Service-Oriented Manufacturing: Assessing the Role of Intermediate Services in Industrial Transformation in China

Abstract

This paper investigates the intersectoral linkages created by structural change in China by adopting a subsystem approach to an input-output system. The subsystem is an autonomous vertically integrated production system that overcomes the horizontal traditional sectoral boundaries, while considering integration between manufacturing and services. Based on demand for intermediate services in the Chinese domestic market, the share of services in manufacturing is very low in terms of hours worked. However, this integration is higher in advanced countries. Furthermore, we found that the vertical integration of services in China is highly affected by technological intensity in manufacturing. Hence, the role of services in domestic linkages is quite modest, therefore technological tertiarisation - or the outsourcing of manufacturing - is still far off.