China Service Sector: China Service Sector: Opportunities & ChallengesOpportunities & Challenges

Yang LiYang Li

Trade RepresentativeTrade Representative

Embassy of Iceland, BeijingEmbassy of Iceland, Beijing

Controversies about ChinaControversies about China

China Miracle vs China CollapseChina Miracle vs China Collapse

China Threats vs China OpportunitiesChina Threats vs China Opportunities

1700 1820 1830 1850 1900 1950 1978 2000 2005 2010

40%

35%

30%

25%

20%

15%

10%

5%

0%

% of GDP

Opium War 1839-1842

Second Opium War 1856-1860

Invasion of Allied Armies 1900

Cultural Revolution 1966-1976

Opening-up & Reform 1978

Civil War 1945-1949

Japanese invasion 1937-1945

China Economic History in the WorldChina Economic History in the World

27 Peaceful Years of 9% Average Annual Growth

20-30 More Years of 8-10% Growth expected

China Economic GrowthChina Economic Growth

0

2

4

6

8

10

12

14

16

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

GrowthRate

Top 10 Economies 2006

02,000,0004,000,0006,000,0008,000,000

10,000,00012,000,00014,000,000

USD

Mill

ion

Top 10 Economies in 2050Top 10 Economies in 2050

USD BillionUSD Billion

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Ch USA Ind Jpn Br Russ UK Ger Fr I t

TopTop 10 Exporting Countries 200610 Exporting Countries 2006

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

USD Bilion

Top 10 Importing Countries 2006Top 10 Importing Countries 2006

0

500

1,000

1,500

2,000

2,500

USD Billion

Top 10 Trading Countries 2006Top 10 Trading Countries 2006

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

USD Billion

China Foreign Trade 1978 - 2006China Foreign Trade 1978 - 2006

-200

0

200

400

600

800

1000

1200

1400

1600

1800

2000

US

D B

illio

n Export

Import

Balace

Total

Top 10 Service Importing Countries 2005Top 10 Service Importing Countries 2005

0

50

100

150

200

250

300

350

USD Billion

Top 10 Service Exporting Countries 2005Top 10 Service Exporting Countries 2005

0

50

100

150

200

250

300

350

400

USD Billion

Top Service Trading Countries 2005Top Service Trading Countries 2005

0

100

200

300

400

500

600

700

USD Billion

China Service Trade Balance China Service Trade Balance 1982-20061982-2006

-12

-10

-8

-6

-4

-2

0

2

4

USD Billion

Balance of Trade Service 2005Balance of Trade Service 2005

-80

-60

-40

-20

0

20

40

60

80

USD Billion

Service Sectors of Biggest ExportService Sectors of Biggest Export

0%

20%

40%

60%

80%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005

OthersTouri smTransportati on

China Service Trade: Sector Break-down 2005China Service Trade: Sector Break-down 2005

Export (USD Export (USD MMillion)illion) Import (USD Import (USD MMillion)illion)

BalancBalancee

All service sectorsAll service sectors 73,9073,9099

83,17283,172 -9,263-9,263

TransporTransporttationation 15,4215,4277

20.8720.87%%

28,44828,448 34.2034.20%%

--13,013,0

2121

TourismTourism 29,2929,2966

39.6439.64%%

21,75921,759 26.1626.16%%

7,5377,537

CommunicationsCommunications 485485 0.660.66%%

603603 0.73%0.73% -118-118

ConConstructionstruction 2,5932,593 3.513.51%%

1,6191,619 1.95%1.95% 974974

InsuranceInsurance 549549 0.740.74%%

7,2007,200 8.66%8.66% -6,650-6,650

Financial serviceFinancial service 145145 0.200.20%%

159159 0.19%0.19% -14-14

Computer and IT Computer and IT 1,8401,840 2.492.49%%

1,6231,623 1.95%1.95% 218218

Royalties & license Royalties & license feefee

157157 0.210.21%%

5,3215,321 6.40%6.40% -5,164-5,164

Consulting serviceConsulting service 5,3225,322 7.207.20%%

6,1846,184 7.43%7.43% --861861

Advertisement Advertisement 1,0761,076 1.461.46%%

715715 0.86%0.86% 361361

Movies,Movies, Audio & Audio & ViVisualsual

134134 0.180.18%%

154154 0.19%0.19% -20-20

Other Other business business servicesservices

16,8816,8855

22.8522.85%%

9,3889,388 11.2911.29%%

7,4977,497

China Service Trade – Growth Rate By SectorChina Service Trade – Growth Rate By Sector

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

1997 - 2005

All service sectors

Transporation

Tourism

Communications

Construction

Insurance

Financial service

Computer and IT service

Roylties and license fee

Consulting service

Advertisement and publicity

Movies,Audio & Visual

Other commercial services

Foreign Investment in Service SectorForeign Investment in Service Sector

0

5000

10000

15000

20000

25000

2003 2004 2005

US

D M

illio

n

Foreign investment in Non-Financial Sector

Foreign investment in Financial Sector

SectorSector Actual investmentActual investment(USD Million)(USD Million)

New Foreign New Foreign companiescompanies

Financial sectorsFinancial sectors 12,08112,081 1818

Total Non-financial Total Non-financial companiescompanies

11,67911,679 7,4457,445

- Commercial service- Commercial service 1,0781,078 2,5972,597

- Real Estate- Real Estate 5,3905,390 2,1202,120

- Transportation- Transportation 924924 8080

- Computer and IT- Computer and IT 928928 1,2951,295

Total service sectorTotal service sector 23,76023,760

Foreign Investment in Service Sector Foreign Investment in Service Sector 20052005

SectorSector Value Value (USD Million)(USD Million)

%%

Leasing and commercial serviceLeasing and commercial service 4,9424,942 60.8760.87%%

Wholesale and retailWholesale and retail 2,2602,260 27.8427.84%%

Transportation, warehousing and postal Transportation, warehousing and postal serviceservice

577577 7.11%7.11%

Science research,Science research, technical service and technical service and geological survey servicegeological survey service

129129 1.69%1.69%

Real Estate developmentReal Estate development 116116 1.43%1.43%

Other servicesOther services, including, including 9494 1.1.006%6%

- Public management and social - Public management and social organization serviceorganization service

1.731.73

- Resident service and other services- Resident service and other services 6363

- IT,- IT, computer service, softwarecomputer service, software 1515

- Water conservancy, environmental - Water conservancy, environmental and public facility managementand public facility management

0.130.13

TotalTotal 8,1188,118

China Investment Abroad 2005China Investment Abroad 2005

China Investment Abroad 2005China Investment Abroad 2005

61%28%

7% 2%1%1%

Leasing and commercial serviceWholesale and retailTransportation, warehousing and postal serviceScience research,technical service and geological survey serviceReal Estate developmentOthers

Great PotentialsGreat Potentials

Domestic Market:Domestic Market:

1. Market potential1. Market potential

2. Fast development2. Fast development

3. Minimum market share for foreign companies 3. Minimum market share for foreign companies

4. Wider market opening4. Wider market opening

China Foreign Reserve

0

200

400

600

800

1000

1200

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

USD Billion

Great Potential: International MarketGreat Potential: International Market

ObstaclesObstacles

Insufficient legislation: Monopoly & Insufficient legislation: Monopoly & governmental effortgovernmental effort

Sector and regional imbalanceSector and regional imbalance

Cultural factorsCultural factors

Long-term strategy: Fish-go vs Sow-harvestLong-term strategy: Fish-go vs Sow-harvest

The Diaspora

55 million people

GDP: USD 1000bn

The Coast375 million peopleGDP: USD 550 bn

The Hinterland580 million GDP: 400bn

The margins20 million peopleGDP: USD 110bn

The Rust Belt110 million people GDP: USD 120 bn

China multitude: the Very BasicChina multitude: the Very Basic

Opportunities & Challenges ?Opportunities & Challenges ?

Know the enemy and know yourself; in a hundred battles, you Know the enemy and know yourself; in a hundred battles, you will never be defeated will never be defeated ----Sun Wu,Sun Wu, 551 – 479 B.C. 551 – 479 B.C.

How much do I know about the sectorHow much do I know about the sector

Where are the customers & competitorsWhere are the customers & competitors

Do I have the resourcesDo I have the resources

Is it the right time Is it the right time

Do I have the time frameDo I have the time frame

……..

You Can Talk To UsYou Can Talk To Us

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