From the intermediate demand perspective of the industry, agriculture and services, this paper analyzes the problems on the development of producer services in China and gives some related causes. To accelerate the development of producer services in an even better fashion, we think the following measures should be taken: developing the high-end manufacturing and promoting the interaction between manufacturing and producer services; attaching equal importance to imported technology and independent innovation; improving the promotion and training for agricultural technology and optimizing agriculture production structure; developing the modern service industry; enhancing the supplying quality of producer services.
The demand of producer services held a greater proportion in service demand and service trade. In the early 1990s, the proportion of intermediate demand services had been around 50% in service stock in developed countries [
No matter in the sense of economic, employment or society, nowadays many developed countries in the world have entered the era of “service economy”. Baumol (1976) viewed this phenomenon that the influence of services had exceeded agriculture and industry as the inflation of employment that brought with related low productivity services sector, and regarded it as the appearance of “cost disease” [
The general experience of economic development in many western developed countries in the world showed that services played an important role in the nation economy. Even though the proportion of services decreased slightly during the period of industrialization, the developing pace of producer services kept with the industry development [
In terms of the development trend of intermediate demand of three main industries to the producer services, taking the input-output table of the developed countries, e.g. the U.S.A., Britain, Japan, German, France, etc. from 1960s to the late of 1990s as examples, the intermediate demand from tertiary industry itself increased significantly while the intermediate demand from primary industry and secondary industry decreased obviously [
If China sets the amount of intermediate demand of producer services in OECD countries as its development goal, a conclusion can be made as this: The intermediate demand of three main industries to the producer services all are in the increasing trend and the three main industries rank by the rate of input of producer services from high to low is: tertiary industry, secondary industry, and primary industry. In details, the growth rate of intermediate demand of primary industry and secondary industry to the producer services is lower than the tertiary, while the growth rate of intermediate demand of primary industry to the producer services is lower than the secondary.
Since over 20 years ago, China has been aware of the development of services industry, especially the producer services have momentous impact on the society and country in several aspects, e.g. promoting employment, expanding the consumption, upgrading the industrial structure, reducing the resource consumption, and strengthening the long-term development ability etc. In addition, in 1992, the Central Committee and the State Council (CPC) introduced formally the “Decision of The Central Committee of The Communist Party of China and The State Council on Accelerating Development of Tertiary Industry”. However, to this day, the development of producer services in China is still in a slow pace. And there are some causes which may give explanations about it as following.
In Reference [
The detailed causes mainly embodied in the following ways. Firstly, under the mode of outward-oriented economy of China and the national conditions of that time, Chinese manufacturing firms merged in the process of globalization as the international original equipment manufacturer (OEM) by processing with materials or given samples, assembling supplied components and got the development of space by relying on low cost of labor and land. At the meantime, this production pattern leaded to the overdevelopment of labor-intensive industries at the low value added level in the industrial chain. Even if in the new circumstances of transformation and upgrading at present, a rather large number of firms still employ the traditional production pattern, which
Industry | 1987 | 1990 | 1992 | 1995 | 2000 | 2002 |
---|---|---|---|---|---|---|
Primary industry | 0.0365 | 0.0363 | 0.0597 | 0.0572 | 0.0622 | 0.0794 |
Secondary industry | 0.0843 | 0.0812 | 0.1326 | 0.1047 | 0.1028 | 0.1295 |
Source: Reference [
is characterized by domestic firms seldom engage in activities at the high-end in the modern industrial chain or activities require firm’s core competence, e.g. R & D and design of products, brand management and marketing, etc. While the producer services for these activities are provided by the headquarter office of multinational corporation in home country, or by branches introduced by foreign direct investment (FDI), the intermediate demand of domestic producer services is extremely limited. Moreover, these manufacturing firms pay less attention to financial services, R&D and design, information technology and customer services, which suppress the scale and level of intermediate demand of domestic producer services in China as well as restrain the domestic producer services to develop toward the higher levels. Research on the international OEM mode in China since the reform and opening has found that the international OEM mode impeded the industrial linkage between the manufacturing firms and services firms, and leaded to slow development of producer services due to lack of sufficient demand.
Secondly, because of the backward development of industries in various regions, and aims to utilize the foreign capital to develop local economy and obtain low profit, various regions offer “zero cost” even “zero premium” to attract foreign capital in the competition. These measures lead to intensity the passive state in the international industrial division. Moreover, as the fierce competition causes the high transaction cost and low transaction efficiency, industrial firms are unable to break through and improve the factor endowment gradually through the evolution of division of producer services in the regional system. Further, the intermediate demand of producer services has been reduced, which makes a vicious circle.
On one hand, from the perspective of supply of agricultural producer services, farmers have strong demand for the agricultural producer services, especially for the productive techniques and the agricultural science and technology service provided by agricultural technicians [
On another hand, from the perspective of demand of agricultural producer services, there exist some related problems. In terms of the personal factors of farmer, low education of farmers leaded to their narrow knowledge about the agricultural producer services and its effect on promoting the development of modern agriculture. As results, the farmers were accustomed to applying the traditional farming methods, and then the demand of producer services decreased. From the point of view of family factor, the annual per capita net income of rural household in China in 2012 was 7916.6 RMB yuan. Taking off the inflation of prices, children education expenditure and increasing living cost, the remaining disposable income of rural household of China was rather low and rural household lack of ability to pay,especially in the central and western regions. And the rural households adopt the decentralized operation instead of large-scale operation, which results in insufficient demand of farmer to agricultural producer services. This viewpoint is similar to Fouratie’s [
Goe (1990), Juleff (1996) and Pilat & Wolfl (2005) found that in developed countries, the greatest demand to producer services was from services sectors, instead of manufacturing sectors [
Industries | Aa | Industries | Bb |
---|---|---|---|
Business | 0.0961 | Business | 0.0819 |
Electric power, steam and hot water production and supply | 0.0664 | Electric power, steam and hot water production and supply | 0.0600 |
Freightage and storage | 0.0498 | Social services | 0.0587 |
Finance and insurance | 0.0364 | Finance and insurance | 0.0410 |
Social services | 0.0342 | Freightage and storage | 0.0400 |
Postal service | 0.0180 | Construction | 0.0244 |
Catering industry | 0.0145 | Postal service | 0.0207 |
Construction | 0.0068 | Passenger transportation | 0.0174 |
Polytechnical services | 0.0068 | Catering industry | 0.0174 |
Real estate | 0.0054 | Real estate | 0.0105 |
Passenger transportation | 0.0044 | Tap water production and supply | 0.0084 |
Tap water production and supply | 0.0035 | Education, culture, art as well as Broadcasting, movie and television | 0.0081 |
Education, culture and art as well as Broadcasting, movie and television | 0.0032 | Polytechnical services | 0.0080 |
Hygienism, sports and social welfare | 0.0011 | Gas production and supply | 0.0040 |
Scientific research | 0.0008 | Scientific research | 0.0018 |
Gas production and supply | 0.0007 | Hygienism, sports and social welfare | 0.0015 |
Business | 0.0961 | Business | 0.0819 |
a: Row A is the complete consumption coefficient of intermediate demand to services for one unit industrial product. b: Row B is the complete consumption coefficient of intermediate demand to services for one unit service product. Sources: The input-output table of China in 2007and the input-output table of the U.S.A in 2007.
Industry | Percentage | |
---|---|---|
China | the U.S.A. | |
Input of agricultural and mineral resources | 3.3% | 0.7% |
Intermediate input of manufacturing | 48.5% | 16.7% |
Input of producer services | 34.2% | 68.5% |
Water, electricity, gas and construction | 4.9% | 8.8% |
Input of other services | 9.1% | 5.3% |
Source: The input-output table of China in 2007 and the input-output table of the U.S.A in 2007.
According to the statistic of World Bank, in recent years, the proportion of added value in tertiary to GDP has been over 70% in general in high income countries. For the middle-income countries and the low-income countries, the proportion was around 60% and 45%, respectively. However, that proportion in China was less than 45% in the same period. Even though by 2013, that proportion in China was 46.1%. This situation was related to the lagging development of producer services, e.g. the R&D and design in manufacturing and key technologies were dependent on import. Moreover, in the international division system, the entry of foreign capital to the demand of specialized services would lead to the growth of producer services in some extent. And there are two restraining factors about it.
The first one is the links in the division chain and status of host-country. The higher levels in the industrial division chain require the more specialized intermediate demand services, while the lower levels in the industrial division require less intermediate demand services [
The second one is when the foreign capital has been restricted to enter into the services and the cost of delivering services via international service trade and via remote mode is lower than the cost of entering into services of host-country, the headquarter office of multinational corporation will provide or purchase various services and deliver the services via remote mode. As results, the serving function of producer services in industrial division will be weakened [
In 2008, the industrial development in some regions of China was drawn in the dilemma due to the global financial crisis. How to cope with the financial crisis effectively? How to conduct the transformation and upgrading and lay the foundation for sustainable development? These questions are critical issues for China on its way to build up the innovative country. Accelerating the construction of modern industrial system and optimizing the industrial structure should be the core in the period of transformation and upgrading. And speeding up the development of producer services is not only the key measure to strengthen this core but also top priority in economic development in China.
Based on above arguments about the demand of producer services, and the reality of increasing demand of producer services in China, we believe that it’s necessary to foster and stimulate the efficient demand of society to producer services. In other words, the pre-condition to speed up the development of producer services is that society not only has the demand to producer services but also has the ability to pay. Thus, two key questions appear: How to improve the ability to pay for the producer services? How to transform the potential demand to the real demand? In order to enlarge the demand to producer services, we attempt to propose some suggestions for policy makers as follows.
The merchandise structure was determined by both the industrial structure of manufacturing and producer services. In order to improve the leading role of trade to producer services, except to develop the producer services, the most essential measure is to enhance the industrial interaction between manufacturing and producer services. As the upstream industry of manufacturing, the producer services are highly depending on manufacturing. On one hand, the level and the degree of specialization of manufacturing determine the level and the developing speed of producer services. That is, the high degree of specialization leads firms are more likely to remove the producer services from inside and turn to use the services provided by professional service outsourcing firms, e.g. various business services (professional law, accounting and auditing services), market services (advertising, market survey, consulting), and technology services (R&D and product design) etc. [
Since the reform and opening of China in late of 1970s, in order to import foreign capital and technology to develop the economy, China has made preferential treatment for foreign-invested firms for a long time. Relaying on the advantage of low cost of labor and land, most of regions in China have achieved rapid growth by working as OEM. However, the policy of preferential treatment for foreign-invested firms led to the extensive growth in foreign direct investment and low-end manufacturing, dragging China to fall into the comparative advantage trap [
The agricultural technology promotion and training has been influenced to some extent due to Chinese farmers’ income are relatively low and their limited knowledge as well as the poor condition of agricultural technology services system. The further behind of the development of agriculture cause the less demand to the agricultural science and technology services, and vice versa. Therefore, the administration departments of government ought to increase the investment in agricultural technology services system, and improve the working condition for agricultural technicians. Besides, aims to widen farmers’ knowledge of agricultural technology services, the agricultural technology training can be carried out via various forms, e.g. training course, telecourse, publications, exhibitions and consulting etc.3 Furthermore, the China government has advocated to develop family farm in recent years. By firstly supporting the regional agricultural firms conduct the large-scale agricultural projects, the government should encourage and guide the operator of family farm to produce production of “high yield, good quality, and high economic benefits”. In this process, related producer services, e.g. the cooperative research, financial and insurance support, and equipment leasing services, help to solve the difficulties and the problems in developing the family farm. For the low-value agricultural products, agricultural subsidies can be provided for manufacturers by government to meet their intermediate demand to producer services.
The reform and opening of China in late 1970s broke through in the agriculture at first. In 1984, the focus of reform moved to restructuring the state-owned enterprises gradually, while the reform of services was lagging for a long time. Even though after China joined in the World Trade Organization in 2001, the service industries in China still confronted the institutional difficulties in its developing path. Therefore, it’s urgent to impel the reform of services in China. And making great effort in developing modern service industry is the most important issue in the reform. The pilot reform of replace the business tax with the value-added tax should be implemented in all areas of services and the tax, financial funds and subsidies should serve as the support for development of modern services. Besides, the China government ought to: (1) break up the obstacles for accessing markets, e.g. market segmentation, trade monopoly and regional restriction; reducing administrative examination and approval; (2) utilize the investment policy instruments to attract various capital to make investment on the modern services; (3) establish and perfect the financial and land policy for developing modern service industry; (4) implement the human resources development strategy; and (5) facilitate the division and cooperation between service sectors. The focal points of development modern services including service sectors such as R&D and design, the third party logistics, information and technology services, energy saving and environment protection services, certification and inspection services, electronic business, consulting, outsourcing, customer services, human resource services and brand building, etc. [
Along with the tertiary has replaced the secondary industry as the largest economic sector in China, the driving effect of service economy to nation economy become significant increasingly. Nevertheless, in the environment of global competition, the quality of producer services of China is still at a low level. In order to keep the advantageous status in the competition, improving the quality of producer services and innovating the serving mode are crucial tasks for China. The quality of services including some aspects: the service means, service efficiency, the length of service time, and the service level. The improvement of service quality can stimulate the growth of services [
China has become the world’s second largest economy since 2011, and its great development potential of producer services should be the powerful driving force for its economy growth in the future. From the perspective of intermediate demand of three industries to producer services, there exist some problems in the development of producer services in China. The causes of these problems have been analyzed from various aspects, e.g. low- end manufacturing mode, insufficient external demand and the low development quality. Accordingly, some suggestions and measures to accelerate the development of producer services for Chinese firms and government have been put forward. With the implement of these suggestions, the author believes that China will catch up with the developed countries with a faster speed in the process of economic globalization.
This research was supported by the Key Project of Philosophy and Social Sciences Research, Ministry of Education of China “Research on Accelerating the Development of Producer Services in China” (11JZD023).