City Service Industry Development, Enterprise Export and Transformation of Processing Trade

Abstract

Although the service industry in China booms up relatively late, it shows a strong momentum of growth recently; China’s service industry accounted for more than 40% of GDP in 2000. As most developed countries including America and Japan have experienced, China’s industrial structure is now showing a tendency of the transformation from industrial-based economy” to service-oriented economy”, facing the challenge of industrial hollowing-out. Will the development of the service industry damage our country’s exports? Data shows a high degree of consistency between the expansion of China’s exports and the development of service industry from the trend perspective, even after the service industry accounted for more than 40% of GDP. Therefore, the relationship between the development of service industry, its concomitant issue of industrial hollowing-out and export may be complicated and deserves further discussion. Especially under the background of increasing threat of industrial transfer represented by processing trade, this research has strong practical significance. This paper also has obvious policy implications for China’s trade development strategy and the direction of national economic transformation & adjustment. Based on achievements of existing researches, this paper attempts to make the marginal contribution in the following two aspects: first of all, on the basis of data concerning the development of service industry at city-level, we examine its impact on the export of manufacturing enterprises and depict and verify its influence mechanism at the micro level, which is a useful supplement to the existing theory; besides, based on the overall development of local service industry and taking the impact of the processing trade into account, this paper can intuitively reflect the impact of service industry development on processing trade enterprises and identify the possible trend of industrial transfer, providing empirical evidence for the impact of tertiarization and being of practical significance to China’s industrial policy formulation and foreign trade transformation strategy. Our research shows that: on the whole, the development of urban service industry not only enhances the export probability of enterprises, but also promotes the expansion of enterprises’ export volume. The development of urban service industry promotes the export of enterprises mainly through division-of-labor effect” and restrains the export of enterprises mainly through wage-premium effect”. We also obtain the following conclusions by expanding the research: firstly, the development of urban service industry benefits the export of persistent exporters, longer-existing firms and large-scale enterprises, but does damage the export of foreign-funded firms, capital-intensive firms and firms with high level of productivity; secondly, the export of processing trade enterprises is restrained by the development level of urban service industry; thirdly, after excluding the processing trade enterprises, the export of capital-intensive enterprises and high productivity enterprises can also benefit from the development of urban service industry. Based on our conclusion, the following three policy implications can be obtained. Firstly, we should take a correct view of the development of service industry and the threat of industrial hollowing-out. The tertiarization helps to improve the overall level of the national economy and bring about higher efficiency. Secondly, as the transition period of service-oriented economy” approaches, the governments should pay more attention to new industries and promote the timely replacement of the old industries by the new industries, instead of blindly supporting the old industries. Thirdly, in order to promote the transformation and upgrading of local processing trade enterprises, we should seek a linkage mechanism between the development of service industry and the transformation and upgrading of processing trade enterprises. On the one hand, our governments can try to promote the servitization process of manufacturing industry; on the other hand, we should promote the service industry to actively embed the production chain and reduce transaction costs of processing trade enterprises.