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Shanghai eyes creation of service trade innovation demonstration zone

China Daily| Updated: November 23, 2023

City leveraging openness as major advantage for investors

Known for its progressive market policies, Shanghai has been taking steps to enhance its modern service industry and promote a more open and accessible trade sector. And with its strong commitment toward service trade innovation, the megacity aims to become a leading demonstration zone, propelling the high-quality development of service trade.

According to officials from the Shanghai government, the city stands out for its outstanding achievements in all aspects of life — but its greatest advantage is its openness.

"Shanghai, which is committed to optimizing its business environment, must insist in promoting reform, opening-up and innovation. It has to further expand institutional openness in areas such as rules, regulations, management and standards," Mayor Gong Zheng said at the 35th International Business Leaders' Advisory Council for the Mayor of Shanghai in October.

Gong said that as part of the city's measures to promote opening-up, greater attention will be paid to the construction of a national-level service trade innovation demonstration zone and fostering offshore business, as required by the central government.

A growing industry

As one of the nation's leading hubs of economy, Shanghai is a center of the service trade. In the first half of this year, its service trade imports and exports reached $102.12 billion, of which knowledge-intensive service trade amounted to $52.13 billion — a year-on-year increase of 9.4 percent. Digital service trade achieved imports and exports worth $31.17 billion, a year-on-year increase of 7.4 percent.

The Shanghai Service Promotional Manual was released during the 2023 China International Fair for Trade in Services in September in Beijing. According to the manual, Shanghai now has eight national-level service export bases covering fields such as human resources services, cultural services, traditional Chinese medicine and intellectual property services. It is also pioneering an array of national-level innovative practices in China, including the creation of the international ship registration system in Yangshan Port and the establishment of the Belt and Road Quality Certification Cooperation Mechanism.

Shanghai has created service trade platforms over the years to further open up its market to global investors. For example, a digital products trade hub in the Lin-gang Special Area of China (Shanghai) Pilot Free Trade Zone and a knowledge-intensified service trade hub in Shanghai Hongqiao International Central Business District are currently under construction.

In September, Lin-gang Special Area, the test field for new reform plans of Shanghai, released a service trade innovation action plan for the next five years. By 2025, the cumulative total of its service trade imports and exports will reach 200 billion yuan ($27.46 billion), with an annual growth rate of 10 percent in cross-border digital trade. The proportion of service trade imports and exports to the total volume of service trade in the city will significantly increase, according to the plan.

A friendly environment

Andrew Wu, China general manager of Dun & Bradstreet, a leading global provider of business decision-making data and analytics, stated the success of any demonstration zone or innovative attempt can only be secured by the market.

"The basic mechanisms are of course very important, as the prosperity of any industry or company cannot be parted from them. But a friendly business environment is also of crucial importance. Only when companies are profitable can the experimental move be successful," Wu said.

"The good news is that Shanghai has attached importance to create an amiable business environment. It is actually because of the city's friendly business environment that Dun & Bradstreet has been rooted here for almost three decades."

Dun & Bradstreet officially tapped into China by setting up a Shanghai office in 1994, which later became its country headquarters. The company registered its file with the People's Bank of China, and in 2017 it became the first foreign business credit information service provider in China when the country's top financial regulators relaxed restrictions on foreign ownership of financial institutions.

In 2021, Dun & Bradstreet moved its China headquarters to Hongqiao CBD. Wu said the district's favorable transport network, which includes a railway station and an airport, helps the company better serve the domestic market demand, especially in the Yangtze River Delta region. It also leverages resources to serve China as a whole and the Asia-Pacific region.

While Shanghai has always appealed to multinational companies, Wu said its attraction has been increasing as a hub for research and development. This has facilitated the development of service providers like Dun & Bradstreet as they can leverage their local operation to reach a broader market, he added.

A cluster of multinational companies' regional headquarters and R&D centers provide the foundation for building a national demonstration zone for the innovative development of trade of services, and according to Wu, the time is right for Shanghai to build a demonstration zone featuring trade of services while the global market is faced with multiple challenges.

By summoning the strength of various companies in Shanghai, a demonstration zone can guide companies to develop their businesses while staying on track with the country's major strategies, Wu said, adding, "To ensure the success of the demonstration zone, smooth data flow should be secured in the first place so that data can better empower the real economy, with completion of related laws and regulations being indispensable.

"Talents are the biggest assets for service providers which will make the integration of state-of-the-art technologies and application scenarios possible. Therefore, Shanghai may introduce more favorable policies to attract more talents from all over the world. On top of that, more supporting facilities or activities can be created to further improve the business environment here, which will in turn attract more service providers. The China International Import Expo is a good example."

Serving new trend

Chris Zhang, managing director of LucaNet Finance Consulting (Shanghai) Co for 13 years, also considers the establishment of a service trade innovation demonstration zone in Shanghai crucial.

"Shanghai is a city with a thriving service and trade industry that has always played a leading role in promoting reform and opening-up in China," said Zhang. "The measure is in line with the national policy of promoting high-quality development and industrial upgrading transformation."

The company, a wholly owned subsidiary of LucaNet in Germany, was established in Shanghai in 2010. The financial performance management system developer and service provider started out with less than 10 employees, but now has several hundred in a service network spanning the Yangtze River Delta region, Pearl River Delta region and Beijing-Tianjin-Hebei region and has created strong ties with leading companies such as SAIC and Shanghai International Port (Group) Co.

"Our development in China over the past decade has been remarkably rapid, with noteworthy advancements achieved annually. It is undeniable that each passing year has brought forth tangible transformations," said Zhang. "The service trade industry in Shanghai has been moving toward rationalization, standardization and specialization for more than 10 years."

Despite market challenges, Zhang remains optimistic about the development in Shanghai and China because of the favorable market policies, stricter requirements for information release by market supervisors, and the increasing demand from companies for improved performance.

Zhang said that by actively striving to broaden its product range to cater to the needs of smaller enterprises, the company aims to assist them in establishing a strong foundation for their future growth and development.

"Our major clients are industry-leading companies or market pacesetters, but we see a trend that many smaller companies are also keen to adopt solutions to enhance management," Zhang said. "We are keen to leverage our expertise in data management to set solid cornerstones for companies venturing into overseas markets."

To better serve small and medium-sized enterprises, LucaNet has made changes to the traditional purchasing model by introducing a subscription-based approach. This has allowed many SMEs to save on upfront costs and reduce the need for substantial initial capital.

Zhang said that with the support of LucaNet's system, SMEs are able to manage their financial systems in line with international best practices and exercise control over group finances with minimal investment.

A bright future

Professional service provider KPMG, which has been expanding in China since its inception in Shanghai in 1986, likewise recognizes the city's role in supporting its development.

"Shanghai is one of the most dynamic cities in the world, with strong global influences in many aspects," said Tracy Yang, vice-chairwoman and senior partner of the eastern and western region of KPMG China.

"Since entering Shanghai, KPMG has been committed to growing together with the city and firmly believes it will remain a hot spot for global investors and entrepreneurship. The city has a leading business environment, rich talent resources, comprehensive industrial support and a strong atmosphere for innovation and entrepreneurship, providing a broad stage and infinite possibilities for corporate development."

KPMG has established offices in 31 cities around China. This year, it opened a new office in the Hongqiao CBD, which is expected to be one of the company's largest in the world.

Yang noted that the service trade industry has become a driving force in supporting China's opening-up, and Shanghai is the first national free trade zone and one of the first demonstration provinces and cities to showcase the country's commitment to promote opening-up of service industry.

"Given that, the construction of a service trade innovation demonstration zone in Shanghai aligns with the great trend," she said. "KPMG will continue to invest in and serve Shanghai and contribute to its high-quality development through practical actions."

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