BEIJING, May 29 -- Under pressure at home and abroad, China is turning to the service sector to buoy foreign trade and restructure its economy.
Suffering from large deficits in service trade, Chinese officials have promised greater openness in the sector to foreign companies in the hope of beefing up the country's own service providers.
"We are considering the feasibility of setting up a set of targeted rules to facilitate service trade," Tong Daochi, assistant minister of commerce, said at a forum of the ongoing Beijing International Fair for Trade in Services.
According to Tong, China will steadily open up finance, logistics, energy saving, telecommunication, environmental protection sectors to overseas firms, and encourage Chinese and foreign companies to cooperate in knowledge-intensive sectors such as software engineering.
While popular "Made in China" merchandise helped China become the world's top goods trader, trade in services has lagged behind.
China reported a deficit of 41.7 billion U.S. dollars in service trade in the first four months of 2014.
"We imported a lot of finance, computer and advisory services as China has no high-end providers in such sectors," explained Tong.
With a lack of competitive homegrown service companies, China's service trade accounted for just 11.5 percent of the country's total foreign trade last year, while the global average was around 20 percent.
To restructure its economy, China now eyes the service sector as a strategic priority. The central government has issued a string of guidelines in recent months to support development of the sector.
"If China wants to copy its success in manufacturing, it needs to further liberalize the service market," said Yi Xiaozhun, deputy director-general of the World Trade Organization (WTO), at the forum.
In fact, China has made progress in lifting restrictions on services.
In the China (Shanghai) Pilot Free Trade Zone (FTZ), measures being tested include regulating foreign investment based on a negative list. It means that overseas investors can conduct business in any scope that is not prohibited on the list.
A wide range of service sectors covering banking, insurance, construction, logistics, education, health and e-commerce are also granted more autonomy in the FTZ.
"Greater market openness is vital for China to build an efficient and competitive service sector," said Yi.
SERVICE SECTOR MATTERS
Analysts often complain that China's manufacturing sector is big but not strong. In Yi's view, the reason is that the underdeveloped service sector is increasingly becoming a bottleneck in China's efforts to move up the value chain.
He said China has to advance into areas of design, R&D, innovation, patents, branding, marketing, distribution, software, logistics and the like as about 90 percent of the value is generated in these services.
"Without parallel growth in services, manufacturing can only grow in quantity not in quality," according to the WTO official.
Rising manufacturing costs are another pressing problem that can be solved by improving the service sector. It is reported that increases in labor and resource costs in China and other Asian economies have prompted many factories to move back to the United States.
"Cost hike leave China no other choice but to accelerate its economic transformation from low-cost manufacturing to a high value-added service economy," said Yi.
BARRIERS TO CRACK
In line with its accession commitments on goods trade, China has significantly lowered its applied tariffs. In trade-weighted terms, the applied average tariff rate is about 4 percent, the lowest among all large developing countries and emerging economies.
By comparison, China's service sectors are granted much more protection, especially in finance, telecommunication, professional services and digital trade, noted Yi.
According to the latest service trade restrictive index made by the World Bank and the Organization for Economic Cooperation and Development, China's level of restrictiveness in services remains not only much higher than the average of developed countries, but also higher than that of many other developing countries, such as Brazil and Mexico.
In addition, "invisible" restrictions also hinder multinationals' operation in China.
Gregory Gilligan, chairman of the American Chamber of Commerce in China, said its member companies often complain of irregularly implemented regulations.
"Sometimes Chinese authorities favor domestic companies over their foreign counterparts. It is one of the key challenges," he said.