The service sector is emerging as a key engine of the Chinese economy, and China’s implementation of its World Trade Organization (WTO) service commitments is yielding significant benefits for the country. Even more substantial gains would be possible, however, if China were to fully remove the remaining market barriers in its service sector.
Chinese industry is growing rapidly in part because of strong imports of knowledge services, network services (transport, communication, and information technology) and financial services from developed economies. Oxford Economics estimates that the increase in China’s service sector imports after 2001 resulted in higher average labor productivity of 0.3 percent. This productivity increase equates to a $6.5 billion increase in Chinese GDP in 2005, of which roughly $650 million is attributable to service sector imports from the United States. FDI in the service sector has also benefited China. In particular, inflows of service sector investment from the
United States were worth around $3 billion between 1996 and 2005. Assuming that between half and three-quarters of US FDI outflows to Hong Kong during that period were ultimately destined for China, then inflows from the United States were around $6.1 billion. This addition to the capital stock contributed some $1.6 billion, or 0.1 percent, to Chinese GDP in 2005, via higher productivity
