Growing importance of trade in services

Trade in services in China is having a bit of a duel with trade in goods. Or so it appears.

Trade in services refers to purchase and sale of services. According to the World Trade Organization's definition, trade in services covers 12 major sectors. These include commerce, communication, construction and related engineering, finance, entertainment, culture, sports, tourism, education and environment.

Strong manufacturing capability and complete industrial chains mean that trade in goods was the mainstay of China's international impact for long.

That is changing. The share of trade in services in overall economic pie is increasing, and is also driving growth.

Services trade currently accounts for about 20 percent of the total volume of global trade and the proportion is expected to rise to one-third in 2040, according to a report by the Chinese Ministry of Commerce and the World Trade Organization.

China's services trade boasts even greater growth potential. The value of China's services trade stood at $743.4 billion last year, accounting for about 5 percent of the country's GDP.

China has become an important growth driver in world services trade in recent years. It has been the world's second-largest trader in services for six consecutive years, and its trade in services in 2019 reached 5.42 trillion yuan ($793 billion), the Ministry of Commerce said.

Post-pandemic, this trend will likely impart more growth impetus to both domestic and global firms.

China needs to meet the twin challenges of intensified protectionism and the damage done to global trade and investment activities by COVID-19. The nation may choose to maintain the growth of services trade at a steady clip and accelerate the pace of drafting the negative list for cross-border services trade.

It's the negative list that determines the off-limits sectors and industries for foreign investors. Of late, many areas have been coming off China's negative list. Stated differently, more and more areas are being thrown open to foreign investors. The shorter the negative list, the better for investors.

To be sure, the already fierce competition among global cities will intensify further in the future. The winners will be decided by their business environment. And the negative list has a huge influence on business environment. A shorter negative list will help Chinese cities as well as their surrounding regions such as the Yangtze River Delta and Pearl River Delta to become world-class urban areas. They will emerge a new growth pole of the modern global trade in services.

With many global companies from the services trade sector building more regional branches and service facilities in China's central and western regions, as well as in pilot free trade zones and Hainan free trade port, these moves will further ensure the quality and efficiency of the country's opening-up and reform. They will also facilitate stability in foreign trade, foreign investment, employment and supply chains.

The Chinese government may formulate specific and feasible implementation plans based on the country's industrial characteristics and locational advantages. It will likely cultivate new competitive points in areas like digital trade, transportation, tourism, culture, traditional Chinese medicine, service outsourcing, in order to further boost economic transformation and upgrade coordinated regional development.