Double act will pay dividends
CAI MENG/CHINA DAILY
China's opening-up of its service sector and future status as the world's largest service trading country will boost Sino-US economic and trade ties
One of the important preconditions for reconstructing Sino-US economic and trade ties is to objectively assess the economic development trend of both sides. China's evolution in the next five to 10 years to become the largest consumption market in the world will impact Sino-US economic and trade ties.
The domestic consumption market is growing rapidly in China. Its total retail sales of consumer goods increased from 15.2 trillion yuan ($2.35 trillion) in 2010 to 40.8 trillion yuan in 2019. By 2025, it could reach between 50 trillion yuan and 55 trillion yuan, which at the 1:6 dollar-renminbi exchange rate converts to $8 trillion to $9 trillion.
The gap between Chinese and US consumer markets is narrowing (from $340 billion in 2017 to about $270 billion in 2019).
Also, China is ushering in a service-oriented consumer society. In 2019, Chinese residents' service consumption accounted for 45.9 percent of total consumption; the proportion will rise to 52 percent by 2025 and 60 to 65 percent by 2035 if it grows by 1 percentage point annually in the next five to 10 years. When the service consumption proportion of 1.4 billion people exceeds 60 percent, it will increase demand for the global market, including the United States.
As service-oriented consumer demand grows, China's service sector is expected to account for about 60 percent of all industries in 2025 from 54.53 percent in 2020 and that will constitute more than 10 percent of the world's total. In the next 15 years, China's imports of services will exceed $10 trillion. Such a super-large consumer market will significantly improve Sino-US economic and trade relations.
According to a report by Oxford Economics commissioned by the US-China Business Council, if the two countries gradually abolish the extra tariff policy and further develop bilateral trade it will create 145,000 jobs for the US by 2025.
As a report released on Feb 17 by the US Chamber of Commerce showed, the US will suffer hundreds of billions of dollars in losses if it decouples fully from China, with the aviation, semiconductor, chemical and medical devices industries suffering great losses.
China's future status as the world's largest service market will bring changes to bilateral economic and trade ties. It will also help China speed up its efforts at institutional opening-up, extending it from the manufacturing industry to the service sector, including education, culture, health, finance and more.
The foreign investment negative list was trimmed from 63 in 2017 to 33 in 2020. China is speeding up the docking of rules, regulations and standards with the international market, and the reform of some key and fundamental deep-seated systems and mechanisms.
Both China and the US expect the opening-up of the other's market and a fair competition environment in the service sector. As of now, Chinese enterprises encounter barriers in the US, such as security reviews and prohibitions on use of its technology. Their US counterparts believe that China has market access barriers in the fields of electronic payment, film imports and professional services.
The opening-up of China's service market will offer new opportunities for bilateral economic and trade cooperation. China is the world's largest market for logistics, tourism, films, online education, and financial technology industries, and it is expected to become the world's biggest market for medical services, pension services, financial services and art trading.
In the next five to 10 years, it is of strategic importance for the two countries to rebuild their economic and trade relations, gradually open their service markets in a mutually beneficial and equal manner and jointly move toward a non-discriminatory and fair competition environment.
China's future status as the world's largest service trading country will impact Sino-US economic and trade ties. Its service trade is growing. The volume reached $785 billion in 2019 and it is estimated the scale will reach $1 trillion by 2025, with its proportion in China's foreign trade increasing from 14.64 percent in 2019 to about 20 percent.
The proportion of the knowledge-intensive service trade has grown from 32.4 percent to more than 40 percent; the proportion of high-end productive service trade such as insurance, computer and information, and intellectual property has risen from 23.8 percent to over 30 percent; the proportion of digital related service trade exports will reach around 30 percent from 23.5 percent in 2019.
The development of China's service trade has broadened the space for economic and trade cooperation with the US. According to Chinese statistics, before the China-US economic and trade frictions, the bilateral trade volume in services had grown from $27.4 billion in 2006 to $125.3 billion in 2018, a 3.6 times increase. US statistics show that exports of services to China increased 3.4 times from $13.14 billion in 2007 to $57.63 billion in 2017, higher than the growth of US services exports to other countries and regions (1.8 times) in the same period, and the annual surplus of US trade in services to China expanded 30-fold.
In general, the US is at the high end of the global industrial, value and innovation chains, while China is at the middle and low end. There is huge space and potential for mutual benefits and win-win results in the two countries' economic and trade cooperation. Greater efforts aimed at boosting economic and trade cooperation, especially in services and in promoting trade liberalization and facilitation, will help promote the economic growth and trade balance of both countries.
It is crucial both countries seek to accelerate the formation of an institutional framework and arrangements for their economic and trade consultations, strive to eliminate tariffs as soon as possible, strengthen communication and practical cooperation in multilateral trade, cooperation and joint development of third-party markets, gradually resume educational and people-to-people exchanges, and create a better environment for economic and trade cooperation.
The author is president of the China Institute for Reform and Development. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.