The service orientation of manufacturing will provide an opportunity for countries around the world to promote the service industry and service trade, while pointing to an important direction for the transformation and upgrading of manufacturing.

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In recent years, as China’s economy entered the new normal, its exports have slowed.
Take foreign trade as an example. According to data from Chinese customs, the country’s foreign trade grew by 17 percent annually on average from 1978 to 2011, much higher than the 5 percent growth of world trade during the same period.

From 2012 to 2015, however, growth in trade averaged 2.6 percent, much lower than the average double-digit rate in the preceding three decades and close to the concurrent 3 percent growth of world trade.

The data show the internal and external environment that has long propped up China’s export-oriented economy is undergoing profound changes. In this context, it is essential to develop an open economy with higher standards, taking the initiative in opening up to stand out in economic development and international competition.

China advocates building an open world economy and adheres to the global governance philosophy of achieving shared growth through discussion and collaboration, calling on countries around the world to jointly cope with sluggish global growth and trade protectionism. This is a reflection of Chinese wisdom and responsibility. It is the correct choice in the new era, and it has great strategic significance.

 

Weaknesses, strengths
Since volume has long been prioritized in trade and investment, China’s opening up remains in the initial stage.

At the micro level, local enterprises fall short in terms of globally competitive technologies, brands, quality and service advantages, while export pricing is under the control of multinationals and Chinese firms rely heavily on foreign-owned enterprises to supply high-tech products.

On a higher level, the manufacturing sector is at the mid-to-low end of the global value chain, exporting low value-added products and lacking core competitiveness.

From macro perspectives, traditional advantages are not sustainable. They are weak amid uncertainties from the external environment. Moreover, China has little say in the making of international economic rules and its ability in international economic governance is likewise not strong.

Nonetheless, it is worth noting that the second-largest economy features rich human resources, a huge market, sound infrastructure, complete associated industries, and improving institutional and policy environments for innovative development. It still has comprehensive competitive edges for an open economy.

Under such circumstances, it is vital to transform the factor-driven economy into an innovation-driven one, shift the focus from scale and speed to quality and efficiency, and foster comprehensive competitive advantages in technology, standard, brand, quality and service instead of cost and price, thereby developing an open economy with higher standards.

 

Three fundamental relationships
Since the 2008 global financial crisis, the world economy has been in the midst of a profound readjustment, lacking growth momentum with looming uncertainties ahead, as developed economies and emerging markets face various risks.

Against the backdrop, new changes have taken place in the global value chain, manufacturing is undergoing deep structural adjustments, new signs have appeared in international industrial transfer, the global governance system needs restructuring, and the new international competition pattern is in the making.

Therefore, it is necessary to recognize and understand the dynamic evolution and inner drive of the new international competition pattern, scientifically evaluating new advantages for the competition, and explore reasonable paradigms and policy solutions to advance the building of an open world economy.

To foster new advantages for international competition, we should first of all clarify three fundamental relationships.

The first is the relationship between “new” and “old”—in other words, new and traditional advantages. In this regard, the ties between pertinent theories and policies should be taken into consideration.

Second, the relationship between “major” and “minor” deserves attention. Fostering new advantages for international competition is the major issue for building an open economy with higher standards, which also contains primary and secondary aspects.

The third one is the relationship between the government and the market. While the market should play the decisive role in fostering new advantages for international competition, the government should do much more in strategic planning.

 

Enhancing market efficiency
As mentioned above, the market should play the decisive role. At the macro level, it is essential to capitalize on the market advantage to strengthen the endogenous momentum of the market. China not only has a large population, a vast land and enormous domestic demands, but also features diverse factor endowments and regional economies.

To the major developing country, it is a key path to leverage the scale advantages, multilevel systems and openness of the market. In terms of scale, specifically, given China’s status as the most populous country and second-largest economy in the world, efforts can be made to explore endogenous dynamics in the manufacturing and services sectors based on home market effects.

When it comes to the system, the diversified market and multilevel city clusters highlight the importance of analyzing the factors that influence multi-product firms’ selection of location and further examining the motivation driving industrial chains of city clusters to integrate across regions.

Regarding the openness, potential benefits to China brought by opening the market to different degrees should be valued, such as encouraging the country to take full part in the international division of labor and mitigating negative impacts from unusual economic fluctuations of the outside world.

At the intermediate level, it is crucial to guide the servitization of manufacturing, thus consolidating the industrial supporting role of new advantages for international competition. At a critical time when China is striving to comprehensively upgrade its open economy and foster new advantages, it is a rational choice to conform to the general trend of service globalization and persist in the integrated development of services and manufacturing.

The service orientation of manufacturing will provide an opportunity for countries around the world to promote the service industry and service trade, while pointing to an important direction for the transformation and upgrading of manufacturing.

To China, the servitization of manufacturing is not only conducive to breaking resource restrictions and climbing to the high end of the value chain but also consistent with the goal specified in the Made in China 2025 strategy of growing into a manufacturing power.

As service-oriented manufacturing relies on high technologies and focuses more on high value-added industries to build an industrial system with lasting competitiveness, it is urgent for China to cultivate the advantage of manufacturing servitization and foster endogenous dynamics for the development of the open economy.

At the micro level, attention should be paid to the growth of enterprises to cement their subject role in fostering new advantages for international competition. Enterprises are concrete subjects for a country to participate in global competition. And export trade and transnational investments are the two wings for enterprises to blend into the global value chain.

In the four decades since reform and opening up began, Chinese enterprises have entered the international market by dint of their labor cost advantage and through export trade, making China into a world factory and trade giant.

However, the existing low value-added manufacturing export model has hit a rough patch as the world economy is on a difficult and tortuous path to recovery, demands of major countries are dismal with their trade policies divided, and China is transforming and upgrading the domestic industrial structure with factor costs rising year by year.

The growth impetus for Chinese enterprises needs to change. Their competitiveness in transnational investment can be taken as a point of departure to discuss how to optimize resources and allocate factors in the process of “going out” and realize sustainable growth of their market scale and productivity.

 

 
Qian Xuefeng is a professor and Hu Zongbiao is an associate professor from the School of Business Administration at the Zhongnan University of Economics and Law.

（edited by CHEN MIRONG）