Trade in services has existed since ancient times. Ancient Chinese philosopher Confucius (551-479 B.C.) started the tradition of giving private lectures in other kingdoms. Zhang Qian, an envoy of the Han Dynasty (202 B.C.-A.D. 220), was sent to the Western regions. Zheng He, a Ming Dynasty (1368-1644) admiral and explorer, led several voyages around the Indian Ocean. These stories help us understand the development of trade in services in ancient China.

The world's first coffee shop, opened in Constantinople, Turkey, in 1530, drew the attention of Venetian merchants. They brought back a large amount of coffee beans from Turkey, and gradually coffee became popular in Europe. For a long time, people focused on goods trade, while trade in services occupied a small part of the international trade. Though the coffee shop is a small-scale service, it still contributes to the development of trade.

With the intensification of international division of labor, the importance of service trade in the world economy has been increasing since the 1970s. In the economic structure of developed countries, the output value of the service industry accounts for 70 percent of the GDP, and in some countries it is even as high as 90 percent. In 1995, the World Trade Organization (WTO) created the General Agreement on Trade in Services (GATS), which formally defined the concept and rules of global service trade.

In 1978, China's service industry accounted for 23.4 percent of the GDP. After a rapid development since reform and opening up, its share went up to 52.2 percent in 2018. In the 1980s, foreign investment was used in the service industry for the first time. The Jianguo Hotel in Beijing and the White Swan Hotel in Guangzhou, Guangdong Province in south China, were both built at that time with foreign investment.

As the core of contemporary international trade, trade in services concerns a country's overall foreign trade. After joining WTO in 2001, China made a commitment to open up nine major categories and nearly 100 sub-categories of the 12 categories in the GATS, accounting for 62.5 percent of the total number of service sectors. Such level of opening up is similar to that of developed countries.

A booming industry

China conducts trade in services with more than 200 countries and regions in the world. From 2016 to 2018, the average annual growth rate of China's trade in services was 9.4 percent, higher than the global growth rate of 7.3 percent in the same period. The average annual growth rate of service exports and imports was 12.8 percent and 7.8 percent, respectively. As of 2019, China's trade in services volume had ranked second in the world for six consecutive years. China is already the second largest importer and fifth largest exporter of services. The proportion of China's trade in services in the world service trade increased from 5.2 percent in 2011 to 6.9 percent in 2018, with service exports accounting for 4.6 percent of global exports and imports accounting for 9.4 percent.

For a long time, China has enjoyed a surplus in goods trade and deficit in trade in services. It has a strong competitive edge in the construction industry trade, while trade in other areas such as finance, insurance and intellectual property rights lags behind. In recent years, the structure of China's service trade has been optimized, and the three traditional fields of travel, transportation and construction are playing a dominant role, with the trade volume in these areas reaching $473.81 billion in 2019, accounting for 60.4 percent of the service trade. Growth of the digital economy has accelerated the integration of manufacturing and service industries, which has driven the development of knowledge-intensive services such as telecommunications and computer and information.

In 2019, China's knowledge-intensive service trade reached $272.2 billion, an increase of 6.2 percent year on year and accounting for 34.7 percent of the service trade. China has established technology trade links with more than 130 countries and regions in the world, with the technology trade volume reaching $61.45 billion in 2018. Chinese enterprises are outstanding in terms of technical consultation, technical service, proprietary technology, computer software and patent technology.

China's service trade is increasingly integrated into the global value chain. In 2019, the value of offshore information technology outsourcing, business process outsourcing and knowledge process outsourcing services provided by Chinese enterprises reached $42.68 billion, $17.55 billion and $36.66 billion, respectively, achieving a double-digit growth rate.

China's digital trade is even more remarkable. The scale of its cross-border e-commerce ranks top in the world. In 2019, the retail sales of cross-border e-commerce increased by 38.3 percent year on year. Social media and search engines accelerated their pace of expansion into overseas markets.

Future opportunities

The growth rate of trade in services is higher than that of both goods trade and the GDP, indicating that it has become an important economic growth point. From 2006 to 2017, the average growth rate of the world service exports was 6.3 percent, while the average growth rate of the world economy was 2.7 percent. Developed economies have an advantage in trade in services, with their imports and exports of services accounting for over 60 percent of the global total. Among developing countries, China and India are competitive in trade in services.

Trade in services has a huge development potential.

First of all, the new round of scientific and technological revolution is reshaping the global trade in services. Some goods are presented in the form of digital products and traded in the form of services. Take the publishing and audio-video industry for example. With the growth of digitalization, the products of these industries have been moved from goods category to services. It is expected that with the wide application of big data, cloud computing, artificial intelligence, blockchain and other Internet technologies, new forms of services will continue to emerge and further drive trade in services.

Second, China and other developing countries have huge development space for trade in services. At present, developing countries contribute 80 percent to the world economic growth, and their economic aggregate accounts for nearly 40 percent of the global total. Studies have shown that India, Southeast Asia and Latin America's e-commerce markets have the potential to reach hundreds of billions of dollars.

Third, the global service value chain has taken shape and developing countries have the opportunity to join it. At present, China and India are big players in global service outsourcing, while Southeast Asia and Central and Eastern Europe have a positive growth momentum. The novel coronavirus disease outbreak has accelerated digitalization and outsourcing, and the importance of service trade has become increasingly prominent.

Fourth, small and medium-sized enterprises (SMEs) are actively tapping into opportunities in international trade in services. In the age of digital economy, it is increasingly possible for SMEs to carry out service trade with the help of the Internet. For example, a U.S. company can send out design requirements through the Internet, and SMEs and even individuals from all over the world can execute the orders.

Fifth, China is promoting the liberalization of trade in services through the Belt and Road Initiative. Belt and Road participating countries are mostly developing economies which have weak competitiveness in service industry and therefore have higher complementarity with China.

Take the tourism industry for example. With the improvement of China's consumption ability, people's demand for tourism services is increasing. China should make use of tourism resources and geographical and cultural resources along the Belt and Road routes to promote the development of the tourism industry. Thailand has a large tourism industry. In the past 12 years, the proportion of revenue from tourism services in Thailand's service trade has continued to rise, reaching more than 70 percent. The number of Chinese tourists to Thailand has increased year by year, bringing benefits to both sides.

Finally, China's service industry is attracting investment from all over the world with its more open attitude. China has promoted the opening of the service industry by holding service trade fairs and import expos, among which the 2020 China International Fair for Trade in Services will be held in early September. The country has established 17 service trade innovation pilot zones, 31 service outsourcing demonstration cities, 35 cross-border e-commerce comprehensive pilot areas and 13 national cultural export bases. China has signed the China Central and Eastern Europe Cooperation Initiative on Trade in Services and the BRICS Trade in Services Cooperation Roadmap, and has established bilateral cooperation mechanisms in service trade with 14 countries.

The author is professor at the School of Economics of Renmin University of China

(Print Edition Title: Promoting Trade in Services)

Copyedited by Madhusudan Chaubey

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