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China’s Second-Tier Cities Offer Opportunities for Service Industry Exports Service exports and trade advocacy in China are highlighted at the America–China Business Women Alliance’s annual conference. by Andrea DaSilva and Xiaobing Feng Approximately 400 industry and government leaders from across China and the United States participated in the America–China Business Women Alliance’s annual conference on November 5–7, 2008, in Washington, D.C. This event is the only one of its kind that focuses on women who conduct business in China. Nearly half of the privately held firms (48 percent or 10.6 million) are 50 percent or more owned by women. Those U.S. firms employ 19.1 million people and generate nearly $2.5 trillion in sales. China has roughly 20 million women business owners.
At the conference, specialists from the International Trade Administration (ITA) discussed what services ITA offers for exporters and how a budding middle class in second-tier cities indicates that those cities are the real economic engine in China. In particular, demand is strong in the advertising, health, tourism, and information technology and professional service industries. The China Trade in Services Report 2008, published by China’s Ministry of Commerce, shows significant demand for imports of foreign services, with major increases in imports from 2006 to 2007. Film and audiovisual services were up by 22.4 percent, consulting by 29.4 percent, travel by 22.5 percent, computers by 27.0 percent, advertising by 40.0 percent, and communication services by 41.6 percent. However, exporters of services face challenges in entering the market and maintaining businesses in China, with staffing, logistics, language barriers, and intellectual property rights infractions at the top of the list. What U.S. Exporters Say about China U.S. exporters at the event discussed additional challenges they have faced in exporting to China because of differences in business practices. Most speakers recommended that new entrants partner with a local expert for easier transition. Many exporters also confront industrial standards and certification issues, insufficient transparency of government regulations, payment and dispute resolution mechanisms, price controls, and approval processes that may favor local businesses. The Advocacy Center In response to those and other export challenges, ITA’s U.S. and Foreign Commercial Service (USFCS) employs 157 officers and trade specialists in China. Through its Advocacy Center, and in collaboration with 18 other U.S. government agencies, USFCS promotes U.S. jobs through exports by coordinating high-level U.S. government advocacy for U.S. firms competing for foreign government tenders. In one success story, the center assisted a mid-sized Ohio airport architecture firm in its bid to redesign the Shanghai airport. The Ohio firm is now establishing itself as a player in the Chinese market. Dozens of new airports, including those in second-tier cities, will be built in the next 10 years. The center encourages U.S. small and medium-sized enterprises to export, makes certain that they are treated fairly, and ensures that their proposals are evaluated on technical and commercial merits. China’s Second-Tier Cities Second-tier cities are experiencing the fastest economic growth in China, primarily because of the expanding middle-class purchasing power. Second-tier cities are industrial hubs outside of the main centers of commerce and trade. Many Chinese can now stay and work in their cities rather than migrating to larger economic centers in first-tier cities, such as Beijing, Guangzhou, and Shanghai. China has more than 150 cities with populations that are greater than 1 million people. Sixteen of those cities have emerged in clusters around the Yangtze River delta, which is considered to be China’s commercial backbone and accounts for 21 percent of China’s gross domestic product (GDP); areas outside of Hong Kong and Guangzhou; around the Bohai River delta; and around areas in central China. “China’s services market will explode over the next two decades [because of] China’s stringent development agenda to double per capita GDP [by] 2012 from 2000 [levels] and [because of] social trends. [Second-tier cities] show rapid urbanization and the emergence of the middle class,” said S. Tien Wong, chair and chief executive officer of Opus8 Inc., at the conference. The growth of second-tier cities comes from a growing middle class, greater opportunities because of less competition, and increased policy momentum. For example, in the past five years, the Chinese government has invested $123 billion in China’s national expressway system to improve transportation and the supply chain to second-tier cities. For more information about exporting services to China or the USFCS Advocacy Center, please contact Andrea DaSilva at andrea.dasilva@mail.doc.gov or Xiaobing Feng at xiaobing.feng@mail.doc.gov. Andrea DaSilva is a senior policy analyst with the International Trade Administration’s Manufacturing and Services unit. Xiaobing Feng is the regional manager for China and Mongolia with the U.S. Foreign and Commercial Service’s Trade Advocacy Center.
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