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Servitization of the Chinese Economy and Changes in Inter-industry Associations

Author Lee, Geonwoo, Date 2020.09.08 Issue No

Servitization of the Chinese economy though changing the associations of the service and other industries is expected to exert qualitative and structural changes on Chinese industry. 


Servitization of the production process is defined as the percentage of total input required for output accounted for by service inputs. Servitization is progressing quickly in China but its overall degree of progress remains low compared to that of Korea. 


The aggregate linkage measure (ALM) gauges simultaneous interlinks among all industries. China’s ALM increased sharply in the first half of the 2010s and is the highest among the 15 countries studied.

● Analyzing the role of imported intermediate goods necessary for increasing ALM showed that while China’s ALM was relatively low, Korea’s was the highest. 


A generally inversely proportional relationship was found between the level of a country’s servitization and its ALM.

● Through further servitization, China is expected to see its ALM, or the strength of its production ripple effects, gradually weaken. Over the long term, a negative impact on Chinese growth is expected. 


Korea also requires a multifaceted policy effort that includes an aggressive fostering of manufacturing-related services, technological development and improved sectoral competitiveness in core intermediate goods such as materials and parts, the diversification of export markets ahead of a further slowing in Chinese economic growth and mid- to long-term improvements in the economic structure.?