The global competition in the economy is shifting from the cargo trade to the service trade, and the level of advancement of the service industry and service trade has become a major indication of a country’s level of modernization. To take a higher position in international competition, China must devote greater effort to the development of its service trade.
Zhang Monan
China’s service trade continued growing in 2013. The total volume of service imports and exports from January to November was $484.7 billion, a rise of 12.4 percent. The whole year’s volume is estimated to reach a record high of $520 billion, or a year-on-year growth of 11 percent. This volume, however, is still much smaller than that of developed countries; and the quality is lower, leaving ample room for China to upgrade its trade pattern.
China’s service trade has developed significantly in recent years, thanks to the continuous increase in the country’s position in international trade. In 2012, China’s service trade accounted for 5.6 percent of the world’s total, making the country the third in the world. Forty years ago, it was only 0.6 percent. It is estimated that China will still rank third in 2013. However, the country’s service trade is still disproportionate in its overall trade pattern. Of the world’s nearly 200 countries and regions, the top 20 economies in service trade are mostly developed countries. Service exports of the United States, Britain, Germany, France, Italy, Belgium and Japan make up 10 percent or higher of each country’s gross national product.
China’s service trade has suffered a deficit for 12 successive years. It was not only an inevitable result of the dramatic increase of imports after China joined the World Trade Organization, but also because of the huge gap between China and the major developed economies in service trade power. Generally speaking, service trade makes up 70 percent of the global economy. In major developed countries, service trade accounts for about 80 percent of the national economy. In the world’s total export volume, service trade makes up 20 percent. In China, however, the export of service accounts for less than 9 percent of its total exports.
Great changes have taken place in the global structure of service trade. Capital-intensive trades, such as transportation, telecommunications and banking, and technology-intensive trades have replaced traditional trades, such as tourism and sales service as the major elements of the world’s service trade.
China mainly relies on traditional trades such as tourism and transportation for its service trade. It is still much weaker in capital-intensive and technology-intensive services. That’s why its service trade remains powerless in international competition. In recent years, high value-added services such as computers, insurance and financing have been growing fast, but they still account for a very small part of the country’s total volume of service imports and exports.
The global trend of services becoming tradable is beginning to change the deeper structure of international trade. The first round of globalization was the restructuring of the manufacturing industries’ supply chain. Now, the global distribution of transnational manufacturing companies is basically completed.
China must speed up the upgrading of its trade patterns, while its traditional dividends are disappearing.
First, the “demographic dividend” is dwindling. The supply of labor is slowing down and the price of labor is rising. The economy is entering the stage where the cost of production factors periodically rises. Industrial companies will see their profits shrink further and the return on capital will keep falling. The export-driven growth dividend will decrease.
Second, China’s “resources dividend” has diminished, posing a bottleneck for economic growth. The country’s extensive growth model featuring “over-industrialization and excessive reliance on exports and investment” has threatened to break the upper limit of sustainable development. That limit is the restraint in resources supply, environment quality, eco-capacity and climate change.
Finally, China faces new challenges stemming from changes in the world’s growth pattern. The external imbalance has reversed; the global division of labor is gradually stabilized; the international market capacity is growing; the price of labor and resources are rising; the pressure for the RMB to appreciate is mounting; trade protectionism has returned and become widespread. Under the influence of these factors, exports won’t continue to be the main driving force for China’s economic growth.
That means that China’s long-standing advantage in foreign trade stemming from cheap labor and low costs of land, resources and environment cannot last, let alone lead to great achievements. Besides, staying at the lower end of the world’s industrial chain for so long may cause China to become accustomed, and riveted, to its global position.
It is unavoidable for China to change its growth pattern from “production factors-driven” to “efficiency-driven”. It should depend on technological innovation, brand creation and market extension to generate profits and added value and should devote greater effort to the development of high-end service trades in the upgrading of its industrial chain.
Zhang Monan is a researcher at the Strategic Studies Department of the China International Economic Exchange Center.
