Author: Sheng Songcheng Long Yu (Sheng Songcheng is President of the China Chief Economist Forum Research Institute, Professor of Economics and Finance at China Europe International Business School, and former Director General of the Survey and Statistics Department of the People's Bank of China)
The development of new quality productivity, the creation of new value, the adaptation of new industries, and the reshaping of new kinetic energy are the internal requirements and important focus of promoting high-quality development. The development of the service industry (especially the producer service industry) can provide strong support for the cultivation of new quality productivity, because to promote the development of new quality productivity, it is not only necessary to improve the ability of scientific and technological innovation, but also to provide a better market foundation, more efficient factor allocation and more comprehensive talent support for the transformation of scientific research achievements. The high-quality development of the service industry itself will also become part of the new quality productivity.
To avoid a misunderstanding in the development of the service industry, that is, to oppose the increase in the proportion of the service industry and the development of the manufacturing industry. In fact, without an advanced and high-quality service industry, it is difficult to have an advanced manufacturing industry. The high-end part of the manufacturing industry, such as R&D, design, patents, brands, etc., all belong to the category of producer services. As the economy becomes more digital, there are more and more parts of the service industry that directly support the development of advanced manufacturing, and the boundaries between the service industry and the manufacturing industry are becoming increasingly blurred, and many of the parts that belong to the service are included in the price of manufactured goods. Therefore, the development of the service industry and the manufacturing industry are not contradictory, and more important than the statistics is their development connotation.
Through the differences in the structure of the service industry between China and the United States, it can be seen that the development of the producer service industry is an important driving force to increase the proportion of the service industry in GDP, and it is also the main manifestation of the improvement of the competitiveness of the service industry. These findings are expected to provide a direction for the service industry to help the development of new quality productivity.
The difference in the structure of the service industry between China and the United States is mainly due to the producer service industry
In 2023, the added value of the mainland's service industry (tertiary industry) will account for 54.6% of GDP. As early as the 40s of the 20th century, the tertiary industry accounted for nearly 60% of the GDP of the United States, and the tertiary industry currently accounts for 81.6% of the GDP of the United States. In addition to the gap in aggregate, the difference in the structure of the service industry between China and the United States is more worthy of attention. Nearly 60% of the nearly 30 percentage point gap between China and the United States in the proportion of the service industry comes from the producer service industry.
According to the conceptual criteria of the National Bureau of Statistics, the producer service industry can be understood as an intermediate service sector, which mainly provides services for the production activities of various market entities, while the services provided by the life service industry are mainly used for the final consumption of residents. At present, the producer service industry involves 16 categories of national economic industries, mainly including: wholesale trade, transportation, warehousing and postal industry, information transmission, software and information technology service industry, financial industry, leasing and business service industry, scientific research and technical service industry, ecological environmental protection and environmental management industry, etc. There are 13 categories of life services, mainly including: retail, accommodation and catering, real estate, tourism, resident services, repair and other services, education, health and social work, culture, sports and entertainment, etc. Based on the latest available data, we map the U.S. services sector sub-categories to the above-mentioned industry categories, and we get that the producer services sector in China and the United States each accounted for 31.4% of their respective GDP [due to data availability limitations, the data for China's tertiary sector sub-sectors are 2021]. In addition, when calculating the share of mainland producer services, 50% of wholesale and retail sales are used to estimate the proportion of wholesale trade in GDP] and 47.7% [corresponding to the United States, producer services include the following services provided by private individuals: transportation and warehousing, information industry, professional and business services (including scientific research, law, corporate and business management, administrative and support services, etc.), leasing services and leasing of intangible assets, finance and insurance, wholesale trade, and government services. Due to the difference in the statistical caliber between China and the United States, China does not list government services separately, while the United States first distinguishes between private services and government services, and then further subdivides the private services into different industries, while the government services do not classify different industries, so China's statistics on producer services include both private services and government services. In order to increase comparability, and for the purpose of government services being public services themselves, U.S. government services are included in the calculation of producer services]. The proportion of producer services in GDP on the mainland is 16.3 percentage points lower than that of the United States.
The difference in the proportion of life services between China and the United States mainly comes from the medical and health and real estate sectors, which can explain more than 80% of the difference in the proportion of life services in China and the United States. With the increase in income and the increase in life expectancy, it is expected that the medical, health and elderly care sectors in mainland China will usher in extensive development. However, the difference in the proportion of added value of the real estate industry between China and the United States is not as large as the statistics show. The contribution of mainland real estate to the economy is underestimated for a number of reasons. If it is estimated according to a broad perspective (the added value of the real estate industry in the construction industry and the added value of the real estate industry are combined, it has the statistical comparability of different countries), the contribution of China's real estate industry to the economy is comparable to that of the United States and Japan. This further shows that the difference in the structure of the service industry between China and the United States is more reflected in the difference in the producer service industry. It is worth mentioning that it is difficult to completely and clearly distinguish between producer services and life services, because some industry subcategories belong to both producer services and life services. For example, industries with the nature of public services (meteorology, earthquake, oceanography, surveying and mapping and other professional and technical services, education, health and social work, etc.), and some industries have the characteristics of providing services for production and life at the same time (transportation, mobile telecommunications services, vocational education and training services, etc.). According to the classification standard of the National Bureau of Statistics, there are 76 industry sub-categories with the characteristics of both productive and living services, while the mainland producer service industry involves 348 industry sub-categories, and the life service industry includes 288 industry sub-categories, and the above-mentioned cross-cutting areas account for only 11.9% of all industry sub-categories, which does not affect our observation of the overall structural characteristics of the service industry in China and the United States.
The development of producer services is likely to increase the share of services in the economy and labor productivity at the same time
In general, labor productivity in the service sector is lower than in the manufacturing sector. However, while the share of the service sector in the United States has increased, labor productivity has also remained high. At present, the per capita GDP of the United States has exceeded 80,000 US dollars, and 84% of the employed population in the United States is engaged in the tertiary industry. Data from other developed countries also show that the higher the income country, the higher the labor productivity of the service sector, and the closer the service sector labor productivity is to the secondary industry labor productivity. Through a longitudinal analysis of the process of increasing the proportion of the U.S. service industry in the economy, we find that the development of producer services is one of the main driving forces for the share of the service industry in the U.S. GDP.
In the decades since 1947, the share of producer services in GDP in the United States has been on an upward trend overall, especially in the high-end segments (such as information, professional and business services, The proportion of individual industries (such as transportation and warehousing) has declined, while in the life service industry, except for the added value of the medical and health care and real estate industry (the real estate industry has actually absorbed some of the fruits of the development of the producer service industry due to the appreciation of land value brought about by economic development), the proportion of other life service industries has been relatively flat or even slightly declined.
Overall, the development of producer services has contributed more to the increase in the proportion of the U.S. service industry. After the basic living needs of residents are fully satisfied, the upward space for the added value of the life service industry tends to be limited. Producer services, especially scientific research, professional technology, etc., can provide higher added value. In the era of accelerated development of information technology and the digital economy, the latter may even grow exponentially. For a long time, the proportion of producer services in the United States has increased in tandem with GDP per capita. The share of producer services in GDP in the United States increased from 39.5% in 1977 to 47.7% in 2023 [the calculation is the same as above, and some industry sub-categories are not disclosed before 1977], and its per capita GDP (at constant prices) increased from $30,337 to $66,755 during the same period.
China should pay more attention to the high-quality development of producer services
In recent years, the development of the mainland's producer service industry has accelerated. From 2010 to 2021, the mainland's tertiary industry accounted for 53.5% of GDP, up from 44.3%. Among them, the proportion of information transmission, computer services and software increased the most, with their share in GDP increasing by 1.79 percentage points, while the proportion of leasing and business services, finance, scientific research and technical services in GDP increased by 1.37, 1.56 and 0.83 percentage points respectively. The above-mentioned industries have contributed more than 60% to the increase in the proportion of tertiary production in the mainland.
Despite this, there is still a clear gap between the mainland's producer services sector and that of the United States, especially in high-value-added industries. Specifically, the mainland's information services and software industry accounted for 3.9 percent of GDP, 3.3 percentage points lower than that of the United States, the mainland's scientific research and technical services accounted for 2.5 percent of GDP, compared to 5 percent in the United States, and the mainland's leasing and business services industry was 3.8 percentage points lower than its American counterparts (leasing services and intangible asset leasing, legal services, corporate and enterprise management services, administrative and support services). Combined, China is 9.6 percentage points lower than the United States, which explains the 58.9% difference in the share of producer services between China and the United States.
There is also considerable room for improvement in the competitiveness of the mainland's producer services. Taking the financial industry as an example, the added value of the mainland's financial industry will account for 8.0% of GDP in 2023, even higher than that of the United States (7.3%), but it is "big but not strong". From the perspective of trade in services, the mainland's financial services trade surplus in 2023 will only be US$647 million, while the U.S. financial services trade surplus will be US$113.6 billion, which is the primary source of the U.S. service trade surplus. This shows that there is still a lot of room for improvement in the competitiveness of the mainland's financial industry. The 2023 Central Financial Work Conference put forward requirements for improving the quality and efficiency of financial services for the real economy. The financial industry still has a lot to do in supporting technological innovation, industrial upgrading, and green transformation.
Much of the mainland's trade deficit in services also comes from producer services. In contrast, the United States has advantages in productive services such as finance, intellectual property royalties, and other business services, with surpluses of US$113.6 billion, US$82 billion, and US$108.42 billion, respectively. At present, the deficit under intellectual property royalties is US$31.75 billion, and the surplus in trade in other commercial services is US$38.03 billion, which is still far behind the United States. Therefore, despite the large deficit in trade in goods, it is important to note that the growth of US trade in services has largely contributed to its balance of payments. In 2023, the U.S. service trade surplus will be nearly $280 billion, while the mainland deficit will exceed $220 billion.
The high-quality development of the producer service industry will help the mainland to actively connect with high-level economic and trade rules, which is of great significance to improve the competitiveness of the mainland in the field of new forms of trade. The World Trade Report published by the World Trade Organization (WTO) predicts that by 2040, global trade in services will account for 50% of global trade. At present, global trade in services accounts for 30% of total trade, and China accounts for 12%. In the trade in services, the proportion of digital trade (defined by the World Trade Organization as digitally ordered or digitally deliverable) is rising, and there is also broad room for development. High-income countries now account for 82.6% of digitally delivered services. The mainland is one of the countries with the most production data in the world, and the potential to be tapped and unleashed is huge. According to the International Data Corporation (IDC), China's population of more than 1.4 billion people generates more than 20% of the world's data.
The essence of the high-quality development of the service industry is more important than the form
It is of little significance to simply and one-sidedly limit the proportion of the service industry or manufacturing industry in GDP, but more attention should be paid to the connotation of high-quality economic development. The high-quality development of the service industry and the high-quality development of the manufacturing industry are closely linked. It can even be said that without an advanced and high-quality service industry, it is difficult to have an advanced manufacturing industry. This year's "Government Work Report" also specifically talks about "accelerating the development of modern productive industries" when talking about the implementation of "vigorously promoting the construction of a modern industrial system and accelerating the development of new productive forces".
In 2023, the mainland's exports of high-tech products accounted for 25.1% of the total exports of goods. Among them, the export value of information and communication products was 498.52 billion US dollars, with a surplus of 335.87 billion US dollars. However, it should also be objectively recognized that the export value of these products also includes the production capacity of foreign-invested enterprises in China, and Chinese companies still need to work hard to obtain more added value from the sales of these products, especially the intellectual property rights, brands and other parts of the high value-added service industry.
In recent years, the trend of "near-shore reshoring" of global production layout is largely based on the improvement of technological innovation level, which has improved the production response ability of enterprises to the demand for product customization. To cope with similar challenges, Chinese enterprises need to have stronger internationalization capabilities and innovation capabilities. Driven by multiple factors such as rising labor costs, changes in the international environment, and restructuring of the global value chain, Chinese enterprises have taken a new round of "going global", and they need producer services to "escort" them. In this process, enterprises not only need to move towards the high end of the global value chain through technological innovation, product innovation and brand building, but also need the support of professional services such as business services, finance and law. The transformation of the mainland from a manufacturing country to an innovation country is a systematic project that requires the coordination and cooperation of various industries and fields.
All in all, the service industry plays an indispensable role in the cultivation and development of new quality productivity, especially the production service industry with high added value, which is an important direction for the mainland's service industry to support high-quality economic development in the future. With the increasing importance of data elements, superimposed on major changes such as the accelerated development of information technology and energy transition, the mainland hyper-scale market is expected to play more advantages, provide rich application scenarios for new technologies and products, and create a better economic and social environment for continuous innovation.