Zhang Monan: Developing Service Trade to Enhance China's Global Industrial Competitiveness

The “Fourteenth Five-Year Plan” outline proposes to “vigorously develop trade in services” and “develop knowledge-intensive trade in services.” Against the backdrop of deep adjustments to the global economic landscape, and the accelerating advance of a new round of scientific and technological revolution and industrial transformation, trade in services—especially knowledge-intensive and productive services trade—no longer plays the role of a traditional “supporting” sector. Instead, it has become an important lever for promoting high-quality and high-efficiency development of the services sector and for advancing deep integration between manufacturing and modern services. By gaining a thorough understanding of the new trends in the development of trade in services, and by grasping the role and effects of “services” in enabling “manufacturing” from the perspective of global value chains, as well as promoting innovative development of trade in services, we will be able to provide solid support for enhancing China’s industries’ global competitiveness.

Trade in services becomes a new high ground for international competition

Global trade is expanding from being dominated by single-commodity trade to trade in services. A new round of scientific and technological revolution is accelerating the use of digital technologies to empower the services sector, and global trade in services is exhibiting digitalization, platformization, and knowledge-intensiveness. Digitally delivered services are becoming an important component of trade in services. Technologies such as cloud computing, artificial intelligence, and blockchain are reshaping service delivery models and breaking the geographic boundaries that constrain trade in services. Data show that in 2024, global services exports reached $8.9 trillion, up 9.9% year over year, becoming an important engine for growth in global trade. At the same time, the development of global value chains is shifting from a model centered on manufacturing stages to a “manufacturing + services” integration model, with value-added stages extending continuously toward both ends of the smile curve. In the value chain, profit shares in upstream stages such as R&D design and brand management, as well as downstream stages such as marketing and after-sales service, are continuing to rise, while profit margins in manufacturing stages are being further compressed.

From an international perspective, a small number of developed economies still dominate global trade in services. The United States has leading advantages in areas such as financial services, software services, and licensing of intellectual property. The European Union has formed institutional advantages in services with its high-end engineering consulting and the setting of green standards. Japan, meanwhile, has embedded industrial software, precision engineering services, and technology consulting into global manufacturing systems to build an integrated services network. These countries all focus on knowledge-intensive and productive services trade in an effort to secure the power to set international technical standards and institutional rules.

China’s trade in services is in a development stage characterized by scale expansion proceeding in parallel with structural optimization. In 2025, China’s trade in services will grow steadily, with total service imports and exports reaching 80823.1 billion yuan, up 7.4%. Among them, knowledge-intensive trade in services maintains growth; the size of the surplus expanded by 1581.7 billion yuan over the previous year; the export scale of digital services has grown strongly, and the trade structure continues to improve. It is also important to note that although the size of China’s services sector ranks among the top in the world, the share of services trade in total foreign trade is still lower than the global average for the same period, and its enabling role has not yet been fully realized. There remains substantial room to enhance the strategic value of trade in services.

The role and effects of “services” enabling “manufacturing”

Relevant research by international organizations indicates that the core of competition in manufacturing has shifted from competition based solely on scale expansion to competition based on value-creation capability. Knowledge-intensive and productive services industries participate in the intermediate input stages of manufacturing; their efficiency and quality directly affect the added value of manufacturing and have a clearly positive correlation with manufacturing competitiveness. To develop trade in services through innovation, it is necessary, from the perspective of global value chains, to understand the role and effects of “services” enabling “manufacturing,” and to help China move from lower-end segments to mid-to-high-end segments in global value chains.

First, cost optimization. Cost optimization does not mean compressing expenses in a single stage. Instead, through the deep embedding of productive services, it drives systematic declines in institutional costs and operating costs across the entire manufacturing industry chain and across enterprises’ full life cycles, thereby promoting improvements in total factor productivity in manufacturing. As the share of investment in information technology, logistics, and supply chain financial services rises within manufacturing intermediate stages, cross-border trade costs in manufacturing will further fall.

Second, value-chain value addition. “Services” enabling “manufacturing” works by opening trade in services at a high level to efficiently allocate high-end service factors globally. It extends toward upstream stages of the value chain such as R&D design and core intellectual property, and toward downstream stages such as brand services, digital operations and maintenance, and global supply chain management—thereby breaking through global value chain “low-end lock-in” and enabling a leap from simple processing and assembly to high-end creation.

Third, strengthening of voice and influence. International trade competition is shifting from traditional competition dominated by tariff barriers to institutional-type competition dominated by “rules and standards.” Taking intellectual property rules as an example, developed economies固ify their own technological pathways into international standards, creating strong path dependence in global markets. For latecomer economies, the options are either to pay high patent fees to access the existing system, or to build standards on their own but face the dilemma of global market incompatibility, which in turn suppresses technology catch-up. At present, in fields such as artificial intelligence foundational frameworks, electronic design automation, and industrial operating systems, it is necessary to accelerate the conversion of independently developed intellectual property into international standards, provide higher-quality service supply to empower the transformation of scientific and technological achievements, and thereby enhance the global competitiveness of China’s high-end manufacturing.

Exploring pathways to enable each other in both directions

At present, China still has shortcomings in high-end trade in services. From the perspective of industrial foundations, in some key areas, the ability for independent and controllable development is not strong, and some underlying technologies rely heavily on external sources. From the perspective of industrial integration, the integration level between trade in services and high-end manufacturing is relatively low. Manufacturing enterprises generally face problems of “emphasis on production and neglect of services.” Productive services lack specialization, and their scale and benefits are not high enough, which constrains the capacity to supply high-end trade in services. The servitization transformation of manufacturing is not merely a passive response to external competitive environments, but also a strategic choice for developing new quality productive forces and shaping new advantages. During the “Fourteenth Five-Year Plan” period, it is necessary to focus on the development direction of knowledge-intensive trade in services and productive services trade, and to continuously explore practical pathways for mutual, two-way enabling between trade in services and the high-quality development of manufacturing, helping China transition toward a manufacturing power and a trade power.

First, focus on high-end manufacturing and optimize the supply of high-end services. Strengthen fiscal and taxation policy support such as structural tax reductions and fee cuts and additional deductions for R&D expenses, and guide manufacturing enterprises to increase investment in R&D design, digital services, and other areas. Promote a steady rise in the proportion of productive services investment in manufacturing intermediate stages, thereby laying a solid foundation for innovative development of trade in services. Focusing on core areas such as high-end industrial software, semiconductors, and industrial operating systems, build a collaborative mechanism for tackling key issues that involves “industry, academia, research, and application,” accelerating the iteration of domestically developed technologies and the construction of an independently controllable industrial ecosystem. Set up national-level intellectual property operation platforms, develop high-end intellectual property services, and enhance the value of China’s intellectual property and its international competitiveness.

Second, deepen institutional opening and align with high-standard international economic and trade rules. Further reduce the negative list for cross-border trade in services, and orderly expand opening in supporting areas such as the industrial internet and R&D design, remove hidden barriers, and attract high-quality business entities to invest. Conduct stress testing in areas such as cross-border data flows, confirmation of rights for industrial data, and protection of core source code, and align with international high-standard rules. Break through bottlenecks for the cross-border movement of service factors such as R&D design, supply chain management, and overseas operations and maintenance, helping manufacturing enterprises tap into global high-end service resources. Establish a quantitative evaluation mechanism for productive services’ contribution to manufacturing’s value-added, technological upgrading, and export competitiveness. Improve statistical classifications in emerging areas such as digital trade, so as to precisely monitor the effectiveness of service factors embedded in manufacturing value chains.

Third, deepen industrial integration and build a new ecosystem of “manufacturing + services.” Cultivate specialized third-party productive services enterprises, and support equipment manufacturing enterprises in transitioning toward system integrators and providers of end-to-end solutions. Rely on the advantages of advanced manufacturing industry clusters to plan and develop industrial design, supply chain finance, and other supporting service aggregation zones, creating an industrial ecosystem characterized by mutual growth and coexistence. Build international cooperation platforms, support productive services enterprises and manufacturing enterprises in jointly going global, and foster service trade brands with global competitiveness.

(This article is sourced from the Economic Daily. The author is Zhang Monan, Deputy Minister and Researcher of the Research Department on Europe and the United States at the China Center for International Economic Exchanges.)