Trade in services, sustainability and shift to digital era set to attract huge investments

What is it that global companies need to do for robust growth in China, as the old formula of setting up manufacturing facilities and global distribution systems would no longer suffice? That key question is fast creating consensus among both experts and industry leaders that what is required is alignment with China's emphasis on expanding its openness in the fields of trade in services, green sustainability and digital transformation.

In recent times, global companies such as France's Schneider Electric SE, Finland-based Wartsila Corp and Saudi Arabia's Ajlan & Bros Group have already increased their investments in the sector of trade in services. That is in keeping with the second-largest economy's evolving role in the international industrial chain. From being the world's key factory, China has transitioned to being a pivotal "global office".

In contrast to trade in goods, trade in services refers to the sale and delivery of intangible services such as transportation, finance, tourism, telecommunications, construction, advertising, computing and accounting.

To pursue high-quality development, the country has been promoting import of technologies and services geared toward energy efficiency and reduction of carbon emissions, while simultaneously expanding its export of green and low-carbon technologies, said Huang Dongmei, vice-president of the Shanghai University of Electric Power.

Executives of multinational corporations and market watchers said that for various countries, the vibrancy of China's trade in services will open up significant opportunities for export-driven growth, increase foreign investment inflows and deepen integration into global value chains.

Schneider Electric said it believes China's digital and green transitions have provided crucial support for trade in services and opened up new space for MNCs. In response, Schneider Electric introduced a number of software solutions during the 2023 China International Fair for Trade in Services held in Beijing in early September, to help domestic manufacturers cut carbon emissions and boost production efficiency.

"In the era of the digital economy, we witness a profound integration of technology into the modern services sector, which is instrumental in driving China's real economy toward a more rapid transformation and upgrade," said Xiong Yi, senior vice-president and head of strategy and business development of Schneider Electric's China arm.

This convergence of the digital and physical realms represents a pivotal opportunity for the growth of a range of industries. To further promote this convergence, technologies, particularly software technology and services, play critical roles, he said.

Expressing similar views, Hakan Agnevall, CEO and president of Wartsila Corp, one of the world's largest life cycle and power solutions providers for marine and energy markets by sales revenue, said that apart from running four plants in China, the Finnish company will deploy more resources to boost its service-related businesses such as engine performance improvement, voyage planning, training and decarbonization services in the country.

"From a longer-term perspective, we understand that for Chinese fleet owners, knowing when and how to adapt over the multidecade vessel life-spans is critical for maximizing the value and useful life of an asset," said Agnevall, adding that increasingly strict regulation means shipowners need new technologies, retrofits and upgrades throughout the lifetime of their vessels to stay compliant with the regulations while also maintaining profitability and competitiveness.

"China is by far the biggest shipbuilding country in the world and is therefore a priority market for Wartsila. The country will continue to hold the global No 1 position in shipbuilding, which has offered strong growth momentum for our marine business in China," he said.

China's trade in services maintained stable growth during the first seven months of 2023, growing more than 8 percent year-on-year to 3.67 trillion yuan ($503.61 billion) in total value, data from the Ministry of Commerce showed.

The country's trade in knowledge-intensive services climbed 11.7 percent year-on-year to 158.38 billion yuan during the period. The figure represents 43. 2 percent of total services trade in the January-July period, up 1.4 percentage points from a year ago.

The surge in exports of human capital-intensive services, the growing consumer demand for high-quality imported services and the increasing convergence of traditional manufacturing with the modern services sector have all created numerous opportunities. This shift in focus is accompanied by a decline in the export volumes of China's labor-intensive products, said Zhong Zeyu, vice-president of the Shanghai-based China Association of Trade in Services.

Emphasizing the potential of human capital-intensive services, Zhong said that China's future economic growth could be driven by exporting services that require high levels of expertise and skill, such as technology consulting, research and development, and engineering.

Echoing this sentiment, Mohammed Al Ajlan, chairman of the Saudi-Chinese Business Council and deputy chairman of Ajlan & Bros Holding Group, said the expansion of China's exports of knowledge-intensive services has played a role in improving the industrial structure and promoting the process of modernization around the world.

"We wish to enhance cooperation in emerging fields, such as 5G, artificial intelligence, big data, biotechnology, financial technology and automation, among others, join hands with more Chinese companies to tap into the potential of Saudi-China bilateral economic and trade cooperation, and help investors from the two countries achieve a higher level of cooperation," he said.

In a global landscape marked by declining goods demand and increasing geoeconomic fragmentation, China will underline progress in crafting national and pilot free trade zone versions of the negative list governing cross-border trade in services, amid efforts to further advance its opening-up, said Chen Chunjiang, assistant minister of commerce.

In addition to proactively aligning with high-standard international economic and trade rules, the government will expedite the establishment of upgraded national demonstration zones for innovative development of trade in services, the commerce official said.

Aiming to generate renewed momentum in exports of services, China will also establish high-standard service outsourcing demonstration cities to foster innovative formats and approaches within various subsectors of trade in services, according to information released by the Ministry of Commerce.

In the context of sluggish international demand, increasing protectionist pressures and escalating geopolitical tensions, Xin Yongfei, head of the Policy and Economic Research Institute at the China Academy of Information and Communications Technology, noted that the realm of digital trade, propelled by technological innovations, policy support and evolving trends, will emerge as a pivotal driving force in strengthening China's exports and cutting down on business transaction expenses.

Digital trade refers to trade in goods and services that are digitally ordered and digitally delivered, such as cross-border e-commerce and digitally facilitated transactions in trade in services, which account for a growing share of international trade, according to information released by the Geneva-based United Nations Conference on Trade and Development.

Xin warned that it is crucial for China to further elevate the strategic importance of digital trade and actively promote international cooperation in this field to enhance its strength, as many economies, such as the United States, the United Kingdom, Japan and South Korea, have deeply engaged in global digital trade agreements, safeguarding their advantageous position in digital trade.

The total value of China's foreign trade in digital services reached $371.08 billion in 2022, growing 3.2 percent year-on-year and accounting for 41.7 percent of its total trade in services last year, according to a report jointly released by the Development Research Center of the State Council and the CAICT.

To reinforce China's growth potential in the digital trade sector, the government will accelerate the industrialization pace of the digital sector as well as nurture and strengthen digital industries such as cloud computing, big data, artificial intelligence, blockchain, virtual reality and industrial software, said Zhao Zhiguo, chief engineer at the Ministry of Industry and Information Technology.

Xiao Ran, general manager for China at British technology consulting company Thoughtworks Inc, said China's "Digital China" plan solidifies the country's position as the leader in the digital era.

"The emergence of generative artificial intelligence illustrates China's expanding capacity for innovation while also opening up sizable potential that plays to our advantages," said Xiao. In the next step, the company will deploy more resources to enhance the business coordination between its offices in Shenzhen, Guangdong province, and Hong Kong to expand its businesses in the Guangdong-Hong Kong-Macao Greater Bay Area, he said.