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China's Producer Service Industries: Status Quo and Major Issues


By Lai Youwei, Development Research Center of the State Council

Research Report No 038, 2010

In recent years, the growth of China's service industry as a whole has become visibly faster, with both modern service industries and producer service industries rising fairly fast. The internal structural evolution of the tertiary industry points to a tangible trend of upgrading. China's producer service industries have demonstrated some new features and have great development potentials.

I. Strong Development Momentum Makes Important Contributions to Steady and Rapid Economic Growth

As China widens its opening to the outside world and gradually improves its infrastructures and market systems, the country's producer service industries have also developed rapidly, providing a strong support for the development of manufacturing and agriculture and becoming an important pillar of the national economy. However, these industries still represent a small fraction of the national economy and lack international competitiveness. The internal structure of the service industry indicates that producer service industries claim a small proportion and lags in development. In 2008, the added value of China's tertiary industry was 13,134 billion yuan, or 41.8% of its GDP. But the producer service industries only accounted for about 40% of the total added value of the service industry as a whole.

Since 2008 and especially since the outbreak of the international financial crisis, modern service industries and especially producer service industries have maintained an excellent development momentum in spite of unfavorable international economic climate and slower industrial growth. They have contributed to the steady and fairly fast growth of the Chinese economy. Driven by both modern service industries and producer service industries, service economy spearheaded by producer service industries has appeared in Beijing, Shanghai, Guangzhou and other cities, where major progress has been scored in industrial structure optimization. In 2008, while the service industry as a whole accounted for 73.2% of Beijing's total output value, the producer service industries claimed a 60% share of the total added value of the city's service industry. Beijing has become the first city in China to have formed an industrial structure dominated by service economy.

II. Vigorous Development of Service Outsourcing and Other New Industries Provides New Growth Fields for China's Economic Development

In recent years, some new services have appeared in China. They have developed rapidly and possessed strong market competitiveness. They are mainly the legal services including attorney, public notary, legal assistance and economic arbitration; the investment and assets management services including project planning, financial consulting, acquisition, fund and private banking; the economic appraisal services including assets appraisal, verification and test; the consulting services including market investigation, engineering consulting, management consulting and credit service; the producer service industries with great development potentials including industrial design, convention, exhibition, Internet information service, e-business, HR service and service outsourcing. In recent years, the vigorous development of new producer service industries has provided new growth fields for China's economic development. In particular, the service outsourcing industry is a typical example and is used here for the following expositions.

1. Service outsourcing undertaken by Chinese enterprises continues to expand in scale

Since the beginning of the new century, software, information service and other producer service industries have been massively shifted to developing countries. This has offered a rare development opportunity to Chinese enterprises. With the guidance and support of state policies, service outsourcing undertaken by Chinese enterprises has been expanding in scale and widening in coverage. It has demonstrated a strong development momentum. In 2008, China's software and information service outsourcing rose 41.2% year on year to 156.77 billion yuan and the number of people employed in this area rose 36.7% to 410,000. Currently, cities like Shanghai, Beijing, Dalian and Hangzhou all have international service outsourcing parks, noted for high industrial concentration and remarkable economic efficiency. The rapid growth of local outsourcing enterprises has gradually changed the pattern that foreign-invested enterprises used to occupy the dominant position.

Despite the impact of the international financial crisis, China's service outsourcing industry still managed an explosive growth in 2009. The statistics of the Ministry of Commerce indicate that in the first nine months of 2009, China had 3,287 new enterprises engaged in service outsourcing, offering employment to 585,000 people. Specifically, 398,000 new university graduates were employed, foreign service outsourcing contracts worth US$12.69billion or 212% higher year on year were signed, and contracts worth US$7.3billion or 170% higher year on year were executed. By the end of September 2009, China had 8,060 enterprises engaged in service outsourcing, which employed 1.42 million people.

2. China's service outsourcing industry has enormous development potentials

As China's service outsourcing industry is still in the take-off stage, enterprises are small in scale and weak in international competitiveness. However, the industry has an excellent foundation for development. With a growing demand for domestic and offshore service outsourcing and with a fresh push of the central and regional governments, China's service outsourcing industry will continue the strong development momentum during the 12th Five-Year Plan period and expand rapidly in scale. The five-year development goals set by the Ministry of Commerce envisage that by 2013, China's international service outsourcing industry will grow 43% annually on average to US$30 billion, 2,000 large and medium-sized enterprises will be internationally qualified and 1.2 million people will be trained for service outsourcing, and 1 million new college and university graduates will be employed.

While China's service outsourcing industry has scored rapid development despite international economic downturn, we must be aware of the fact that this growth rate was based on a very low base figure. China's service outsourcing industry is still noted for weak corporate strength, inadequate innovation capacity, unsound public service system and limited international influence.

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