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Producer services help build modern industrial system

MENG HUI and BAI XUEJIE | 2021-05-20 | Hits:
(Chinese Social Sciences Today)

A contestant hones his craft at China’s First Vocational Skills Competition in Guangzhou, Guangdong Province, on Dec. 9, 2020. The competition is designed to stimulate enthusiasm for workers to improve their skills, build respect for labor, and carry forward the spirit of workmanship. Photo: CFP

The modern industrial system features the integration of the primary, secondary, and tertiary industries with the service economy playing a leading role, a new generation of information technology lending support, and intelligent customized production as the core. The 14th Five-Year Plan (2021-2025) for National Economic and Social Development and Long-Range Objectives Through the Year 2035 has made it clear that producer services should be oriented to high-quality manufacturing services, trend toward specialization, and strive to move up the value chain.

In a modern economy centered on the service sector, producer services can enhance their professionalism through structural optimization and improvement of quality, to more accurately meet demand for producer services. That said, high-quality producer services are a requirement of, and also an inevitable path toward, the establishment of a modern industrial system.
Innovation-driven development
Producer services represent an industry that creates services rather than tangible objects, which in essence extends production activities upstream and downstream, including all professional services such as engineering, computer software development, medicine, nonprofit economic activity, and consumer services. Producer services play a key role in maintaining the continuity of industrial production, promoting technological and industrial upgrading, and improving production efficiency. 
The new generation of information technology and the development of the digital economy, to some extent, change the spatial agglomeration of producer services and manufacturing. As of today,  producer services have become important elements of economic development. 
Moreover, the digital economy’s penetration enhances the market value of producer services, further breaking through spatial and temporal boundaries of the service market to make it serve a wider range of sectors in the national economy. The development of science and technology also makes producer services more dependent on knowledge, technology, and human capital. The Internet of Things, big data and artificial intelligence, while significantly reducing material costs, generate stronger demand for innovation. It can be said that innovation is the foothold of specialization for producer services.
The producer services industry is the product of deepening industrial division of labor and forms a cooperative symbiotic relationship with the manufacturing industry. As it evolves, the quality of producer services becomes more and more important to the development of the industry itself, since there may be structural problems such as the competitive allocation of production factors between producer services and manufacturing, agriculture, and other service industries. 
To solve imbalanced supply and demand in the development of producer services, it is necessary to enhance producer services’ degree of specialization. The modern industrial system relies on the new generation of information technology to meet the personalized and customized needs of consumers. The more high-value creation activities in the modern industrial system, the greater the specialization demand for producer services. Innovation-driven specialization of producer services will further support the high-quality development of manufacturing, agriculture, and other services, and create new competitive advantages for the modern industrial system.
Specialization to be improved
The deep integration of the manufacturing and service industries is in line with China’s efforts to promote high-quality economic development.
From the perspective of production links, producer services are mostly intermediate input services, which restrict the technical content and production efficiency of final products in the production process. The specialization of producer services, such as R&D, design, and information software services, even determines the long-term sustainable development of enterprises.
In the meantime, the specialization of producer services is also a key factor in the upgrading and transformation of China’s industrial and supply chain. For a long time, Chinese enterprises have participated in the global industrial chain and supply chain through processing, assembly, and other forms, and successfully realized the development goals of globalization and industrialization. 
However, as socioeconomic development in China enters a new stage, it is vital to enhance the professionalism of producer services and actively promote the deep integration of producer services and manufacturing. China’s status in the global industrial chain and supply chain can be improved by relying on breakthroughs and transformations in fields related to producer services such as R&D, design, advertising, marketing, and after-sales services.
The specialization of producer services is comprehensively embodied through service content, quality, and innovation. It represents an industry transformation from “passive” supply to “active” cross-sector services, which could trigger related industries to release demand, promote the rise of enterprises in the value chain, and realize the upgrading of service-oriented production. 
At the same time, the specialization of producer services requires the provision of services that respond to diversified demands, which differentiate and innovate services on the basis of service standardization, and help to realize the hierarchical supply of the same service content.
China’s producer services industries show a momentum of rapid growth, and the level of specialization has been improved in recent years. However, the overall producer services industry development level is not high enough to sustain the establishment of a modern industrial system. 
First, the internal industrial structure of producer services is unbalanced, given that the proportion of high-end producer services is rather low. Compared with transportation, warehousing, finance, wholesale and retail, China’s R&D, design, technical services, information services and other industries in 2020 accounted for less than 35% of producer services, whereas the percentage in developed countries is usually around 70%. 
Moreover, the supply and demand of producer services show a significant structural mismatch of low-end oversupply and high-end undersupply. China’s imbalances in the internal industrial structure of producer services are prominent. 
Second, the integration efficiency of producer services with agriculture, manufacturing and other service industries is low. According to statistics from the World Input-Output Database (WIOD), the integration efficiency of producer services and manufacturing in China (0.669) is far lower than that of developed countries such as the United States (2.862), Germany (3.388) and Japan (1.679). The efficiency of integration with agriculture (0.355) and other services (0.967) is not high either.
Third, the green total factor productivity of producer services needs to be improved. The Slacks-Based Measure Data Envelopment Analysis (SBM-DEA) model, which includes negative output, is applied to further measure the total factor productivity of producer services in China. Findings conclude that even under the influence of environmental factors, the total factor productivity of producer services is only 1.9%, which is far behind the national green total factor productivity (6.46%). The gap is also significant when compared with the green total factor productivity of manufacturing (6.08%). Therefore, the specialization of producer services in China is a must.
Modern industrial system
The modern industrial system consists of three major industrial systems: modern agriculture, modern manufacturing, and the modern services industry. The core goals of the modern industrial system are to enhance the capacity for industrial innovation, improve the efficiency of factor allocation and total factor productivity, live up to ever-rising ecological requirements, and adapt to the trend of digital, intelligent, and service-oriented integrated development among industries. 
At present, a consensus has been reached to give priority to the development of high-end producer services with high added value and a strong industrial drive. To this end, the proportion of high-end producer services such as industrial design, industrial internet access, R&D intermediary services, information technology services, and Internet of Things technology services should be actively promoted. In particular, it is necessary to take human capital as the core of quality improvement, and to better promote the professional development of the education and training industry. 
At the same time, it is necessary to prevent some cities and regions from repeating low-level construction or blindly following suit in developing producer services.
Second, with institutional reform as the breakthrough point, we will step up science and technology services. We will work to accurately align the innovation chain with the industrial chain, and work harder to tackle key and core technologies and commercialize scientific and technological achievements. 
From the perspective of education, we should strengthen talent training in the fields of design and cultural creativity, and bridge gaps between talent supply and industrial demand.
Third, digital platforms can minimize the information asymmetry of producer services, improve the transparency and integrity of supply and demand, thus enhancing systematic integration’s capacities and development between upstream and downstream enterprises and industries. 
To meet the common service needs of modern industrial development, we will foster a number of comprehensive service platforms that integrate strategic consulting, management optimization, solution innovation, and digital capacity building, and promote collaborative R&D, resource sharing, and the application of achievements among platforms. 
Finally, supply-side structural reform of producer services is the key to improving the efficiency of industrial integration, and making targeted efforts to build a modern industrial system. For one, we should identify the demand for services in agriculture, manufacturing, and the service industry, implement differentiated and customized service supply, guide the rational allocation of production factors, optimize the product supply structure, and solve the problem of structural mismatch on the supply side. 
It is also necessary to capture new service demands in the construction of a modern industrial system, and lead production factors such as technology, knowledge, and human capital to gather in the weak or even uncharted areas of producer services. For example, we should optimize modern agricultural productive services such as breeding, agricultural technology transfer, and farmer training, and truly make producer services the glue of industrial integration and development, to boost the construction of a modern industrial system.
Meng Hui is from the Faculty of International Trade at Shanxi University of Finance and Economics; Bai Xuejie is from the College of Economic and Social Development at Nankai University. 
Edited by YANG XUE