[Jin Yan]: Good morning friends from the press. Welcome to the policy briefing of the Ministry of Commerce. The executive meeting of the State Council held on January 3 passed the Guiding Opinions on Accelerating the Transformation and Upgrading of Service Outsourcing. Today, we are very pleased to invite Mr. Xian Guoyi, Director of the Department of Trade in Services and Commercial Services of the Ministry of Commerce, to introduce the relevant situation of the Guiding Opinions and answer questions of your concern. Now, I would like to invite Director Xian Guoyi to make an introduction.

[Yi Guoyi]: Thank you. Dear friends from the press, good morning! Thank you for your continued care, attention and support for trade in services and commercial services.

In recent years, China's service outsourcing has been developing rapidly, and has become the main channel for productive service export. Its position in the global value chain has continued to rise. The CPC Central Committee and the State Council have attached great importance to the development of service outsourcing. General Secretary Xi Jinping pointed out that service trade has increasingly become an important part of international trade and an important field of economic and trade cooperation among countries. Service trade has broad development prospects and huge potential, and it is necessary to vigorously develop service trade. Premier Li Keqiang emphasized that the development of service outsourcing is conducive to promoting industrial upgrading and expanding employment. It is necessary to accelerate the transformation and upgrading of service outsourcing and promote the service industry to optimize its structure and enhance its levels. On January 3 this year, the 77th executive meeting of the State Council studied and passed the Guiding Opinions on Accelerating the Transformation and Upgrading of Service Outsourcing.

Next, I will give a brief introduction to the draft background, main tasks, and polices and measures of the document.

I. Draft background

At present, a new round of technological revolution and industrial transformation is accelerating. The trend of global servitization of manufacturing and services outsourcing is intensified. Service outsourcing is increasingly showing digital, intelligent, integrated, and high-end features. More than 70 countries and regions around the world have made it a strategic priority to undertake international service outsourcing . China's service outsourcing started relatively late, but has been developing rapidly. In 2018, China undertook US$88.65 billion of offshore service outsourcing, ranking second in the world. In the first 11 months of 2019, service outsourcing increased by 11.4%, and the amount for the whole year was expected to reach about US$95 billion. In terms of the structure, the executed amount of information technology, which mainly includes software research and development, chip design and inspection, and information system operation and maintenance, increased by 8.2% year on year, accounting for 46% of the total offshore executed amount. The executed amount of business process outsourcing, which mainly includes internal management services, operating services, and supply chain management services, increased by 32.3%, accounting for 16% of the total offshore executed amount. The executed amount of knowledge process outsourcing, which mainly includes business services, industrial design, engineering technology, pharmaceutical research and development, animation and other R&D services, increased by 8.1%, accounting for 38% of the total offshore executed amount. The outsourcing business in major markets was all growing. To be more specific, the executed mount of offshore service outsourcing from the US, China’s Hong Kong, the EU and Japan, which are the top four contract awarding countries, increased by 6.9%, 15.1%, 19.2%, and 19.8% year on year respectively, and the market share was 20.3%, 17%, 16.7%, and 9.4% respectively. At the same time, Chinese enterprises’ onshore outsourcing and outsourcing to countries and regions along the Belt and Road also began to increase.

In order to further enhance the important role of service outsourcing in implementing innovation-driven development and fostering new business forms and models in trade, and to speed up the transformation and upgrading of service outsourcing towards high technology, high added value, high quality, and high efficiency, the Ministry of Commerce, the National Development and Reform Commission and the General Administration of Customs have extensively listened to the suggestions from various regions, enterprises, industry associations and research institutions, and drafted the Guiding Opinions on Accelerating the Transformation and Upgrading of Service Outsourcing, which has been jointly issued by the eight departments including the Ministry of Commerce and the National Development and Reform Commission.

II. Main tasks, and policies and measures

The Guiding Opinions follows the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, clarifies the overall requirements, basic principles, and development goals for promoting the transformation and upgrade of service outsourcing. It is expected that by 2025, China's offshore service outsourcing will further strengthen its position as the main export channel for productive services. The proportion of digitalizing business with high technology and high added-value will continue to increase, and service outsourcing will become an important channel for China to introduce advanced technology and move up the industrial value chain. By 2035, the annual average output of China's service outsourcing employees will reach the world leading level. Service outsourcing has become an important way for new business forms and new models of “Service +” supported by digital technology and guided by high-end services. It has become an important force to promote the high-quality development of trade and to build digital China, and it has also become the core competitive advantage of the brands of “Service from China” and “Made in China”.

To achieve the above goals, the Guiding Opinions proposes 20 primary tasks in six fields.

First, to accelerate digitalization transformation and upgrading. This includes supporting the development of information technology outsourcing, fostering new models and new business forms, creating digital service export clusters, and improving statistical systems.

Second, to promote the development of key areas. This includes developing pharmaceutical R&D outsourcing, supporting design outsourcing, promoting accounting and legal services outsourcing, and supporting business operation service outsourcing.

Third, to build a global service network system. This includes increasing demonstration cities in an orderly manner, intensifying efforts to develop international markets, as well as evaluating and optimizing the preferential measures for export credit.

Fourth, to strengthen talent training. This includes vigorously cultivating and introducing mid- and high-end talents, encouraging college students to get employed or start their own businesses, and deepening the integration of industry and education.

Fifth, to cultivate and expand market entities. This includes innovating means of financial support, reducing operating costs of enterprises, actively fostering the domestic market, and vigorously building public service platforms.

Sixth, to promote trade facilitation. This includes optimizing customs supervision and expanding the scope of bonded supervision.

The year 2020 is the concluding year for completing the building of a moderately prosperous society in all respects and the 13th Five-Year Plan. The Ministry of Commerce will follow the decisions and arrangements of the CPC Central Committee and the State Council, adhere to the underlying principle of pursuing progress while ensuring stability, strengthen overall coordination, and make joint efforts. The Ministry of Commerce will implement the Guiding Opinions, accelerate the transformation and upgrade of service outsourcing into a high-tech, high-added-value, high-quality and high-efficiency sector, and promote the high-quality development of trade.

Thank you.

[Jin Yan]: Thanks for Director Xian Guoyi’s introduction. Let ’s move into the Q&A session. Please identify your news agency before asking questions.

Economic Information Daily: It is required in the Guiding Opinions to accelerate digital transformation and establish a number of digital service export bases. What are the considerations behind? Thank you.

Xian Guoyi: Thank you. The emergence and widespread application of information technology (IT) and the internet has enabled and expanded the trade of services previously deemed untradeable. Most types of outsourcing are digital in nature. In recent years, the evolving next-generation IT featured by 5G and advancing new technologies such as Internet of Things, big data, cloud computing, artificial intelligence and blockchains have led to new business models and modes, and sped up the digital transformation of outsourcing, giving birth to new digital services, including new modes like crowdsourcing, cloud-based outsourcing and platform-based outsourcing and new models like service-embedded manufacturing combined with the industrial internet.

To accommodate the new trend of rapid digitization, the Guiding Opinions, upholding digital economy and innovation-driven development as the fundamental principles, emphasizes the exploration and application of digital technologies as well as the improvement of innovation capacity. Outsourcing companies should speed up their digital transformation and climb upstream to middle- and high-end areas of the value chain. A number of digital service export bases will be established in pilot areas on innovation-driven development of trade in services and in demonstration cities of outsourcing. These bases, supported by MOFCOM, the Cyberspace Administration of China (CAC) and the Ministry of Industry and Information Technology (MIIE), are by design platforms for digital trade. Focusing on the export of digital services, these bases will play a leading role in breeding new models and modes of digital services and become forerunners of digital trade.

We examined the bases with the CAC and the MIIE yesterday and will release a list of the first bases after the Spring Festival.

In the next step, we will advance “Service Plus”, highlight inclusiveness and prudence throughout the regulation and optimize the business environment. We will use the digital services export bases to cultivate new digital services exporters and explore new ways to advance digital trade. We will implement all supportive policies in the Guiding Opinions to accelerate digital transformation and upgrading.

Yicai TV: Outsourcing demonstration cities have played a significant role in the development of the outsourcing sector. Each year, MOFCOM would conduct comprehensive assessment of the demonstration cities and plan for dynamic adjustments, which attracts considerable attention, especially from local governments. Are there any additional plan from MOFCOM? Thank you.

Xian Guoyi: In 2009, the State Council decided to identify outsourcing demonstration cities, the number of which has now grown to 31 nationwide. Over the past 11 years, these cities have become home to outsourcing clusters, playing a pivotal part in promoting outsourcing, fueling the shift of growth drivers, creating more jobs for college graduates and encouraging new business models and modes. The 31 cities have taken up 85% of China’s outsourcing market, and more cities are hoping to get on board. To better motivate them, nine ministries including MOFCOM, at the approval of the State Council, issued the Interim Measures on Adjusting China’s Outsourcing Demonstration Cities, which states that MOFCOM and other relevant authorities will report demonstration cities ranking in the bottom for two years in a row in eastern, mid-west and northeast China to the State Council, and such cities will be delisted upon the State Council’s approval, and that city applicants ranking top three for two consecutive years in eastern, mid-west and northeast China will be included in a candidate list to be presented to the State Council for approval.

MOFCOM and relevant authorities have completed the comprehensive assessment for 2017. The results have been presented to local governments, and warnings have been sent to cities ranking low. We are now going through the comprehensive assessment for 2018, after which we will start dynamic adjustment with relevant authorities, as the Interim Measures stipulates. In this process, there will be cities included and excluded, but the overall goal is to turn more cities into demonstration cities in an orderly fashion, so as to further optimize the geographical configuration of the industry.

Thank you.

Economic Daily: As you said, outsourcing is the main form of producer services export. Could you provide more information? Thank you.

Xian Guoyi: So far, all areas covered by outsourcing are under the category of producer services. From 2013 to 2018, China’s offshore outsourcing grew by 14.3% annually, a pace faster than the growth of services export by 9.1 percentage points as well as than that of goods. It contributed 70.8% of services export during that time. As you said, outsourcing is indeed a propeller of services export and the main form of producer services export. At present, manufacturing as a service and services outsourcing are on the rise. Through outsourcing, China has been moving towards the high value-added ends of the “smiling curve”, i.e. research and development, design, consulting, supply chain management and professional services, in the global distribution of labor. Outsourcing plays a crucial role in improving the quality and efficiency of manufacturing, and in achieving the leap from “Made in China” to “Created in China”. For that, The Guiding Opinion proposes cross-sector integration and coordinated development. It is encouraged that outsourcing should be more deeply integrated with all sectors of the national economy to reshape the value chain, industrial chain and supply chain and bring into being a new industrial ecosystem featuring inter-penetration and coordination.

Thank you.

Shanghai Securities News: As an important plan of the CPC Central Committee and the State Council, ensuring stable employment makes the biggest contribution to improving living standards. What role does services outsourcing play in boosting employment? Given the new forms of services outsourcing, what are the considerations for training capable people in the future? Thank you.

Xian Guoyi: Thank you. Services outsourcing is a knowledge-intensive sector. It is also said that the sector relies on both computers and human brains, and hence plays a crucial role in creating jobs, especially jobs for college graduates. According to MOFCOM’s statistics, by the end of 2019, services outsourcing has created jobs for 11.72 million people in cumulative terms, including 7.5 million with graduate or higher degrees, which accounts for two thirds of the total. Capable employees are outsourcing companies’ biggest asset and core competitiveness. After developing for over a decade, China’s services outsourcing sector employs a large number of capable people, but it is still very short of talents with a good grasp of the international market, the sector, foreign languages and computer skills. As the sector develops, there will be a huge demand for such talents, and hence many jobs will be created.

The progress in digitalization and the wide application of such information technologies as artificial intelligence (AI) have bought about major changes in forms of employment in the services outsourcing sector. New forms of business and new models such as crowdsourcing and platform sourcing have given birth to a “gig economy” and flexible employment. Besides, for traditional outsourced services that can be easily standardized, like information input, data cleansing, non-individualized call center services and content review, employees are getting replaced by machines with the help of AI. Meanwhile, larger demands emerge for creative R&D, design, management and consultant personnel, providing young people and employees in the sector with more individualized job opportunities that help them develop. Given these new trends, the Guiding Opinions encourages localities to use all kinds of talents development plans to cultivate and attract mid- and high-end services outsourcing talents, to encourage college graduates to get employed or start their own businesses, and to provide financial support for companies that hire college graduates. At the same time, the Guiding Opinions encourages higher-education institutes to cooperate with companies through integration of technical training and academic education, move faster to develop new engineering courses, build a number of services outsourcing colleges with the new generation of information technologies as their key subjects, cultivate and train more talents that meet the demand for digitalization in the sector. With these efforts, there will be a bigger supply of such talents and companies will be more competitive with lower cost of labor.

Thank you.

Jin Yan: In the interest of time, one last question.

CNR: The Guiding Opinions proposes to support IT outsourcing, especially in such key areas as pharmaceuticals, design, accounting and legal services, and business operation outsourcing will also be supported. Could you please tell us about the development of services outsourcing in these areas? What role will such support play in making China strong in services? Thank you.

Xian Guoyi: Your question relates to a crucial part in the Guiding Opinions. China’s services outsourcing development started from undertaking IT services outsourced from America and Europe. IT outsourcing is still in the majority, as I said, accounting for about 50% of the total. It also has some structural features. In 2018, software R&D services outsourced to China amounted to USD25.59 billion. The development and application of AI, Internet of Things, big data, 5G technology and the new-generation information technology provide broader room for IT outsourcing. In 2018, chip testing and design services performed in China amounted to USD6.56 billion, and IT operation and maintenance services undertaken by China amounted to USD5.23 billion. Cloud services outsourcing also grew rapidly. Major efforts to develop IT outsourcing and improve China’s IT level will help integrate IT application with industrialization, and the manufacturing sector with the services sector.

As you mentioned, professional areas such as pharmaceutical R&D, design, accounting and legal services, as well as business operation are also key areas for outsourcing development identified in the Guiding Opinions. These areas are crucial for faster transformation and upgrade of China’s outsourcing sector into a high-tech, high-added-value, high-quality and efficient sector. They play an important role in promoting high-quality trade development. Pharmaceutical R&D outsourcing is a model widely adopted by international pharmaceutical manufacturers in new drug R&D. It can help China follow the drug R&D developments of transnational drug makers and improve China’s drug R&D capacity. According to our statistics, China undertook USD5.12 billion of outsourced offshore drug R&D in 2018.

As regards design outsourcing, the driving force generated by the two wheels of services design and industrial design can empower the real economy, speed up the replacement of old growth drivers with new ones, and facilitate the upgrade from “Made in China” to “Created in China”. According to our statistics, in 2018, China undertook USD21.31 billion of outsourced offshore design services. The year of 2019 also saw rapid development of IT, drug R&D, design, accounting and legal services outsourcing. According to statistics on hand, the 2019 growth rate was over 10% based on what has been achieved in 2018. Therefore, rapid development of these areas is crucial for high-quality trade development.

Thank you.

Jin Yan: This is the end of this briefing. Thank you, Director-general Xian Guoyi. Thank you all. Later we will hold a press conference on the results of the comprehensive development level evaluation of national economic development zones. You are more than welcome to stay.

Xian Guoyi: Thank you all.