The services trade is a key part of the global economy，and China is increasingly looking to this sector to drive economic growth. Communist Party General Secretary Xi Jinping，speaking at the Global Trade in Services Summit of the 2020 China International Fair for Trade in Services in September，turned his attention to the need for international cooperation in the services trade. He called for an open and inclusive environment for cooperation and the unleashing of innovation-led cooperation，ultimately leading to what he called "win-win" cooperation. China's foreign exchange authorities will carefully study and thoroughly implement the concepts and spirit of the remarks by the general secretary. They will push ahead with the reform and opening-up policy and boost cross-border trade，investment and financing. They will also promote two-way openness and connectivity in the financial sector，in order to better construct the new dual-cycle development architecture with the domestic cycle as the mainstay and supplemented by domestic and international activities.

New Trends in Open Development

According to the World Trade Organization’s World Trade Report 2019，the trade in services that year expanded at a faster pace than the trade in goods，recording growth of 5.4%，to US$13.3 trillion. That figure includes cross-border payments，consumption abroad，commercial entities and individuals，accounting for more than two-thirds of global economic output. The services trade also accounts for a significant share of jobs in most major economies. Furthermore，the global trade in services is expected to grow by one-third by 2040，totaling US$20 trillion. At present，the development of trade in services is facing severe challenges especially under the impact of the Covid-19 pandemic. However，with a relatively high degree of resilience and a strong track record in innovation，the services trade will accelerate the recovery of the global economy once its potential is released.

Services are also an increasingly important part of global value chains. As the "adhesive" in cross-border manufacturing，the services trade plays a role in production，management，and value creation. The development of global value chains blurs the boundary of the manufacturing and services sectors，and it hastens their integration. And the servicification of manufacturing creates higher added value components in global procurement，research and development as well as design，technical support，and product maintenance. Ultimately，this enhances the core competitiveness of export products.

According to the Organization for Economic Cooperation and Development，value added services were 33% of manufacturing exports of  the developed countries in 2015. Likewise，China's services trade is an important part of the overall trade picture，with services value-added near 30%. Additionally，the digitization of trade in services is being accelerated. The rise of digital technology is changing traditional modes of trade and is leading the service sector to rapid development. The trade in digital services has become one of the fastest-growing segments of the trade in recent years. The United Nations Conference on Trade and Development has stated that  international digital service exports increased from US$1.7 trillion in 2009 to US$3.2 trillion in 2019，with an average annual growth rate of 7%.  The WTO estimates that the share of global digital trade in services will rise to 25% by 2030，up 4 percentage points from the current level. With the outbreak of the Covid-19 pandemic in 2020，various countries took different measures，trying to promote the services trade as an online and contactless alternative form of trade. The digital services trade has enhanced the ability of many nations to respond effectively to the crisis.

The negotiations on the rules governing the trade in services has become a focus of international trade negotiations. Unlike in the trade in goods，where barriers are reduced by lowering tariffs，protectionist policies in the services trade are largely non-tariff barriers put in place through legislation and regulations. International trade negotiations thus become the main method to eliminate barriers to the services trade. In recent years，the emphasis on international trade rules has gradually shifted from goods to services，with the focus on a "negative list" framework，digital trade barriers and intellectual property protection. With the development of digital trading，many countries have successively introduced taxes on digital services. However，the collection of digital services taxes varies considerably around the world. Singapore，Australia and some other countries maintain that digital service taxes should be incorporated across the existing tax system，while the United Kingdom prefers to set up an entirely new tax category. Considering that unilateral taxation may intensify trade frictions，negotiations will be needed to resolve differences.

Progress in China’s Trade in Services

Since the economic reform and opening program began more than four decades ago，the trade in services has played an increasingly important role in promoting China’s integration into the world economic system and enhancing high-quality development. In recent years，the results have been nothing short of remarkable. According to data published by the National Bureau of Statistics，the Ministry of Human Resources and Social Security，the Ministry of Commerce and other government departments，the service industry in China contributed 53.9% to the gross domestic product in 2019，accounting for 47.4% of the workforce. And service exports rose 8.9% over the previous year.

Through the implementation of a negative list system for market access (stating that foreign investment is permitted unless specifically proscribed or limited)，China has established free trade pilot zones，pilot programs for innovative services，demonstration cities for outsourcing services，and national bases for digital service exports. This has helped it achieve regionally integrated and balanced development in the service trade. SAFE will further deepen the reform and opening-up policy，steadily advance the convertibility of the capital account in an orderly way，constantly optimize the business environment of foreign exchange，and ensure the inflow and outflow of legal forms of capital. Additionally，it is important that financial and foreign exchange services directly stimulate the real economy. Policies should assist micro and small businesses，and financial support must be provided so that a healthy market order is maintained and market expectations are stabilized.

Gains are being recorded in both the scale and quality of the services trade. In recent years，the rapid development of the trade in services has had a significant impact on China's current account balance of payments. China's receipts and payments in the services trade amounted to US$749.9 billion in 2019，according to SAFE data，ranking it second among global economies. The deficit in receipts and payments has been shrinking and the structure of the services trade receipts and payments has improved. The proportions of traditional industries such as transportation and tourism have gradually decreased，while the knowledge-intensive industries – as represented by telecommunications，computer and information technology services，other business services，and intellectual property royalties – have become increasingly important. In addition，there has been progress in the facilitation of the services trade. SAFE will pursue supply-side structural reform as its main task，improving the ability to serve the real economy and enhance the liberalization and facilitation of cross-border trade and investment. In 2019，the State Council approved 12 foreign exchange measures aimed at boosting cross-border trade，investment and financing. These were designed to expand existing pilot programs in foreign exchange payments and receipts and allowing enterprises to conduct centralized management of foreign capital in order to support the Belt and Road Initiative. In 2020，a so-called green channel was set up for foreign exchange policies and eight measures on further promoting trade investment and financing were proposed. Another nine measures aimed at supporting the development of new forms of trade were released. These supported epidemic prevention and control as well as economic and social development. They benefited one million micro and small businesses as well as individual trade entities.

International Cooperation

At present，there are significant uncertainties in global political developments，but the general trend of the Chinese economy toward long term steady growth remains unchanged. SAFE is following the general principle of pursuing progress while ensuring stability and the new development philosophy. It will remain steadfast in pursuing reform and opening up the foreign exchange field. It also will stabilize what are called the six fronts (employment，finance，foreign trade，inbound investment，domestic investment，and market expectations) and guarantee the six priorities (jobs，daily living needs，food and energy，industrial and supply chains，the interests of market players，and the smooth functioning of grassroots government). This will aim to protect and stimulate the vitality of market entities，and thereby achieve high-quality economic development.

Firstly，the facilitation of trade in services should be promoted in order to create a convenient business environment for the services trade. China's efforts in improving the business environment during the past few years have been recognized internationally. According to the World Bank's Doing Business 2020，China has seen a significant jump in its global ranking as a place for doing business，reaching 31st place. SAFE will press ahead with reforms to streamline administration and delegate power. It will improve regulation，upgrade services，and take measures in foreign exchange facilitation to ensure that regulations are in line with world standards. It also will expand the pilot programs of foreign exchange payments and receipts facilitation for the trade in services，implement policies on new business models for trade，create a convenient business environment，and stimulate the vitality and development momentum of market entities.

Secondly，China needs to pursue a greater degree of opening to the outside in order to provide a favorable institutional environment for the services trade. An opening-up based on institutions is a requirement for aligning with the high standards of an international market rule system. SAFE will make greater efforts to serve China's major regional development strategies by supporting the foreign exchange management reforms in free trade pilot zones such as the Lingang section of the Shanghai Pilot Free Trade Zone，the Hainan Free Trade Port，the Guangdong-Hong Kong-Macao Greater Bay Area and other places. SAFE will also give more support to construction of the leading area for the expansion of trade in services and the pilot area for the digital economy. Based on the Foreign Investment Law，the aim is to attract highly skilled talent from around the world. There will also be speeded implementation of what is referred to as pre-establishment national treatment. Service-oriented enterprises funded by foreign investors will be encouraged to set up operations in China. Additionally，SAFE will work on the negative list system for managing cross-border services and deepen the opening-up in the services trade.

Thirdly，risks from external events should be actively prevented and appropriately dealt with，so as to construct a stable market environment. The exchange rate formation mechanism of the Chinese currency has been effectively advanced，and the flexibility of the renminbi exchange rate has been enhanced. This plays an important role in automatically adjusting the balance of payments，making the foreign exchange market for the services trade more stable and orderly. SAFE will accelerate the twin management framework of "macro-prudence and micro-regulation" in the foreign exchange market. At the same time there will be stronger supervision of the foreign exchange market which will limit risks from cross-border capital flows while facilitating real and legal transactions，so that the legitimate rights and interests of consumers and investors can be protected. Credit ratings，management capabilities and internal control capabilities of market participants also need to be improved.

Fourthly，China will contribute more to the global trade in services，for the purpose of building an international environment that reflects shared prosperity. The great success of the 2020 China International Fair for Trade in Services has effectively promoted innovation and international cooperation in the services trade. This has demonstrated China's strong confidence in opening up its economy to the world. China has a huge demand for services with its total population of 1.4 billion，including 400 million people who are considered to be middle-income. Together with complete industrial systems and strong industrial chains，China will make greater contributions to the development of the global trade in services and help the global economy recover more rapidly following the Covid-19 pandemic. SAFE will carry out the suggestions put forward by General Secretary Xi at the Global Trade in Services Summit，stimulating new drivers of trade in services through a new opening-up and development philosophy. This should enhance cross-border trade，investment and financial liberalization. It should also improve the nation’s ability to serve the real economy and better support the construction of a new dual cycle pattern of development.

The author is SAFE's Deputy Administrator