Solutions to Three Challenges in Service Trade
Mar 04-2021
In service trade, three major challenges confront China in its 14th Five-Year Plan period, writes Prof. Yu Miaojie of the NSD in a commentary. He also outlines some solutions. Prof. Yu is the NSD’s CCP Party Chief.
The first challenge lies in the total volume of service trade, whose 2019 tally of around USD780 billion amounted to barely 20% of the goods trade. The second one is structural, as shown by large trade deficits and low added value. Though trade surplus is not a pursued goal, it’s advisable that China pays attention to long-running deficits in service trade. What’s noteworthy is that China gains trade surplus in low value-added industries such as tourism, construction, and transport, while incurring significant deficits in high value-added ones like consulting, insurance, and finance.
The third challenge concerns new business types in digital trade, i.e., a combination of digital trade and service trade, in which China has a large deficit. Despite so, digital trade might become an arena where China can leapfrog due to the fact that its gap with the US is not as wide as that in traditional finance and insurance sectors.
To cope with the challenges, Prof. Yu advocates making the external circulation work properly, with the full awareness that China’s economic volume is still only 18-19% of the global total. Efforts can be made to expand the size of trade service, adjust its structure, identify shining spots, build specialty industries, and reduce trade deficits. For example, in terms of shining spots, digital trade can be one; in terms of specialty industries, traditional Chinese medicines offer a solid foundation. To pare down deficits, more can be done to promote education export, high-end training, and tourism. He proposes a rethink of current practices concerning the exemption of tuitions for many foreign students; Some tuitions are needed to ensure both the number and quality of foreign students.
Another solution is to fully utilize regional economic cooperation, not least by adopting multilateral trade partnerships to galvanize domestic service trade. RCEP requires the eight countries that still have Positive Lists, including China, to switch to Negative Lists within six years. Such a requirement affords China the opportunity to dock domestic service trade with the international one, in ways similar to its accession to the WTO 20 years ago.
Last but not least, Prof. Yu proposes that China should get involved in the making of international service trade rules. In emergent industries like digital trade, rule making concerns long-term development and is thus too critical to be left unattended.
