OPINION

Services Trade: The Key to Becoming Powerful

In 2013, China's imports and exports totaled $4.16 trillion, with its trade in goods replacing that of the United States as number one in the world. Nonetheless, the country is still far lagging behind in services trade, which represents a stumbling block on China's path to becoming a powerful trading nation.

In fact, since its entry to the World Trade Organization (WTO), China has experienced explosive expansion in its services trade. From 2003 to 2013, total value of its services imports and exports grew from roughly $100 billion to $520 billion. China has also seen its international status in services trade ascend, with its contribution to the world total booming from 0.6 percent in 1982 to 5.6 percent in 2012, ranking third globally.

However, there has also been a severe imbalance in China's services trade. The country has witnessed a deficit in services trade for 12 consecutive years, partly because it has opened wider to the outside world after becoming a WTO member, but also, more importantly, China possesses a weakness in the service sector.

Now, the service sector accounts for 70 percent of the world's economic aggregate, and the figure could be as high as 80 percent in the developed world. Services exports make up 20 percent of the global total, while in China, the proportion is less than 9 percent. According to statistics from the Ministry of Commerce, during the 11th Five-Year Plan (2006-10) period, its services trade deficit advanced from $9.4 billion to $22.1 billion, and it's still on the increase.

In recent years, the services trade has become more dependent on the development of knowledge-, technology- and capital-intensive industries, such as telecommunications and finance, computer software and data processing, rather than on traditional labor- or resources-intensive service industries such as tourism and sales services. This represents a structural upgrading.

In China, traditional industries like tourism and transportation still make up the bulk of its services trade, while its knowledge- and capital-intensive sectors are relatively weak compared to developed countries. Despite the fact that high value-added industries like insurance and finance have registered robust growth in the past few years, they are far from being capable of playing a leading role. In 2010, almost half of China's services exports came from traditional service industries, and finance, insurance, information technology and telecommunications make up only 7.6 percent of the total, setting off alarm bells that a trade upgrading is extremely urgent.

In the days to come, China will see a decline in its population dividends. Reduced supply and the rising cost of labor will erode the profits of the manufacturing industry. In this way, capital return rates will continue to decline, and exports will contribute less to economic growth. With resource dividends continuously decaying, economic growth will be constrained by resource shortage and deteriorated environment.

While labor and resource costs are on the increase, the upward pressure on the renminbi exchange rate keeps mounting, China will find it difficult to maintain export as its major engine for economic growth.

Hence, the country needs to complete the overall upgrading of its industrial chain through innovations in research and development, brand value and marketing channels, and energetically develop high-end services trade.

This is an edited excerpt of an article by Zhang Monan, an associate research fellow at the China Center for International Economic Exchanges, originally published in Securities Times 

THE MARKETS

Geely's Acquisition

Private automaker Zhejiang Geely Holding Group Co. Ltd. confirmed on March 3 the acquisition of British electric start-up company Emerald Automotive after a year of negotiations, promising investment of at least $200 million over the next five years for the development of the fledgling company's vehicles.

"The purchase is part of our technological development of new-energy vehicles," said Li Shufu, founder and chairman of Geely.

Victor Yang, spokesman for Geely, said the purchase is intended to expand the British electric taxi market first.

This isn't Geely's first acquisition in the British market, where demand for new-energy vehicles is outstripping that of other European countries.

In February, Geely paid $18.5 million for 80 percent of Manganese Bronze Holdings Plc., parent company of the maker of London's cabs.

IPO on Nasdaq

China's healthcare services provider iKang Guobin Healthcare Group is aiming to raise up to $150 million in an initial public offering (IPO) on the Nasdaq stock market—the latest Chinese company to attempt a listing in the U.S. market.

The Beijing-based company reported revenue of $134 million in the 2012 fiscal year that ended in March 2013, 43 percent up year on year.

Its net profit rose by 25 percent year on year to $12 million, according to its financial reports.

The company, in which Goldman Sachs Group Inc. and Government of Singapore Investment Corp. both have stakes, has 40 health examination and medical treatment centers in 12 cities in China.

Analysts said iKang Guobin is highly likely to be the first Chinese medical examination provider to be listed on the U.S. market.

NUMBERS

9.9 trillion yuan

Transaction volume of China's e-commerce market in 2013, up 21.3 percent

77.9%

Share of business-to-business (B2B) trade in the e-commerce market in 2013

1.85 trillion yuan

Transaction volume of China's online shopping market in 2013, up 42 percent

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