China's Serivce sector will reign

China's Service Sector Will Reign. Part XXI. The USCBC Confirms It.

Posted by Dan on April 19, 2011

The mere fact that this is part 21 of the series ought to tell you that we have been beating the drum for a long time on the opportunities for foreign service businesses in China. It seems we just got a bit more and quite august company on this.
The very influential United States-China Business Council just came out with its China guide for the 112th Congress (United States), entitled, "China and the U.S. Economy: Advancing a Winning Trade Agenda," and what I found most interesting about it was its upbeat section on China's burgeoning service sector:

Though overshadowed by issues surrounding trade in manufactured goods, the dramatic expansion of trade and investment in services between China and the United States has benefitted both economies substantially and will continue to do so for the foreseeable future.  Though trade in manufactured goods is often viewed, rightly or wrongly, as benefitting one or the other country in terms of jobs and balance of payments impact, trade and investment in the services sector is overwhelmingly positive for both countries.

The USCBC sees substantial and profitable future growth for United States service companies in China:

The expanding market for service-based jobs is important to China’s ability to absorb the large numbers of young workers and college graduates entering the job market each year.  For the United States, which is the world’s largest service economy, trade and investment in services with China translates directly to high-wage US jobs and increased profits from investments in China that lead to further investment and job creation in the United States.  The more open the Chinese market for US service providers becomes, the more US services can be sold in China.

In 2010, the United States exported more than $20.1 billion in services to China and imported just $9.7 billion, resulting in a surplus of $10.4 billion.
And there is room for substantial growth.

The report details the types of service providers best positioned for growth in China:

Who are these service providers?  They include major US banks and financial institutions, law firms, insurance companies, engineering firms and providers of tourism, business advisory, computer express delivery, and medical and healthcare services, among others.  Collectively, service industries account for 80 percent of private sector jobs in the United States.  Increasingly, these companies are being allowed to set up operations in China for sales in China.  It is a major area of opportunity for US companies that includes additional jobs at their home base. 

The report talks of how even when a U.S. company goes to China for manufacturing, its doing so usually creates all sorts of service revenue for the United States:

For instance, when a US engineering firm builds a power plant or manufacturing facility in China, much of the high-value conceptual design and engineering- which is considered a services export- is done in its American offices, and the detailed design might be developed in its offices in China.  In addition, the firm will send project managers and support personnel from the United States to manage the project’s construction, without which the engineering might not be exported.  The United States has a rapidly expanding services trade surplus with China; the more the Chinese market opens to US service providers, the more US services can be sold in China.  

I completely agree because that is exactly what we have seen in terms of our clients. Two to three years ago, the majority of our law firm's clients were manufacturers. Today, the majority are service providers (I am counting software as a service). I expect this trend to only continue.
What are you seeing out there?