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China must dispel "services are virtual while manufacturing is real" misconception, ex-Vice Commerce Minister says
Yi Xiaozhun, former WTO Deputy DG, calls at today's CCG event on China to return to the initial spirit of the early stages of reform and opening up, and urgently attract investment & tourists.
Yi Xiaozhun, China’s former Vice Commerce Minister and former Deputy Director-General of the World Trade Organization says at a Center for China and Globalization (CCG) event today that China must dispel the misconception that “services are virtual while manufacturing is real” and “avoid neglecting either sector.”
At the 10th China Inbound-Outbound Forum as a part of the ongoing 2023 China International Fair for Trade in Services (CIFTIS), Yi says that openness is the lifeline for the service sector. Acknowledging that foreign direct investment into China has recently fallen to its lowest level in years, he calls on China to return to the initial spirit of attracting foreign investment during the early stages of reform and opening up.
Chinese President Xi Jinping sent a videotaped message to the Global Trade in Services Summit of the 2023 CIFTIS on Saturday, vowing to create a "more open and more inclusive" development environment, including the expansion of a globally-oriented network of high-standard free trade areas, negotiations on the negative list for trade in services and investment, and broader opening up in services areas such as telecommunications, tourism, law, and vocational examinations.
The Forum is co-hosted by CCG and Beijing Municipal Leading Group Office for “Two Zones,” referring to the national integrated demonstration zone for greater openness in the services sector and the pilot free trade zone characterized by scientific and technological innovation in Beijing.
Speakers at the opening session of the Forum also include Yong Ding, Director of Beijing Municipal Commerce Bureau; Henry Huiyao Wang, Founder and President of CCG; Junshu Yong, Vice Chairman of the Standing Committee of Beijing Municipal People's Congress; Graham Fletcher, Ambassador of Australia to China; and Tamas Hajba, Senior Advisor for China and Head of the OECD Beijing Office.
Yi also calls on relevant government departments to take prompt, coordinated actions to introduce measures that facilitate and encourage inbound tourism.
Below is a translation of Yi’s speech, which has been reported by Chinese media domestically. The title of The Beijing News’ report is 易小准：外商直接投资降至多年来最低水平，需要引起重视 Yi Xiaozhun: The decline in foreign direct investment to its lowest level in years needs to be taken seriously.
The translation hasn’t been reviewed by Yi.
Ladies and gentlemen, good morning to you all! I am delighted to once again attend the China Enterprise Globalization Forum and discuss together the global trends in service trade development and China's strategies in response.
Over the past 50 years, the world economy has undergone a structural transformation towards the service sector. From 1970 to 2021, the share of the service sector in global GDP has risen from 53% to 67%, contributing to over two-thirds of global economic growth. According to data from the International Labour Organization, the proportion of employment in the global service sector has increased from 40% in 2000 to 50% in 2021. In developed economies, employment in the service sector accounts for 75% of total employment, and in most economies, the service sector provides 45% of youth employment. The significance of the service sector cannot be overstated.
As the service sector is ubiquitous across the national economy, it plays a crucial role in enhancing the export competitiveness of various industries and businesses. Even more importantly, services are essential for establishing cross-border production networks, earning them the moniker of the adhesive of the global value chain. Today, services are recognized as decisive factors in improving labor productivity, industrial competitiveness, and living standards.
The significant structural shift in the global economy has led manufacturing processes in various countries to increasingly rely on transportation, research and development, information technology, professional services, maintenance, and after-sales services. This trend toward service-oriented manufacturing has greatly facilitated the development of the global value chain and global service trade. By value-added calculations, service trade already constitutes 50% of global trade, a significant increase from the mere 30% in 1980.
Simultaneously, the global service trade is undergoing digitization. Driven by advancements in information and communication technology, global commercial service exports have nearly doubled between 2005 and 2022. During the same period, digital service exports have grown nearly fourfold. The widespread adoption of the internet globally has significantly increased opportunities for cross-border provision of professional, commercial, audiovisual, educational, distribution, financial, and healthcare services. In 2022, the value of digitally delivered global services reached $3.8 trillion, accounting for 54% of global service trade exports.
Given the pivotal role of services in the production and export processes of manufacturing, reducing barriers to trade in services can effectively enhance manufacturing productivity and a country's exports. Research indicates that a 10% increase in the level of service trade restrictions leads to a 5% reduction in bilateral trade in manufactured goods. Since joining the World Trade Organization, China's services trade has experienced remarkable growth due to its opening-up policies. China's share of global service exports has increased from 2.4% in 2001 to 6.5%, more than doubling.
Considering the importance of service trade policies in reducing trade costs, improving service sector performance, attracting foreign direct investment, enhancing supply chain resilience, boosting manufacturing productivity, and promoting exports, I propose several policy suggestions to promote the development of China's service trade:
1. Services and manufacturing are mutually supportive components of China's high-quality economic development. To ensure their harmonious growth, policies should avoid neglecting either sector, and the misconception that services are virtual while manufacturing is real must be dispelled. The service-oriented transformation of manufacturing and the digitization of services present significant opportunities for China, and only by achieving their integrated development can China's manufacturing truly become stronger.
2. Openness is the lifeline for the development of services and service trade. In our next steps, the focus of our country's opening-up efforts should be on the service sector. We should promote reform, development, and innovation through openness, break through the "small yard, high fence" barriers restricting China, counteract the counter-currents of globalization through openness, and expand our circle of friends through openness.
3. Foreign direct investment has recently fallen to its lowest level in years and warrants our attention. A survey by the European Union Chamber of Commerce in China (EUCCC) in June this year revealed that nearly two-thirds of its members are willing to expand their operations in China if market access conditions improve. Survey results from the American Chamber of Commerce in China (AmCham China) also indicate that 66% of American companies in China plan to maintain or increase their investments in China over the next two years. As most foreign investments flow into the service sector, anchoring China's industries in the global value chain, we should return to the initial spirit of attracting foreign investment during the early stages of reform and opening up. We need to optimize the business environment, instill confidence in and determination from multinational corporations, especially technology enterprises investing in China, and promote sustainable growth in foreign investment in China.
4. Due to the three-year impact of the COVID-19 pandemic, the number of inbound tourists to our country has sharply declined. In the first half of this year, Beijing received only 407,900 inbound tourists, less than 11% of the total for 2019. The situation in Shanghai is similar. Foreign tourists and Western students studying in China are not only important sources of service export revenue but also symbols of China's openness. They are the primary channels through which the world gains insight into the real China. Therefore, I suggest that relevant departments take prompt coordinated actions to introduce measures that facilitate and encourage inbound tourism from various angles, such as flights, visas, hotel accommodations, payment methods, shopping, and reservations for attractions. These measures are necessary to reverse the unfavorable trend in inbound tourism.
Thank you all!