Key Points:

  • Opens up sector further 
  • Improves industrial structure in service sector 
  • Implements policies preferential to service sector

In March 2007 the PRC State Council issued an opinion aimed at promoting the development of China’s service sector (Opinion). Development of the service sector will help China shift the growth of its economy from an industry-driven pattern to one that relies more on domestic demand, reducing pressure on the environment and exports and reducing consumption of energy and resources. The Opinion sets a service trade target of US$400 billion by 2010 and aims to raise the proportion of the service industry’s value to the GDP and employees in the service sector by 3 and 4 percent respectively, up from 2005. Currently, China’s service sector counts for only about 40.2 percent of its GDP, which is lower than the average 70 percent in developed countries. The Opinion urges local governments and departments to encourage foreign investment and improve the legal framework of the service sector.

Further Opening Up the Sector The opinion expresses the government’s commitment to further opening up the service sector, encouraging foreign investment and improving legislation related to foreign investment. In particular, expansion of outsourced services will be a key component of China’s service trade, which includes information technology (IT) services, accounting, data processing, accounting, research and development (R&D) and industrial design. Coastal regions are being encouraged to come up with appropriate policies for supporting outsourced services and speeding up formation of companies capable of providing international customers with high-quality service. The country is committed to offering open, equal and standardized access to its market and encouraging social funds to enter the service sector as part of its support for the development of private service companies. To prevent local protectionist and market segmentation, all sectors open to foreign investment will be opened to domestic capital as well and vice versa.

Improvement of the Industrial Structure of the Service Sector

China is encouraging development of service industries related to manufacturing. In addition, it is encouraging development of transportation, thirdparty logistics services, and the IT and software industry, as well as the science and technology service industries. Meantime, the state is also calling for the regulation and development of legal consulting; accounting; auditing; engineering consulting; authentication and certification; credit evaluation; advertisement; and exhibition services. China will further promote the chain operation model and franchising as well. Moreover, the state is encouraging development of service industries related to the livelihood of the people, such as public infrastructure, real estate, property management, education, medical care, nursing homes and entertainment.

According to the Opinion, the government will extend reform of its telecom, railway and civil aviation industries, further liberating market entry, advancing the restructure of state-owned assets and introducing a competition system to diversify investors.

Service-Sector Preferential Policies

Companies specializing in rural infrastructure and logistics, as well as outsourcing companies involved in industrial product design, R&D, IT, software and logistics services that are recognized as “New & High Technology Enterprises,” will receive tax incentives and preferential treatment, although the Opinion fails to specify details. Additionally, service companies in areas “encouraged” by the government will receive preference related to land supply and energy use. China also intends to lower registered capital and registration requirements for most service companies and will allow chain model service companies to process paperwork and receive license approval for their stores from the authority with jurisdiction over the companies’ headquarters to make the approval and registration processes more efficient. The Opinion calls on central and local finance authorities to set aside funds to support key service sector needs and widen channels for funding; the state will broaden the channels for financing of the service sector. The state finance budget will arrange funds to support key and weak service fields and improve China’s indigenous innovation capacity.

Geographic Layout

Under the Opinion, developed regions such as the Pearl River Delta, Yangtze River Delta and Bohai Rim economic regions must promote the modern service sector and improve the quality of their service industries, with an aim toward promoting the local economy mainly through the growth of the service industry.

Funding

According to the Opinion, the state will actively support qualified companies in entering domestic and foreign capital markets by issuing stocks and corporate bonds. In addition, the Opinion encourages venture capital and credit firms to invest in small and medium-sized service companies using promising new technologies.

New Services Leadership Team

The State Council will form a National Leadership Team for the Development of the Services Industry, under the authority of the NDRC. This team will be responsible for daily work related to service sector development. Provincial governments should establish corresponding groups to guide local services development, according to the Opinion. This Opinion is China’s third document related to developing the service sector.

The first two were issued by the Central Committee of the Communist Party of China and the State Council in 1992 and by the NDRC in 2001. Though the government has emphasized the importance of developing China’s service sector many times, the relevant ministries have experienced difficulty in coordinating a set of effective policies. This latest Opinion, and the establishment of a service sector leadership group, should help in this effort. However, detailed rules relaxing the market entry threshold of certain service sectors, and detailed information on incentives for the service sector, have not yet been created by the relevant departments.