to its increased efforts to improve the domestic investment environment and encourage manufacturing localization. A series of actions adopted by the Obama administration, such as reforming the corporate tax system, terminating preferential policies for outsourcing American companies, and reforming the United States in-bound investment system, have all helped attract American enterprises to return to the United States. The introduction of the “Choose America” plan has also drawn global investment to the United States.

Third, the United States has done everything in its power to create conditions for the manufacturing sector to have fair competition and expand its overseas market. Besides the plan to double American exports within five years which was adopted in 2010, the Obama administration has also gone all out to push forward negotiations on the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) in a bid to create more convenient conditions for Americans enterprises to expand in European and Asian markets.

Fourth, the reform of the United States’ educational and visa systems has ensured that talent reaches the manufacturing sector. While increasing investment in middle and primary schools, community colleges and higher-learning institutions, the United States has also strengthened support for vocational education and training programs to cultivate the technology personnel and skilled laborers required in advanced manufacturing. The reform of the H-1B visa system has also increased the convenience of American enterprises tapping overseas talents.

The Obama administration has attached great importance to the development of high-end manufacturing in a bid to help the United States gain an upper hand in the latest state of the technological and industrial revolution. To this end, the United States has worked out a series of measures to integrate government, academia and enterprise resources to build an innovation network for advanced manufacturing nationwide. In 2012, the Obama administration created a national network for manufacturing innovation (NNMI) with plans to invest USD 1 billion into the establishment of fifteen research centers for manufacturing innovation within 10 years. In 2013, it proposed that it increase this number to 45. At present, the Obama administration has already announced the establishment of four manufacturing innovation research institutes.[4]

 

Big Data and New Growth

Big data refers to the collection, storage, management and analysis capabilities of larger sets of data than can be processed by conventional software,[5] and its outstanding character is the extremely large growth in the volume of usable data. It is estimated that the volume of data collected across the world increased from 0.6 to 2.1exabyte (EB)[6] in 2000 to over 2,800 exabyte (nearly 2.7 zetabyte or ZB) in 2012 and is due to increase to 40,000 exabyte (nearly 39 zetabyte) by 2020. Just as the widespread application information technology and the Internet fundamentally changed the future of business, the use of big data will become a key tool for enterprises to sharpen their competitiveness, productivity and innovation capabilities.

Big data is also expected to trigger a new round of economic growth. From a macro perspective, big data can help trigger initiatives and decisions that increase efficiency and innovation. According to some estimates, the use of big data in education, communications, consumer goods, the power and energy industries, medicine and finance can bring the world an additional USD 3 trillion in GDP value every year. From a microeconomic perspective, big data has already become an important factor influencing enterprises and has played a crucial role in product design, the industrial chain, commodity promotion, risk management and client services. In addition, consumers have benefited from big data and now can make more informed purchase decisions in various fields. This can help consumers save USD 1.1 trillion in annual spending.

The United States has attached great importance to these new trends, at is looking at the development of big data from a political and strategic perspective, laying out relevant policies to lead in this important emerging area. Shortly after taking office in 2009, Obama put forward a data openness plan to build a “transparent and open government” and created the Data.gov website, which helped open the door for big data. On March 29, the Obama administration published the “Big Data Research and Development Initiative,” and recommended the establishment of a high-level group to be led by the White House Office of Science and Technology, which has involvement from six federal departments and agencies – the National Science Foundation (NSF), the Department of Defense, the Department of Energy, the Department of Advanced Defense Research Agency, and the Geological Exploration Bureau.

At the same time, the President also announced investment of USD 200 million in improving the collection, organization and analysis instruments for big data. The United States has also elevated its “big data strategy” to the national level and defined big data as the next huge resource to tap. All these developments indicate that big data has already become part of a comprehensive, multi-level strategy for the United States’ innovation, national security, development of national information and telecommunication technological industry, as well as its national cybersecurity. It has thus received considerable attention from a variety of social and economic fields.

 

Increasing Investment in Infrastructure

Half a century ago, the United States took the lead in terms of infrastructure construction and development. The postwar boom of the inter-state highway system laid a solid foundation for American economic prosperity. Nevertheless, the United States’ investment in infrastructure has been very insufficient over the past several decades, causing a serious deterioration of its infrastructure. Not long ago, the American Society of Civil Engineers (ASCE) issued a D+ rating for the United States’ infrastructure. According to the 2012 global infrastructure performance ratings published by the World Economic Forum, the United States ranked only 14th in the world, with its port and road infrastructure ranking the 19th and 20th respectively.

Worn-out infrastructure has already restricted various industries and resulted in rising operational costs. First, the gradual deterioration of infrastructure has contributed to road delays and congestion, waterway clogging and frequent blackouts, all of which seriously weaken the United States’ appeal as a destination for foreign investment.

Second, given its weak infrastructure, especially its weak traffic and transportation capacity, the United States’ industrial competitiveness has also suffered greatly, and manufacturers and providers have had to increase their inventories in order to deal with the supply and distribution networks, consequently causing a rise in operation costs.

Third, backward infrastructure has also caused enormous economic losses to enterprises and individuals. It is estimated that the United States’ ageing inland waterway system and the lack of necessary maintenance have drastically increased water transportation delays and the American people now have to collectively pay an additional USD 120 billion every year for road and highway congestion and clogging.

Since taking office, the Obama administration has started attaching more importance to infrastructure investment in a bid to reverse the current situation. In recent years, the government earmarked USD 50 billion for this specific purpose, improving 350,000 miles of roads, renovating and expanding 20,000 bridges and finishing or repairing 26,000 miles of rail and 40 railway stations.

However, the United States’ infrastructure still has a long way to go before it reaches the level of countries like Germany. A McKinsey global research report indicated that the United States would need to increase investment from USD 150 billion to USD 180 billion in the coming 15 to 20 years if it wants to realize a modernization of its infrastructure.[7]

 

Forging Global Economic Growth and Power Patterns

 

For starters, the United States’ economic growth will potentially switch into high gear and start to accelerate. In the near and mid-term, the economy is expected to change from 1 to 2 percent growth that it has maintained for eight consecutive years to 2 to 3 percent growth in the following few years.

Many authoritative bodies have recently made such forecasts. The US Congressional Budget Office (CBO) has predicted a GDP growth rate of 3.1 to 3.4 percent between 2014 and 2016. According to famous blue-chip economists, the United States’ economic growth will be between 2.8 and 3 percent during the 2014 to 2016 period. The Federal Reserve’s forecast for the economy is respectively 2.1 to 2.3 percent in 2014, 3.0 to 3.2 percent in 2015 and 2.5 to 3.0 percent in 2016.[8] According to the World Bank, the United States’ economic growth rate will be 2.1 percent, 3.0 percent and 3.0 percent from 2014 to 2016 respectively, higher than the 1.1 percent, 1.8 percent and 1.9 percent that was forecasted for the European Union, and the 1.3 percent, 1.3 percent and 1.5 percent forecasted for Japan during the same period.[9] Seen from a long-term perspective, the American economy is expected to stabilize. According to the 2014 presidential economic report, actual GDP growth is expected to reach 2.7 percent between 2013 and 2024, which is lower than the 3.3 percent growth between 1953 and 2007, but still higher than the 1.0 percent growth rate from 2007 to 2013, and also higher than the 2.3 percent potential economic growth rate.[10]

Second, global economic growth and dynamic momentum have both changed. Since the onset of the twenty-first century, especially since the outbreak of the financial crisis, emerging economies have experienced rapid growth and become the main drivers of economic growth. However, since 2012, the growth of emerging economies has been decelerating and their emerging country financial markets have witnessed turbulence and fund outflow, which, together with these countries’ ongoing economic transformations, will continue to exert pressure on their economies in the years to come.

With the acceleration of United States economic growth and the economic recoveries of Japan and the European Union, developed economies will become important driving forces for global economic growth. A recent World Bank report indicates that developed countries will re-pump USD 6.3 trillion into world demands from 2014 to 2016, far more than the 3.9 trillion that they injected between 2010 and 2013, raising their contribution global trade growth from 2.6 percent in 2013 to 5.4 percent in 2016.[11]

According to the IMF, global economic activities will further improve in 2014 and 2015, and the main driving force for global economic growth will stem from developed economies. In the eyes of the IMF, the economic activities of many emerging market economies will be disappointing, but they will nonetheless contribute more than two-thirds of total global economic growth.[12] The United States has once again regained its role as a world economic train and will act together with China as the “double-engine” jointly leading global economic growth in the future.

Third, international strength comparisons have once again changed in the United States’ favor. The United States’ economic strength and status have weakened since the onset of the 21st century, especially since the outbreak of the global financial crisis. But the United States is now regaining some opportunities to retrieve this advantage. Throughout history, the United States has displayed numerous examples of its great adaptability and national power at times of crisis. In the foreseeable future, the United States will still have the strongest self-repairing economy and the brightest prospect of any country in the Western world. The United States’ banking and real estate sectors, two of the hardest-hit sectors during the financial crisis, have already started to improve, and its bourgeoning alternative energy revolution will help it realize energy self-sufficiency and economic development. Under this new context, a new industrial revolution will potentially originate from the United States. In the 20th century, the United States played the role of a global economic leader and it will remain a “bellwether” for the global economy for a fairly long period during this century.

The United States’ economic success will rest on the following preconditions: 1) Economic scale: In 2013, national GDP was about USD 16.8 trillion, compared with USD 12.6 trillion of the Eurozone and USD 9.2 trillion of China (using the dollar exchange rate at that time); 2) Economic prospects: Within a comparatively long period, the United States economy is expected to maintain a 2.5 to 3.0 percent growth, higher than projected growth in the Eurozone, Japan or other major developed economies; 3) the United States’ continuous importance in the commercial, monetary and financial systems; 4) the United States’ capability to dominate the construction of international economic governance and the supply of global public products.

Despite suffering a serious blow during the 2008 financial crisis, there still is no dispute that the United States is the global financial leader. Due to their incomparable depth, liquidity and safety, United States financial markets are still “magnets” drawing global capital, both during and after the global financial crisis. Such enormous “traction” is the core of the United States’ ability to dominate the global financial sector and the foundation for the United States’ ability to remain the world’s leading currency. Investors seeking safety and liquidity for their assets have successively shifted their money to United States government bonds. In fact, the Federal Reserve now plays the role of the world’s final lender.

Certainly, it is an indisputable that the American economy will continue to weaken, and the United States is yet to overcome numerous problems and troubles. From a mid- to long-term perspective, the United States’ fiscal deficit and national debt will continue to accumulate, its unemployment problem will remain outstanding, and social inequality and bi-polarization will continue be aggravated. All these problems will drag down the United States’ economic growth and recovery.

At the same time, there are also some factors restricting the four major new areas for American economic growth, such as water pollution caused by the shale revolution, which will make further development more uncertain, as well as the fund deficiencies in advanced manufacturing and infrastructure construction. From a long-term perspective, China and other emerging economies have advanced their economic reforms and adjustments and their economic recoveries are witnessing a relatively rapid momentum. It remains the case that the United States will be caught up with, but such a process will be complicated and tortuous.

 

Countermeasures from China

 

For China, the new growth areas for the American economy have created both advantages and disadvantages, with opportunities generally outweighing challenges.

From the perspective of opportunity, the stabilization and acceleration of American economic growth will benefit the recovery and growth of the world economy, which will in turn help improve China’s external economic environment and at least help China expand its exports. Given the European economic crisis, the United States has once again become China’s largest export destination, and sustained American economic growth will bring favorable benefits to China.

Second, the United States’ new economic growth areas may usher in a new area for Sino-American economic cooperation. Whether in alternative energy, advanced manufacturing and big data, or in infrastructure construction, China and the United States are strongly complementary and bilateral cooperation will be sure to bring win-win results.

Third, economic transformation will increase demands on the market and funds, thus increasing American dependence on China. Given the two countries’ mutual interdependence and integration of interests, macroeconomic policy coordination between China and the United States will the two countries develop healthy bilateral economic and trade relations while also stabilizing the growth of the world economy.

Fourth, the alternative energy revolution will change global energy supply patterns from a “tightened balancing” to a “relaxed balancing,” causing energy supply to exceed demand in the future. Such a trend will lower or stabilize international energy prices, which, together with the United States’ expanded LNG export, will present opportunities for China to implement an energy diversification strategy.

Seen from the angle of challenges, the United States has been pushing to create conditions for the return of capital and industries to the United States and maintaining its leading status in high-end industries, and this may put pressure on China’s industrial com-petition. According to estimates from Boston Consulting Group, many manufacturing workshops overseas plan to return to the United States, most of them retreating from China. The United States’ improved manufacturing environment, especially its alternative energy revolution and preferential investment policies for homegrown enterprises, will drive down its comprehensive operational costs, which will further weaken China’s competitive advantages.

Second, the shale energy revolution also poses a grave challenge to China. The United States will reduce its dependence on foreign energy and is expected to become a net energy exporter, while China has already replaced the United States to become the world’s largest oil importer. With economic growth remaining at a comparatively fast speed, China’s foreign energy dependence will continue to rise. Such an imbalanced energy supply-demand situation between China and the United States, as the world’s two largest economies, will drastically amplify China’s risks in obtaining foreign energy and bring disadvantages to China’s energy security. In addition, the American-led Western countries will further pressure China to undertake bigger responsibilities in guaranteeing the safety of international energy transport routes.

Third, in the future, the United States economy is expected to grow faster and China’s economy is expected to decelerate, although the gap of economic and comprehensive national strength between the two countries will continue to narrow. The narrowing of this gap will be a long, complicated and tortuous process and China still has a long way to go before it catches up with the United States.

With the support of China and the United States, global economic circumstances will continue improving in the following five to ten years and the global economy may witness a new round of growth. China should make arrangements to better use global economic developments and reforms, draw on its advantages and try to turn challenges into opportunities.

First, it should learn form other countries’ experiences and promote sustainable development. China should conduct in-depth research into the ongoing changes in the American economy, learn the United States’ experiences and lessons in nurturing and forging new economic growth areas, combine China’s national conditions with the changing external economic environment, and advance with the times in a bid to forge new growth areas for the Chinese economy. China should also strengthen top-level designs, firm its development confidence, adhere to the established strategy of “stabilizing growth, adjusting structure and promoting reforms,” handle forefront pro-blems in the process of its reform and development, make sound headway to create new economic growth areas and ramp up the foundation for its economic power buildup.

Second, China should try to use scientific and technological innovation to drive industrial upgrading. The Chinese government and industry should keep a close eye on the new industrial revolution, increase investment into scientific and technological innovation, support high-end manufacturing and push for the integration of the manufacturing and services sectors in a bid to promote the development of the service sector. China should also strengthen the construction of recyclable and new energy sectors, raise the operational efficiency and productivity of every industry through the employment of big data and work hard to cultivate new economic growth areas. China should try to transform itself from being a country with a mere cost advantage to one with comprehensive competitive advantages in talent, capital, technology, services and brand reputation. Driven by innovation, China should attempt to accelerate its march from being at the low-end of the division of labor to the high-end.

According to Jeremy Rifkin, author of The Third Industrial Revolution, the core of the coming industrial revolution is the development of recyclable energy and advanced manufacturing. Germany and the United States, he believes, lie in the first and second echelon respectively, while China for now lies in the third echelon. China, however, enjoys unique resource advantages, such as its abundant solar and wind power, as well as conceptual advantages as well. China will likely squeeze itself into the first echelon in the coming 10 to 20 years to help spearhead the third industrial revolution.

Third, China should take advantage of the ongoing alternative energy revolution to strengthen the safety of its energy supply and production mechanisms. It should expand its energy production through multiple channels, make full use of alternative energy, fully dig out the potential of additional resources, accelerate the development of recyclable, replaceable and clean energy, raise energy consumption efficiency, conserve energy and reduce emissions, forge new areas for energy growth and convert these areas into economic growth points. At the same time, multiple measures should be adopted to guarantee China’s energy safety, strengthen its energy supply, accelerate international energy cooperation, optimize overseas energy patterns, increase economic and energy diplomacy, all in order to ensure the smooth operation of China’s overseas energy production bases and transportation lines. China should also take advantage of its large domestic energy market and steadily enhance its influence in international energy pricing.

Fourth, China should take advantage of the United States’ new economic growth areas to create a new high point for cooperation with the United States. China should innovate, deepen and expand bilateral cooperation and inject deep economic connotations into the construction of a new Sino-American relationship. China should also make better use of the existing Strategic and Economic Dialogue mechanism to strengthen bilateral coordination in the economic and trade realms.

While accelerating talks with the United States on the signing of a bilateral investment agreement, China should lobby the United States to treat the investment and operation of China’s enterprises in the United States more fairly, to relax high-tech export controls to China and manage bilateral economic and trade frictions. China should also strengthen pragmatic cooperation with the United States in alternative and recyclable energy departments, advanced manufacturing, application of big data, urbanization and infrastructure construction, all in a bid to make a bigger cake for Sino-American economic cooperation and benefit the two countries and the rest of the world. China should make full use of multilateral economic coordination platforms such as the G20 to strengthen its macroeconomic policy coordination with the United States and lead and bolster a stable global economic and financial development.

Fifth, China should rationally address its economic gap with the United States and adhere to its national orientation and position as a developing country. China will certainly narrow its gap with the United States in terms of economic might, but this task will not be accomplished overnight. According to an international comparison program recently published by the World Bank in which purchasing power parity (PPP) calculations are partly changed, China’s GDP was 87 percent of the United States’ in 2011. Nevertheless, the World Bank also pointed out that the data based on PPP estimates should not be used for GDP and per capita GDP rankings, given uncertainties involving relevant data results.[13]

Some Western media have used this study to state that “China will surpass the United States to become the world’s largest economy.” But such an argument has drawn suspicion from quite a few rational scholars. Jeffrey Frank, a professor at the Kennedy School, for example, claims that the United States’ economic aggregate is still twice that of China’s if based on market exchange rates (the only measurement standard in a real sense), and that China still needs twelve years to catch up with the United States if it can maintain an economic growth rate five percentage points higher than that of the United States.

According to professor Frank, China also needs eight years to surpass the United States if it can maintain an economic growth rate eight percentage points higher than that of the United States. Martin Wolf, chief commentator for the Financial Times, claimed that even calculated in PPP, China’s per capita GDP still ranks 99th in the world, the middle position among 199 countries.[14]

It is true that China is still a developing country, even if its economic aggregate surpasses the United States sometime in the future. China’s main task should be to continue focusing on development, work hard to increase its comprehensive national strength, improve people’s living conditions, and continue to undertake its international responsibilities and make contributions to global peace and development.

 

 

 



[1]America’s New Energy Future: The Alternative Oil & Gas Revolution and the US Economy, IHS Global Insight, October 2012, p. 12. 

[2] IMF, The U.S. Manufacturing Recovery: Uptick or Renaissance? February 2014, p. 2. 

[3] Rich Rezny, “Is Manufacturing Coming Back?” Seeking Alpha PRO, August 15, 2013, http://seekingalpha.com/article/1638692-is-manufacturing-coming-back?source=yahoo. 

[4] “Snapshot: National Network for Manufacturing Innovation (NNMI),” Advanced Manufacturing Portal, http://www.manufacturing.gov/nnmi.html. (June 25, 2014)

[5] MGI, Big data: The Next Frontier for Innovation, Competition, and Productivity, June 2011.

[6] One exabyte is equal to 1,024 petabyte or PB, equivalent to 2.5 times of the total archived electronic data volume of the US Congress library in May 2013. One zetabyte or ZB is equal to 1,024 exabyte.

[7] MGI, Game Changers: Five Opportunities for US Growth and Renewal, July 2013, p. 88. 

[8] Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, Embargoed for release at 2:00 p.m., EDT, June 18, 2014, http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20140618.pdf.

[9] World Bank, Global Economic Prospects, June 2014, p. 4. 

[10]Economic Report of President, March 2014, p. 87.

[11] World Bank, Global Economic Prospects, June 2014, p. 16. 

[12] IMF, World Economic Outlook (WEO): Recovery Strengthens, Remains Uneven, April 2014, p. XV. 

[13] The World Bank, Measuring the Real Size of the World Economy, April 2014, pp.4-5.

[14] Martin Wolf and David Pilling: A China on the crest of the world?” the Chinese version of Financial Times [Britain], May 5, 2014, http://www.ftchinese.com/story/001056058. (July 1, 2014) 

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