The central government's new focus on the service sector is set to transform China's growth pattern in the coming years, according to the Minister of Commerce Bo Xilai.

China is now placing special emphasis on attracting to the sector foreign direct investment to establish the country as a global outsourcing centre for services, Bo said at a forum on world trade in services held in Shanghai yesterday.

Since China began to pursue economic reform and market opening-up in 1979, much of the large inflow of foreign direct investments has gone to the manufacturing sector to take advantage of the plentiful supply of labour and land.

Such investments have helped speed up industrialization and powered the rapid economic growth for more than two decades.

But in more recent years, government planners have been concentrating more and more on promoting growth of the higher-value-added services sector, including finance, logistics and tourism.

Spelling out this fresh policy in his key-note speech at yesterday's forum, Bo said: "From now on, China will pay high attention to the trade in services, just as what we have done in the trade in commodities. The service sector will be an important attraction to foreign investments in the future."

A well-developed services sector will help enhance the competitiveness of China's industries, create higher-paid job opportunities and build up more favourable investment environment for multinationals, Bo added.

The forum's venue, Shanghai, has already become a well-established service centre of the nation. The Shanghai municipal government has been investing heavily in building and improving the city's infrastructure facilities, including airports, railways, highways, bridges and ports in a bid to position itself as a competitive business centre for multinational companies.

The services sector here has accounted for nearly 50 per cent of its overall economy in 2004, well above the nation's average of 32 per cent. "As the nation's leader in developing the services sector, Shanghai will further speed up attracting investment into the sector and establish itself as the international centres for finance, trade and shipping by 2020," Mayor of Shanghai Han Zheng told the forum.

Shanghai's success in the services sector is a reflection of the development of the sector throughout the country. Statistics of the Ministry of Commerce showed the total value of the country's services sector rocketed to US$128.6 billion in 2004 from US$4.6 billion in 1982.

China's service trade takes up about 2.8 per cent of the world's total and ranked ninth globally last year, up from the 34th in 1982.

Despite such records, the country's services sector faces a number of challenges such as deficit in services trade and uneven development. China imported US$10.8 billion more in various services than it exported in 2004. Within the various components of the sector, China has been relatively strong in areas such as transportation and tourism. But it will need to greatly strengthen other areas such as finance, insurance and information technology to compete in the international services trade.

"China needs to place more importance and develop the services sector to bring it in line with international standards and to become one of the important destinations for outsourcing services in the world," said Bo.

WTO talks

The minister of commerce said China would actively participate in the Doha Development Agenda (DDA) negotiations. "China made a lot of commitments when we joined the WTO three years ago. We will continue going forward and we are willing to shoulder responsibilities," Bo said.

He said three years after joining the WTO, China has opened up 62 per cent of its trade services market. This compared with 80 per cent for developed markets and 20-40 per cent for developing nations.

Sun Zhenyu, China's ambassador to the WTO, also spoke at the forum yesterday saying that China will soon submit its revised offers in opening up the services trade market.

Services trade negotiations have undergone three stages - formulating guidelines and procedures of the negotiations, submitting proposals for the negotiations and tabling initial requests and offers. Members of DDA are currently in the process of submitting revised offers.

"Given that China has made a lot of accession commitments, I have to stress that it is very difficult for China to make further concession in such important areas as banking, insurance, securities and telecom," said Sun.