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OeconomiA
copernicana
Volume 13 Issue 2 June 2022
p-ISSN 2083-1277, e-ISSN 2353-1827
www.oeconomia.pl
Copyright © Instytut Badań Gospodarczych / Institute of Economic Research (Poland)
This is an Open Access article distributed under the terms of the Creative Commons Attribution License
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duction in any medium, provided the original work is properly cited.
ORIGINAL ARTICLE
Citation: Ambroziak, A. A., & Stefaniak, J. (2022). The position of China in trade in services
within the European Union. Oeconomia Copernicana, 13(2), 335–354. doi: 10.24136/oc.2022
.010
Contact to corresponding author: Adam A. Ambroziak, adam.a.ambroziak@sgh.waw.pl
Article history: Received: 13.01.2022; Accepted: 5.06.2022; Published online: 30.06.2022
Adam A. Ambroziak
SGH Warsaw School of Economics, Poland
orcid.org/0000-0002-4618-8497
Joanna Stefaniak
University of Gdańsk, Poland
orcid.org/0000-0001-8612-3105
The position of China in trade in services within the European Union
JEL Classification: F14; F15; L80; O14
Keywords: trade in services; China; European Union; comparative advantage; trade position
Abstract
Research background: In recent decades, services in international trade have been growing
steadily in importance, and there has been strong growth in China’s trade in services as a result of
the ‘opening up’ policy. China has become the European Union’s second biggest trading partner
in services with the European Union (EU), being China’s largest trading partner. The EU is one of
the addressees of the Chinese Belt and Road Initiative, which creates opportunities and threads to
the European Internal Market in services.
Purpose of the article: The aim of this paper is to contribute to the literature and fulfil the re-
search gap on the position of China in intra-EU trade in services.
Methods: We identified the most important types of services offered by China to purchasers from
the EU countries. By using the Revealed Symmetric Comparative Advantage (RSCA) and trade
balance (LFI) indices, we classified the Chinese exports to the EU Internal Market by types of
services and by their trade position.
Findings & value added: We found out that China might be perceived as a strong competitor for
intra-EU trade in selected services, especially those concerning low-end service tasks, that use
relatively low-skilled labour and are less knowledge- and capital-intensive. However, China’s
attitude is changing towards more sophisticated services for example R&D. It creates a need for
Oeconomia Copernicana, 13(2), 335–354
336
a new approach to the EU economic policies (in terms of both protectionism and interventionism)
in trade relations in services with China.
Introduction
In recent decades, services in international trade have been growing steadi-
ly in importance. To date, developed economies have been perceived as the
main players in trade in services. However, this has changed in recent
years, as some fast-growing emerging markets, including China, have also
become prominent players. Since joining the World Trade Organisation
(WTO) in 2001, systematic growth of the importance of China in trade in
services worldwide can be observed: its share in the world’s exports and
import of services more than doubled in 2005–2021 respectively, from
2.96% to 6.61% and from 3.22% to 7.73% (WTO 2022). As a result, China
has been placed among the top ten countries in exports and imports of ser-
vices.
This strong growth of trade in services can be explained by the ‘opening
up’ policy, embracing several issues, especially concluding preferential
treatment agreements and realisation of the “Belt and Road Initiative”
(BRI). The aim of BRI, launched in 2013, was to enable China to seek new
opportunities to foster its integration into the world economy (Aoyama,
2016; Liu et al., 2019). China signed preferential trade agreements with
many countries and organisations, however, excluding the European Union
(EU) (Gari, 2020), although the EU is perceived as one of the addressees of
the Chinese BRI initiative (Li & Schmerer, 2017). As the world’s largest
economic entities, the cooperation between the EU and China in trade in
services is getting closer and more extensive. The EU is China’s biggest
trading partner, while China has become the second biggest trading partner
to the EU after the United States. In the period 2010–2021, exports of Eu-
ropean services to Chinese customers increased by nearly 191% (from 19.6
billion euro in 2010 to 57.1 billion euro in 2021), while Chinese exports of
services to the EU customers increased by 109%, reaching 36.5 billion euro
in 2019 compared to 17.4 billion euro in 2010 (Eurostat, 2022), with a
slowdown in 2020 due to the pandemic crisis (respectively by 12% and
8%).
The main feature of the EU in economic terms is the European Internal
(Single) Market. The concept of the Internal Market is an area without in-
ternal frontiers and with free movement of goods, services, workers, and
capital. It implies that there should be for example no legal, economic and
administrative barriers to the provision of services among the EU Members.
Although the Internal Market in services is not fully completed, it creates
Oeconomia Copernicana, 13(2), 335–354
337
challenges and new opportunities for services providers, both European and
external (i.e., Chinese), enabling them to offer their services across all EU
Member States. With that in mind, we assumed, following the reasoning of
Ploberger (2017), that one of China’s expansion goals of the BRI is to con-
nect China with the EU as the world’s largest and richest consumer market.
However, at the same time, from the European perspective, China might be
perceived twofold: as an attractive partner for economic cooperation, as
well as a competitor that has been repeatedly accused of unfair practices.
Given the above, the aim of this paper is to contribute to the literature
by assessing China’s position in trade in services with the EU against intra-
EU trade in services. While there are studies on the EU trade in services
and its competitiveness, as well as on competitiveness of China’s trade in
services in general, there are no studies exploring China’s competitiveness
in services trade from the European perspective. Therefore, in this paper we
investigate in which types of services China might be perceived as a strong
competitor for intra-EU trade in services. Our hypothesis is that taking into
account expanding trade relations in services, China might be perceived as
a strong competitor for intra-EU trade in selected services, especially those
concerning low-end service tasks that use relatively low-skilled labour and
are less knowledge- and capital-intensive. We believe that it might add
a new perspective to the EU economic policies regarding China as a poten-
tial competitor in intra EU trade in modern services.
The paper’s focus on the European intra-EU vs. EU-China trade in ser-
vices is a major contribution to the research gap and to knowledge on the
issue in the light of potential challenges in the services trade. To fulfil the
aim of the paper, we use the comparative advantage and trade position ap-
proach, which is one of the most frequently used methods to assess trade
competitiveness.
The rest of the paper is structured as follows. After the literature review,
we present our methodology, data selection, and empirical analysis, includ-
ing state-of-the-art mapping in types of services in which China might be
an important competitor. Then, we present and discuss results and finally
formulate some conclusions, as well as comments on implications for fu-
ture research.
Literature review
China is widely perceived to be an outstanding player in international trade
in services. This is reflected in a number of studies on China’s international
trade in services, its growth and dimensions. Analysing China’s trade in
Oeconomia Copernicana, 13(2), 335–354
338
services, Chen and Whalley (2014) found that it noted a high rate of growth
resulting in a huge impact on global trade. They predicted even more inten-
sive growth in China’s importance to the world economy in the future.
These predictions were confirmed by Yin and Choi (2021) who pointed out
the role of BRI in intensification of China’s services export and creation of
new competitive advantages (for example tourism services (Chen et al.,
2021) and knowledge-based services (Li et al., 2020)). However, one
should not forget while researching economies with different systems, (e.g.,
EU vs China) that economic and political factors are often intertwined. This
is pointed out by Kung et al. (2016), who state that in order to strengthen its
position in trade in services, China often deployed foreign trade relation-
ships and developed collaboration in multilateral trade in services on the
basis of political implications. These issues were also pointed out by
Holslag (2017) and Devonshire-Ellis (2019), as well as by Song et al.
(2022).
The expansion of trade in volume terms is an important issue to explore,
however the position of an exporter in the international markets depends on
its competitive advantage regarding comparative advantage and trade posi-
tion. The literature on comparative advantage in trade in services for China
is quite limited. Research on the topic undertaken by Tang et al. (2014)
found that China’s comparative advantage in services lies in tasks requiring
relatively low levels of skill, knowledge, and productivity. Similar results
were obtained by Baláž et al. (2020), who also observed that China’s com-
petitiveness of selected sectors derives from a lower level of sophistication.
On the other hand, Kung et al. (2016) analysed China’s comparative ad-
vantage in trade in services taking into consideration twelve main types of
services and found that China is considerably less competitive in trade in
services than other countries in the study. This was confirmed by Wang
(2019), who, based on his analysis of statistics gathered over five years
regarding summarized trade in services in the global arena, concluded that
despite the increase in competitiveness, China’s trade in services is still at
a disadvantage. However, this author indicates the important role of the
BRI as an opportunity to develop trade in services and to promote the inter-
national competitiveness of China's service trade. Also, Wang et al. (2020)
underlined that the specialization of China’s segmented service sectors was
lagging behind other developed economies, and China still has a long way
to go from being a large power in service trade in volume terms to a strong
power in service trade in competitiveness terms. Recently, research on the
international competitiveness of China’s trade in services in the global are-
na using the comparative advantage method was undertaken by Jiang and
Lin (2020). Their results show that the overall international competitive-
Oeconomia Copernicana, 13(2), 335–354
339
ness of China’s trade in services is weak but has been rising in some types
of services over the past 20 years, such as construction and communication
services, leaving the rest with no competitive advantage.
As China’s trade in services has developed, trade relations between Chi-
na and the European Union have become more extensive over the years.
This growth creates some concerns, however, Baláž, et al. (2020) argue that
the intensity of trade in services with China remains at a relatively low
level. As Holslag (2017) noted, China’s share in trade in services markets is
growing spectacularly in countries situated along the New Silk Road and is
becoming a major challenge and threat to European countries. These con-
cerns are also shared by Dadush et al. (2019), who underline that as Chi-
nese export to the European markets has increased dramatically over the
years, it might have caused some degree of disruption in the EU labour and
services markets. With that in mind, Freeman (2017) points out that the EU
Member States should be aware of the rise of a strong competitor, even
though the EU tends to strengthen the services sector and trade in services
within the Internal Market, as well as to support the improvement of ser-
vitization processes in manufacturing sectors.
On the other hand, Casarini (2016) suggests that such a trade partner as
China might also be perceived as a great opportunity, as the new business
model based on servitization expands. This approach is shared by Malm-
ström (2016) and Bloom et al. (2016). Malmström sees twofold opportuni-
ty: in the creation of new jobs, as sales to China will intensify and, addi-
tionally, in a greater competitive advantage of European companies over
service providers based in China. Meanwhile, Bloom and others underline
that having a strong competitor may intensify innovation efforts and boost
productivity in European enterprises, including service providers. A similar
approach is presented by Christiansen and Maher (2017). These views
might be supported by the results presented by Chen et al. (2019), who
found that the structure of trade flows differs substantially, and while China
prevails in export of less knowledge-intensive services, EU export is more
knowledge-intensive. Recently, the positive approach to the BRI and hav-
ing China as a partner were expressed by Hoekman and Puccio (2019),
stating that the EU has much to gain from the effective implementation of
the initiative in terms of potential synergies in the sphere of the EU devel-
opment cooperation. This approach is shared by Baláž, et al. (2020), who
perceived relatively low global competitiveness of the Chinese service sec-
tor as an opportunity for European businesses.
When analysing the current competitive position of China in services
trade with the EU, the external economic shock caused by the Covid-19
health pandemic should be taken into consideration. Although there are no
Oeconomia Copernicana, 13(2), 335–354
340
studies specific to EU-China trade in services, there are some studies which
might shed some light on the issue. Unlike the previous external shocks, the
novel coronavirus pandemic had an impact on trade in services and Duan et
al. (2021) found that services which are the most vulnerable to cross-border
movement of people were most affected. Lim et al. (2021) and Lu et al.
(2021) came to a similar conclusion. They investigated the effects of
COVID-19 on different service sectors, and found that it was mostly ser-
vices related to trade, hospitality and transport services that suffered. Also,
Ando and Hayakawa (2022), who examined trade in services of 146 econ-
omies in 2019 and 2020, including China and the EU member states, found
that international trade in travel, passenger transport and construction ser-
vices were mostly affected. On the other hand, Lawless (2021) found that
the detrimental effects on professional services and business services were
limited.
Taking all of the above into consideration, and as there is quite a lot of
research on overall trade in services relations of China in the international
community, apparently there is a niche in research on the position of ex-
ports of services from China to the EU in the light of their potential impact
on intra-EU trade in services. Therefore, the research undertaken by the
authors aims to fill this research gap and enhance knowledge on the topic.
Research method
In order to grasp China’s position in trade in services with the EU in rela-
tion to intra-EU trade in services regarding different types of services, we
decided to take into consideration two key indices: the comparative ad-
vantage and net trade position. The best-known and the most widely used
indicator for measuring relative comparative advantage in exports is Balas-
sa’s (1965) Revealed Comparative Advantage (RCA) index, which might
be used also for analysing trade in services (Langhammer, 2004; Stefaniak
& Kuczewska, 2016).
RCA indicators generally indicate some weaknesses: differences in size
of trade partners and the asymmetric nature of its values. First of all, large
differences in country sizes can cause a problem, however China and the
European Union, as a whole, are recognised as trade partners with similar
potential economies. Regarding asymmetry of the index, the original RCA
ranges from zero to one, if a country has a comparative disadvantage in
a given sector, and from one to infinity, if a country has comparative ad-
vantage. As there are many versions of the RCA index addressing this
problem, we applied the Revealed Symmetric Comparative Advantage
Oeconomia Copernicana, 13(2), 335–354
341
(RSCA) index proposed by Dalum et al. (1998) and Laursen (2015) with its
neutral point at 0. Therefore, for the index above 0, the country is identified
as having a comparative advantage in exports, while for the index below 0
– a comparative disadvantage. In our case we used the formula as follows:
(1)
and
(2)
where:
value of China’s exports of service j to the EU;
value of the intra EU exports of service j in total intra EU trade in ser-
vices.
There are two more issues regarding the RSCA index. Firstly, we con-
sider China’s trade position and competitive advantage in relation to intra-
EU trade in services. Secondly, although the normalisation of the RCA
solves the problem of its asymmetry (RSCA indicator), the problem of the
robustness of empirical distribution remains. Nonetheless, we decided to
apply the RSCA, taking into account arguments and outcomes of Deb and
Sengupta’s (2017) research that empirical distribution of that index is al-
most at a par with its theoretical distribution.
As the RSCA index focuses on the relative export performance and dis-
regards net trade flows and intra-industry trade, in order to grasp trade in
both directions (exports and imports) and to evaluate China’s net trade po-
sition in relation to intra-EU trade in services, we decided to apply the
Lafay index (1992). This index takes into account both exports and imports
by using the difference between each item’s normalised trade balance and
the overall normalised trade balance (the sum of the index across sector j
for any year must by design be equal to zero) and weighs each product’s
contribution according to the respective importance in trade (Platania et al.,
2015). The implicit assumption is, of course, that cyclical factors influence
aggregate and disaggregate trade flows in the same way. Moreover, it also
checks for distortions induced by macroeconomic fluctuations (Caselli &
Zaghini, 2005). In our case, the Lafay index is defined as follows:
Oeconomia Copernicana, 13(2), 335–354
342
!
"!
#
!
$
#
"!
$
%
"!
#
"!
$
(3)
where:
value of China’s exports of service j to the EU,
&
value of China’s imports of service j from the EU.
Generally, the positive values of LFI indicate the existence of compara-
tive advantages in a given product/service, while the negative values point
to a disadvantage (de-specialisation) in this product or service. Therefore,
we assumed that LFI>0 indicates reliance on exports, which contributes to
a better result in a specific service type than in the whole trade in services,
while LFI<0 indicates results worse than in the trade in services in total.
To be able to simultaneously observe changes and final values of the
aforementioned two indices, we used the ‘product mapping’ concept devel-
oped by Widodo (2009). However, in our research, this concept was modi-
fied by using the RSCA and Lafay’s indices instead of, respectively, the
RCA and Trade Balance Index applied in Widodo’s original concept. To
this end, we identified four main groups of services using various results
for the RSCA and LFI. This allowed us to find out in which types of ser-
vices China can be seen as a strong competitor to the European Union (Fig-
ure 1).
Group A consists of services for which a country has both comparative
advantage (export specialization) and net trade achieving better results than
in its trade in services in general. Group B consists of services for which
a country has a comparative advantage, but the net export results are worse
than for the country’s trade in services in total. Group C comprises services
for which a country’s position in net export is better than in its trade in all
services even though no comparative advantage exists for these services.
The last group comprises cases of the worst trade position when a country
suffers from a comparative disadvantage and a negative trade position re-
garding net trade.
Data on exports used in the paper come from the Eurostat database and
are presented according to the Eurostat balance of payments services classi-
fication (EBOPS 2010). We identified eleven main categories of services,
with some sub-categories for “Other business services”.
Oeconomia Copernicana, 13(2), 335–354
343
Results and discussion
To assess China’s position in trade in services with the EU in relation to
intra-EU trade in services, we applied the aforementioned Widodo (2009)
concept to China’s exports of services to the EU. We have found that in the
case of some services China’s position in Widodo’s groups changed while
in other cases it remained unchanged (Figure 2). Over the years, the com-
petitive trade position (Group A) was sustained for transport services (SC)
and other business services (SJ), especially research and development ser-
vices (SJ1) and legal services (SJ211). During the period of 2010–2021, the
trade position improved considerably regarding manufacturing services on
physical inputs owned by others (SA), maintenance and repair services
(SB), construction services (SE), and insurance and pension services (SF).
On the other hand, the trade positions of accounting services (SJ212), as
well as business and management consulting services (SJ213) worsened.
The trade positions for other types of services (Group C or D) were weak in
relation to intra-EU trade.
To determine whether China might be perceived as a competitor for in-
tra-EU trade in services, we investigate more specifically those services
which were placed in Group A.
In 2010, the best competitive position was noted for transport services,
however it worsened dramatically in 2020–2021 as a result of the pandemic
crisis. However, we have found that transport services were still prominent.
Our findings are in line with results of research by Chen et al. (2019). Chi-
na's strong position in transport services is due to the fact that it uses all
available transport networks, in which it has a cost advantage, to deliver
products to the European market. Besides the sea, road and air transport
within the BRI international transport corridors, China is improving its
position in rail transportation as the number of European rail destinations
increases and logistic systems expand (Choi, 2021; Du et al., 2022). On the
other hand, European destinations are changing, including harbours which
adapt to the new situation (Liu et al., 2022).
In 2021, a strong trade position in relation to intra-EU trade in terms of
comparative advantage and net trade was noted for manufacturing services
on physical inputs owned by others (SA) and maintenance and repair ser-
vices (SB), although the volume of those services traded is not big. Imme-
diately after the crisis of 2008–2010, China was a net importer and had a
comparative disadvantage (Group D) in both sectors. However, since 2014
and 2013 it has radically improved its position in relation to group A. This
confirms the findings of previous studies, as Tang et al. (2014) found that
China’s comparative advantage in services lies in tasks requiring relatively
Oeconomia Copernicana, 13(2), 335–354
344
low levels of skill, knowledge, and productivity. Baláž et al. (2020) ob-
tained similar results, finding that China’s better trade position was noted in
services mainly associated with a lower level of sophistication, such as
manufacturing services on physical inputs owned by others as well as
maintenance and repair.
During the period under research, China improved its trade position
(Group D to Group A) in trade in construction services (SE) delivered to
European buyers in relation to intra-EU trade, however the volume of ser-
vices traded is not that high. This gradual improvement has been observed
since 2016, however in 2019–2020, trade in construction services between
China and the EU followed a global trend, as presented by Ando and
Hayakawa (2022), facing negative consequences of the COVID-19 pan-
demic (Group D). As pandemic restrictions have been lifted, China has
regained its trade position as a net exporter with a comparative advantage
in intra-EU trade. In general, our findings confirm those of Chen et al.
(2019), who observed a long-term tendency and gradual improvement of
China’s trade position in construction services in the global market. Also,
Jiang and Lin (2020) noted that although the overall international competi-
tiveness of China’s trade in services is weak, construction sector competi-
tiveness has been rising over the last decades. However, the trade position
in construction services has become stronger as in the last decade the Euro-
pean market became a target for some big Chinese contractors who became
more offensive in exporting construction services to the European market
(Holslag, 2017). Firstly, this was the effect of changes in policy regarding
construction services in China, as the pillar sector of economic growth (Su
et al., 2022) and sustainable development (Gan et al., 2022). Secondly, the
growing attention paid to the European market goes hand in hand with the
state offering cheap financing, low production and labour costs, eagerness
to learn and pick up ideas and technologies, as well as building parts of
projects in China. However, there are also unfair practices, such as using
second rate sub-contractors to compete, paying professional fees on a suc-
cess basis only, or using diplomatic relations and key lobbyists to win con-
tracts (Devonshire-Ellis, 2019). All these actions allowed China to become
a net exporter of construction services to the European market in recent
years. Therefore, competing with Chinese contractors requires specific
strategies from the European governments, as well as construction service
providers themselves.
Growing Chinese investments in the EU provide Chinese companies
with a platform to improve their competitiveness in the European Internal
Market and this is reflected in the trade position regarding intra-EU trade in
other business services (SJ). With a huge presence of Chinese businesses,
Oeconomia Copernicana, 13(2), 335–354
345
and over 900 Chinese companies operating in the EU in 2019 (CCCEU,
2019), many business and management services were brought to the Euro-
pean market from China. This might further accelerate China’s competition
in relation to the European service providers in the Internal Market.
Taking into consideration the sub-categories of ‘Other business ser-
vices’ (SJ), four cases can be identified:
− China maintained a comparative advantage and good trade position
(Group A) over the whole period in research and development (R&D)
services (SJ1) and legal services (SJ211). In the case of R&D services,
our findings reflect the general picture, as Xl and Ghauri (2021) noted
that China’s investment in this R&D sector has grown remarkably over
recent decades, and it is now the second largest performer in the world
in terms of R&D spending. China has also emerged as a new science
and technology (S&T) powerhouse with a plan to become the leader in
S&T by 2050 (Veugelers, 2017). Additionally, the quality of R&D re-
sources, indigenous scientific capacity, and access to the universities
and research institutions make China an increasingly attractive location
for research activities of multinational companies, including the Euro-
pean ones. All of the above, as well as Chinese policies of “brain circu-
lation” and fostering FDIs focused on technology transfers, and support-
ing innovation and technology development, lead us to believe that in
the near future China will become a worldwide leader in trade in R&D
services, although it has recorded a very high deficit in international
trade (Xl & Ghauri, 2021). This should be taken into account by the EU
countries and institutions in the context of their technology and innova-
tion policies, as China has already become a competitor in R&D ser-
vices.
− China has revealed a comparative advantage in engineering services
(SJ312). On one hand it is most often a net importer in the period under
research (group B), however, on the other hand, the volume of trade in
those services is important in relation to intra-EU trade. Therefore, Chi-
na’s policy and trends in trade in engineering services should be ob-
served to find out whether in the long term China will become a com-
petitor.
− As for the accounting and auditing services (SJ212) and business and
management consulting and public relations services (SJ213), during the
years under research China maintained a good trade position while hav-
ing a comparative disadvantage (group C). We have also found that,
similarly to the findings of Lawless (2021), accounting services as well
business and management services experienced limited or no impact of
national restrictions during the COVID-19 pandemic. Due to the nature
Oeconomia Copernicana, 13(2), 335–354
346
of the services under consideration, we assume that these services are
offered to the European buyers operating on the Chinese markets, rather
than in the EU Internal Market directly. Therefore, from the European
perspective, there is no competition thread in the EU Internal Market.
− Finally, as for architectural services (SJ311) to date China has had
a comparative disadvantage with a weak trade position (Group D).
However, the value of architectural services traded is substantial in rela-
tion to intra-EU trade, and the RSCA indexes are improving steadily
over the period under consideration.
As for other categories of services under research, such as travel (SD),
financial (SG), charges for the use of intellectual property n.i.e. (SH), tele-
communications, and computer and information services (ICT) (SI), Chi-
na’s trade position is characterised by a comparative disadvantage in trade
in the EU Internal Market being, at the same time, a net importer (Group
D). In the case of travel services, bearing in mind the distance and the eco-
nomic and social environment in China, as well as the post-pandemic situa-
tion, the weak trade position will remain. Considering financial services,
over the analysed period, China’s trade position in the EU Internal Market
has not changed as the European market is sufficiently regulated and re-
stricted, and thus Chinese companies cannot easily reach it. Regarding
trade in communication and IT services, while Jiang and Lin (2020) found
improvement in China’s revealed comparative advantage in those services
on the Asian markets, we have not found similar effects in the trade with
the EU. While EU-China trade is considered in relation to intra-EU trade,
China’s trade position during the period under consideration remained
weak with a comparative disadvantage. There are some similarities regard-
ing the trade position of China in intellectual property protection services,
however this even declined, even though the volume of trade is substantial
(Yang & Pang, 2022). Finally, in terms of trade in personal, cultural, and
recreational services (SK) in the EU Internal Market, China became a net
exporter in 2021, however it recorded a comparative disadvantage (group
C). This might be explained by the specificity of activities that require loca-
tion in Europe, hence the much stronger position of European companies.
European companies are in a stronger position as they understand better the
cultural and social preferences.
Regarding trade positions considering the last group of services, our
findings correspond to those of Chen et al. (2019) and Baláž, et al. (2020).
Baláž noted that China is still lagging behind developed countries in the
sophistication of services traded, which is particularly evident in the sub-
stantially high negative trade balances for services such as charges for the
use of intellectual property, travel, as well as insurance and pension ser-
Oeconomia Copernicana, 13(2), 335–354
347
vices. We also observed that all of those services in trade with the EU expe-
rienced negative consequences of the COVID-19 pandemic, and this caused
their trade position to decline in relation to intra-EU trade.
Conclusions
Summarising the above research findings, some key conclusions and con-
tributions are noteworthy. China’s potential in the service sector is grow-
ing, and therefore China’s role in trade in services will steadily increase.
Our research showed that China is becoming a strong competitor in the EU
Internal Market in six types of services of which the characteristics confirm
the servitization approach taken by Chinese manufacturers and service pro-
viders. Over recent years, China has risen to the position of competitor to
the European service providers in manufacturing services on physical in-
puts owned by others and maintenance and repair services, although the
level of trade is not yet significant. Over the years, China has also main-
tained its strong trade position in R&D services, allowing China to be rec-
ognized as a competitor. Additionally, even though it still has a compara-
tive disadvantage, China is gaining a new position of a net exporter in con-
struction services, and taking into consideration both the cost advantage as
well as the policy of China’s government and different forms of trade in-
centives, including financial support. trade in these services should be ob-
served more closely.
Having identified the services in which China might be perceived as
a strong competitor for intra-EU trade in services, except for R&D services,
China’s comparative advantage in trade was observed to relate to services
based on traditional labour- and resource-intensive services due to its factor
endowment abundance of relatively low-cost labour and other low-cost
production resources. Having said that, we can confirm our hypothesis that
China might be perceived as a strong competitor for intra-EU trade in se-
lected services, especially those concerning low-end service tasks that use
relatively low-skilled labor and are less knowledge- and capital-intensive.
However, China’s attitude towards services is changing, and this is having
a major effect on the image of Chinese trade. Large-scale investments in
new technologies, science and innovation, an eagerness to learn new meth-
ods and acquire high-tech knowledge, as well as increasing levels of in-
vestment (FDI) in developed markets such as the EU and US are strength-
ening China’s position in trade in more sophisticated services, such as
business services, especially R&D services or business and management
consulting, and public relations services.
Oeconomia Copernicana, 13(2), 335–354
348
Evidence from different research, data, and trends in trade in services
analysis, as well as Chinese policies regarding services, suggest that the
opinion of Nan and Shuiyu (2018) stating that "the competitiveness of Chi-
na's services trade has been strengthened, and the country is gradually shift-
ing from a power of trade in goods to a services trade power" is very much
relevant. This could pose a major challenge to EU service providers, who
might lose their shares in the EU market to the Chinese competitors. There-
fore, in view of the “Belt and Road” Initiative and the possibility of the
future EU-China Free Trade Agreement, the EU Member States should be
aware of strong competitive pressure from Chinese service providers.
It seems that further studies should be carried in two areas: first, analysis
of a trade position should continue, taking into account the Chinese attitude
towards services; secondly there needs to be a focus on where the service
transactions take place: whether services are offered to the EU entities in
the Internal Market or to the European buyers operating in the Chinese
market.
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Annex
Figure 1. Product/service mapping matrix
Source: concept based on Widodo (2009).
Figure 2. ‘Mapping’ China’s export of services in relation to the EU Internal
Market
SA
SB
SC
SD SE
SF
SG
SH
SI
SJ
SJ1
SJ211
SJ212
SJ213
SJ311
SJ312
SK
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
-0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6
LFI
RSCA
2010
LFI>0
Group C
Comparative disadvantage
Better net-trade position
RSCA < 0 and LFI > 0
Group A
Comparative Advantage
Better net-trade position
RSCA > 0 and LFI > 0
LFI<0
Group D
Comparative disadvantage
Worse net-trade position
RSCA < 0 and LFI < 0
Group B
Comparative Advantage
Worse net-trade position
RSCA > 0 and LFI < 0
RSCA<0
RSCA > 0
Figure 2. Continued
Notes:
− The size of the bubble denotes to the share of China’s export of specific type of services in relation
to the export of these services in the EU Internal Market.
− Abbreviations: SA – Manufacturing services on physical input owned by others, SB – Maintenance
and Repair, SC – Transport, SD – Travel, SE – Construction, SF – Insurance and Pension, SG –
Financial services, SH – Charges for the use of intellectual property, n.i.e., SI – ICT services, SJ –
Other business services, SJ1 –R&D services, SJ211 – Legal services, SJ212 – Accounting and audit
services, SJ213 – Business and management consulting, SJ311 – Architectural services, SJ312 –
Engineering services, SK – Personal, cultural and recreational services.
− In Chart for 2021 data for subcategories of Other business services (SJ) are of 2020 (as data for
2021 is not available yet).
Source: own calculations based on Eurostat (2022).
SA
SB
SC
SD
SE
SF
SG
SH
SI
SJ
SJ1
SJ211
SJ212
SJ213
SJ311
SJ312
SK
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0
LFI
RSCA
2021
