Yin Yanlin, former deputy director of the Central Financial and Economic Affairs Commission of the CPC, calls for wider foreign access in telecoms, education, healthcare, and finance.
China’s real service-sector strategy is not indiscriminate opening. It is the domestic substitution and internationalization of producer services.
These are the services that sit around the manufacturing system: logistics, supply-chain management, industrial insurance, trade finance, factoring, branding, industrial design, certification, intellectual property services, after-sales networks, cross-border settlement, platform services, and overseas channel management.
This is where the real strategic value of services lies.
A country that dominates manufacturing but relies on foreign firms for logistics, finance, insurance, branding, certification, IP protection, and global distribution does not fully control the profit pool around manufacturing. It may produce the goods, but others capture a large share of the margin, standards, customer relationships, risk pricing, and market access.
China’s next service-sector upgrading is therefore not mainly about importing Western consumer services. It is about building Chinese producer-service capabilities that can follow Chinese manufacturing overseas, support Chinese brands globally, and allow Chinese firms to capture more value across the entire industrial chain.
That is a very different agenda from simply “opening the service sector to foreign capital.”
The idea of opening up the service sector sounds attractive in the abstract. But once we look at the specific industries involved, its marginal significance becomes much less obvious.
The first category includes digital services, data services, cloud services, and value-added telecom services. These sectors are inherently sensitive. They involve data security, platform control, information infrastructure, and state governance capacity. They cannot be opened up in the same way as ordinary consumer goods markets. Western countries have not granted Chinese platforms and digital service companies genuinely reciprocal market access either.
The second category includes legal services, accounting, consulting, design, ratings, certification, and intellectual property services. These sectors have already been substantially open to foreign firms for years. China has also long run a service trade deficit in many of these areas. The issue is not that China has failed to learn from foreign firms. The issue is that European and American institutions have already been deeply involved in these markets.
The third category includes elderly care, domestic services, culture, tourism, sports, entertainment, content, and education and training. Most of these industries are not technologically sophisticated. Domestic competition is already intense. Even if more foreign capital enters, the incremental efficiency gain is likely to be limited. The real constraints on these sectors are household income, demographics, regulatory boundaries, and purchasing power, not a lack of foreign access.
The fourth category is healthcare. China’s healthcare system certainly has its own problems. But in terms of accessibility, cost control, basic public health capacity, and large-scale medical service delivery, China is not obviously behind the West. In several respects, it is more efficient. Framing healthcare opening as a way for China to learn advanced service capabilities from the West is therefore not very convincing.
Finally, there is financial services. China has always pursued limited financial opening, and this is not simply a sign of backwardness or conservatism. It is a deliberate institutional choice. China wants finance to serve the real economy, rather than allowing the financial sector to expand without limit, circulate within itself, and dominate resource allocation. Financial opening can continue, but not at the cost of financial sovereignty, capital-account stability, or the ability to finance industrial development.
This is the core weakness of the argument that opening the service sector will expand domestic demand. It turns a seemingly correct macroeconomic direction into a vague policy prescription. At the industry level, these sectors either involve state capacity and security boundaries and therefore cannot be opened dramatically; or they are already open and associated with trade deficits; or they have limited technological content and limited marginal gains; or they are not areas where China’s main problem is a lack of learning from the West.
The real issue is not simply how much further China opens its service sector. It is how China raises household income, improves the fiscal spending structure, strengthens public service provision, and preserves its manufacturing and strategic investment capacity.
This expert’s view represents an important and long-standing line of thinking within Chinese economic policy circles: China should achieve economic rebalancing by raising household income, strengthening the social security system, and expanding consumption.
But this analysis rests on an implicit assumption: that China’s biggest constraint today is insufficient final demand.
That premise remains debatable.
China’s problem may not be aggregate demand deficiency in the conventional sense. It may be a structural transition in which several old sources of demand are weakening at the same time that new sources of demand are emerging.
Real estate demand has fallen. Local government investment has contracted. Demand in some traditional industries has weakened. Meanwhile, demand in advanced manufacturing, new energy, AI, power systems, robotics, and next-generation infrastructure is still growing rapidly.
In other words, China is facing a simultaneous decline of old demand and rise of new demand.
This is a structural transformation problem, not simply a Keynesian problem of insufficient aggregate demand. China will still need to maintain a relatively high investment rate. The key is that investment must continue shifting away from real estate and toward advanced manufacturing, energy systems, technological innovation, and strategic infrastructure.
In fact, Xi Jinping has repeatedly emphasized expanding domestic demand in recent years. But he has also stressed the need to maintain the share of manufacturing, develop advanced manufacturing, and properly balance consumption and investment. This is very different from a simple shift toward a consumption-led growth model.
I agree, of course, that China should reform and substantially raise rural pensions. But fundamentally, this is a form of income redistribution. It requires higher fiscal spending and larger fiscal deficits. In effect, it borrows from future taxpayers to support present consumption. That may be necessary, but it is not a fundamental solution.
China’s real service-sector strategy is not indiscriminate opening. It is the domestic substitution and internationalization of producer services.
These are the services that sit around the manufacturing system: logistics, supply-chain management, industrial insurance, trade finance, factoring, branding, industrial design, certification, intellectual property services, after-sales networks, cross-border settlement, platform services, and overseas channel management.
This is where the real strategic value of services lies.
A country that dominates manufacturing but relies on foreign firms for logistics, finance, insurance, branding, certification, IP protection, and global distribution does not fully control the profit pool around manufacturing. It may produce the goods, but others capture a large share of the margin, standards, customer relationships, risk pricing, and market access.
China’s next service-sector upgrading is therefore not mainly about importing Western consumer services. It is about building Chinese producer-service capabilities that can follow Chinese manufacturing overseas, support Chinese brands globally, and allow Chinese firms to capture more value across the entire industrial chain.
That is a very different agenda from simply “opening the service sector to foreign capital.”
The idea of opening up the service sector sounds attractive in the abstract. But once we look at the specific industries involved, its marginal significance becomes much less obvious.
The first category includes digital services, data services, cloud services, and value-added telecom services. These sectors are inherently sensitive. They involve data security, platform control, information infrastructure, and state governance capacity. They cannot be opened up in the same way as ordinary consumer goods markets. Western countries have not granted Chinese platforms and digital service companies genuinely reciprocal market access either.
The second category includes legal services, accounting, consulting, design, ratings, certification, and intellectual property services. These sectors have already been substantially open to foreign firms for years. China has also long run a service trade deficit in many of these areas. The issue is not that China has failed to learn from foreign firms. The issue is that European and American institutions have already been deeply involved in these markets.
The third category includes elderly care, domestic services, culture, tourism, sports, entertainment, content, and education and training. Most of these industries are not technologically sophisticated. Domestic competition is already intense. Even if more foreign capital enters, the incremental efficiency gain is likely to be limited. The real constraints on these sectors are household income, demographics, regulatory boundaries, and purchasing power, not a lack of foreign access.
The fourth category is healthcare. China’s healthcare system certainly has its own problems. But in terms of accessibility, cost control, basic public health capacity, and large-scale medical service delivery, China is not obviously behind the West. In several respects, it is more efficient. Framing healthcare opening as a way for China to learn advanced service capabilities from the West is therefore not very convincing.
Finally, there is financial services. China has always pursued limited financial opening, and this is not simply a sign of backwardness or conservatism. It is a deliberate institutional choice. China wants finance to serve the real economy, rather than allowing the financial sector to expand without limit, circulate within itself, and dominate resource allocation. Financial opening can continue, but not at the cost of financial sovereignty, capital-account stability, or the ability to finance industrial development.
This is the core weakness of the argument that opening the service sector will expand domestic demand. It turns a seemingly correct macroeconomic direction into a vague policy prescription. At the industry level, these sectors either involve state capacity and security boundaries and therefore cannot be opened dramatically; or they are already open and associated with trade deficits; or they have limited technological content and limited marginal gains; or they are not areas where China’s main problem is a lack of learning from the West.
The real issue is not simply how much further China opens its service sector. It is how China raises household income, improves the fiscal spending structure, strengthens public service provision, and preserves its manufacturing and strategic investment capacity.
This expert’s view represents an important and long-standing line of thinking within Chinese economic policy circles: China should achieve economic rebalancing by raising household income, strengthening the social security system, and expanding consumption.
But this analysis rests on an implicit assumption: that China’s biggest constraint today is insufficient final demand.
That premise remains debatable.
China’s problem may not be aggregate demand deficiency in the conventional sense. It may be a structural transition in which several old sources of demand are weakening at the same time that new sources of demand are emerging.
Real estate demand has fallen. Local government investment has contracted. Demand in some traditional industries has weakened. Meanwhile, demand in advanced manufacturing, new energy, AI, power systems, robotics, and next-generation infrastructure is still growing rapidly.
In other words, China is facing a simultaneous decline of old demand and rise of new demand.
This is a structural transformation problem, not simply a Keynesian problem of insufficient aggregate demand. China will still need to maintain a relatively high investment rate. The key is that investment must continue shifting away from real estate and toward advanced manufacturing, energy systems, technological innovation, and strategic infrastructure.
In fact, Xi Jinping has repeatedly emphasized expanding domestic demand in recent years. But he has also stressed the need to maintain the share of manufacturing, develop advanced manufacturing, and properly balance consumption and investment. This is very different from a simple shift toward a consumption-led growth model.
I agree, of course, that China should reform and substantially raise rural pensions. But fundamentally, this is a form of income redistribution. It requires higher fiscal spending and larger fiscal deficits. In effect, it borrows from future taxpayers to support present consumption. That may be necessary, but it is not a fundamental solution.