China's service-driven strategy is redefining global value chains

<article><section data-type="rtext"><img data-alt="A view of the CIFTIS logo at Beijing's Shougang Park entrance on September 9, 2025. /VCG" src="//img.huanqiucdn.cn/dp/api/files/imageDir/7c3794ad07cb4f621ec900e3073c12fc.png?imageView2/2/w/750" />Editor's note: Wang Xiaoyi is a deputy director of the Center for Digital Development and Governance at Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN.The global value chain (GVC) is undergoing a profound transformation, driven by geopolitical tensions, the digital revolution, the need for supply chain resilience, and sustainability imperatives. As a scholar of international economics and GVCs, I observe that these forces are shifting the focus from manufacturing dominance to service-oriented, knowledge-intensive models. In this shift, China – the world's second-largest economy and a major player in service trade – has leveraged open markets and digital innovation to evolve from a peripheral participant to a central force in GVCs. This "re-globalization" approach not only mitigates fragmentation risks but also injects inclusive vitality into the global economy. China's progress in these areas draws from market-driven innovation, dynamic enterprises, a vast consumer base, and robust global partnerships, which together enhance its competitiveness in knowledge-intensive services; though challenges like domestic economic slowdowns and inequality remain hurdles to sustained growth.A global value chain in fluxFor decades, "hyper-globalization" fueled highly fragmented production networks within GVCs. Yet, recent disruptions – from the fragility exposed by the COVID-19 pandemic to geopolitical rivalries spurring "de-risking" strategies – have pushed value chains toward regionalization and fragmentation. Reports from McKinsey and others suggest that by 2025, roughly 70-80 percent of companies will prioritize supply chain diversification. This isn't mere retrenchment but an opportunity for a more sustainable global framework. Countries, including China, are using service trade to bridge divides, steering globalization toward cooperative and diverse models.Unlike exclusionary "de-risking" approaches, initiatives like the Belt and Road connect resources across regions. In the first four months of 2025, China's service exports reached $160 billion, up 14.6 percent, with knowledge-intensive services accounting for $83 billion. A prime example is the digital upgrade of the China-Europe Railway Express: through partnerships with firms like Germany's DB Schenker, 5G and AI have optimized cross-border logistics, spanning over 40 countries, boosting efficiency and cutting costs by about 20 percent. Such efforts show how services can dismantle trade barriers and foster global resource sharing. China's achievements here reflect its ability to attract foreign investment and technology through market openness, transitioning from a passive player to an active contributor in global networks.Services: From embedding to shaping global value chainsThe global service sector is moving beyond scale to prioritize quality, contributing over 50 percent to GDP in many nations, with digital economy penetration at around 45 percent. This shift elevates services from supporting roles to leading positions in GVCs. China, a key player, collaborates with international partners to drive this change, breaking the traditional "smile curve" that traps developing nations in low-value roles and fostering a more balanced global division of labor through knowledge-intensive innovation.Consider the automotive sector, where Huawei and Tencent's connected-car solutions dominate China's electric vehicle market and influence global trends. In aviation, regions like Xi'an integrate into Boeing and Airbus supply chains through maintenance and design outsourcing, with exports growing by about 20 percent. In digital services, Alibaba Cloud's first-half 2025 revenues in Southeast Asia and the Middle East rose 26 percent, aiding local digital transformation. These examples underscore the services' shift from adaptation to creation. I believe this restructuring will redistribute economic benefits, with China's market-driven integration enhancing its own industries while offering efficient, knowledge-intensive solutions to the GVC – provided it addresses internal issues like regulatory hurdles.Dual engines: Openness and innovation in global synergyOpen markets and digital innovation are the twin pillars of China's integration into global value chains, amplified by international collaboration. On openness, frameworks like the Regional Comprehensive Economic Partnership (RCEP) deepen regional ties. China has expanded market access, extending service trade pilot programs to six cities in 2023, with services attracting over 70 percent of foreign direct investment in 2022. Platforms like TikTok and Alibaba have driven significant agricultural exports from Belt and Road countries to Europe in early 2025, generating billions of US dollars in related trade. This synergy between emerging and developed economies reduces geopolitical frictions and fosters mutual gains, with China's progress tied to market-driven regional integration and cooperative frameworks.On innovation, China's digital economy exceeds 10 percent of GDP, and it leads in generative AI patents globally. Huawei's 5G networks span multiple countries, with substantial base station exports to Africa and Latin America in 2025. CATL's 1,000-kilometer-range battery technology is advancing the global electric vehicle value chain. These innovations highlight digital technology's role in enhancing service competitiveness. I argue that innovation must be collaborative to prevent technological barriers from deepening inequality. China's advancements, fueled by enterprise R&D and global talent flows, support its climb to higher-value roles and contribute sustainable models to the world.The global impact of services: Resource aggregation and innovation spilloversThe scale of emerging markets like China makes them magnets for global service resources. In 2023, China surpassed the US in PCT patent applications, and from 2023 to 2025, its service sector attracted over $300 billion in foreign investment. Innovations are spilling over: Peru's Chancay Port, using Shanghai's smart logistics systems, has seen efficiency gains of about 20 percent; BYD's charging networks in Europe have spurred significant service export growth, setting a "green globalization" standard. These spillovers offer developing nations pathways to bypass the "middle-income trap," shifting global dynamics from zero-sum to shared prosperity. China's infrastructure investments and green technology exports enhance local efficiency while contributing to low-carbon service models globally.Challenges and the road aheadGeopolitical barriers and technological bottlenecks persist as challenges for global services. China is addressing these with approximately $800 billion in special bonds in 2025 to support innovation, including in services. By 2030, services are poised to dominate GVCs, with "re-globalization" fostering open and collaborative systems. Stronger international dialogue is essential to overcome obstacles and achieve sustainable growth.In this context, I propose the "China model of global service integration and value creation": a framework rooted in market-driven innovation, entrepreneurial dynamism, and international cooperation. Through platforms like the Belt and Road Initiative and RCEP, China embeds itself in GVCs while exporting knowledge-intensive services and technological spillovers. This model, emphasizing mutual benefit, sustainability, and private-sector vitality, aligns with market economy principles, enhancing China's competitiveness and offering replicable strategies for emerging economies. It drives GVCs toward greener and more inclusive horizons, promoting fairness and efficiency in global economic governance – though its full potential depends on navigating domestic pressures like economic inequality.In this pivotal era of GVC restructuring, services are redefining globalization's narrative, moving from passive integration to active leadership. Through efficient, green and inclusive solutions, international collaboration will power value chain evolution, forging a more equitable global economic order.</section></article>

Editor's note:

Wang Xiaoyi is a deputy director of the Center for Digital Development and Governance at Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN.

The global value chain (GVC) is undergoing a profound transformation, driven by geopolitical tensions, the digital revolution, the need for supply chain resilience, and sustainability imperatives. As a scholar of international economics and GVCs, I observe that these forces are shifting the focus from manufacturing dominance to service-oriented, knowledge-intensive models. In this shift, China – the world's second-largest economy and a major player in service trade – has leveraged open markets and digital innovation to evolve from a peripheral participant to a central force in GVCs. This "re-globalization" approach not only mitigates fragmentation risks but also injects inclusive vitality into the global economy. China's progress in these areas draws from market-driven innovation, dynamic enterprises, a vast consumer base, and robust global partnerships, which together enhance its competitiveness in knowledge-intensive services; though challenges like domestic economic slowdowns and inequality remain hurdles to sustained growth.

A global value chain in flux

For decades, "hyper-globalization" fueled highly fragmented production networks within GVCs. Yet, recent disruptions – from the fragility exposed by the COVID-19 pandemic to geopolitical rivalries spurring "de-risking" strategies – have pushed value chains toward regionalization and fragmentation. Reports from McKinsey and others suggest that by 2025, roughly 70-80 percent of companies will prioritize supply chain diversification. This isn't mere retrenchment but an opportunity for a more sustainable global framework. Countries, including China, are using service trade to bridge divides, steering globalization toward cooperative and diverse models.

Unlike exclusionary "de-risking" approaches, initiatives like the Belt and Road connect resources across regions. In the first four months of 2025, China's service exports reached $160 billion, up 14.6 percent, with knowledge-intensive services accounting for $83 billion. A prime example is the digital upgrade of the China-Europe Railway Express: through partnerships with firms like Germany's DB Schenker, 5G and AI have optimized cross-border logistics, spanning over 40 countries, boosting efficiency and cutting costs by about 20 percent. Such efforts show how services can dismantle trade barriers and foster global resource sharing. China's achievements here reflect its ability to attract foreign investment and technology through market openness, transitioning from a passive player to an active contributor in global networks.

Services: From embedding to shaping global value chains

The global service sector is moving beyond scale to prioritize quality, contributing over 50 percent to GDP in many nations, with digital economy penetration at around 45 percent. This shift elevates services from supporting roles to leading positions in GVCs. China, a key player, collaborates with international partners to drive this change, breaking the traditional "smile curve" that traps developing nations in low-value roles and fostering a more balanced global division of labor through knowledge-intensive innovation.

Consider the automotive sector, where Huawei and Tencent's connected-car solutions dominate China's electric vehicle market and influence global trends. In aviation, regions like Xi'an integrate into Boeing and Airbus supply chains through maintenance and design outsourcing, with exports growing by about 20 percent. In digital services, Alibaba Cloud's first-half 2025 revenues in Southeast Asia and the Middle East rose 26 percent, aiding local digital transformation. These examples underscore the services' shift from adaptation to creation. I believe this restructuring will redistribute economic benefits, with China's market-driven integration enhancing its own industries while offering efficient, knowledge-intensive solutions to the GVC – provided it addresses internal issues like regulatory hurdles.

Dual engines: Openness and innovation in global synergy

Open markets and digital innovation are the twin pillars of China's integration into global value chains, amplified by international collaboration. On openness, frameworks like the Regional Comprehensive Economic Partnership (RCEP) deepen regional ties. China has expanded market access, extending service trade pilot programs to six cities in 2023, with services attracting over 70 percent of foreign direct investment in 2022. Platforms like TikTok and Alibaba have driven significant agricultural exports from Belt and Road countries to Europe in early 2025, generating billions of US dollars in related trade. This synergy between emerging and developed economies reduces geopolitical frictions and fosters mutual gains, with China's progress tied to market-driven regional integration and cooperative frameworks.

On innovation, China's digital economy exceeds 10 percent of GDP, and it leads in generative AI patents globally. Huawei's 5G networks span multiple countries, with substantial base station exports to Africa and Latin America in 2025. CATL's 1,000-kilometer-range battery technology is advancing the global electric vehicle value chain. These innovations highlight digital technology's role in enhancing service competitiveness. I argue that innovation must be collaborative to prevent technological barriers from deepening inequality. China's advancements, fueled by enterprise R&D and global talent flows, support its climb to higher-value roles and contribute sustainable models to the world.

The global impact of services: Resource aggregation and innovation spillovers

The scale of emerging markets like China makes them magnets for global service resources. In 2023, China surpassed the US in PCT patent applications, and from 2023 to 2025, its service sector attracted over $300 billion in foreign investment. Innovations are spilling over: Peru's Chancay Port, using Shanghai's smart logistics systems, has seen efficiency gains of about 20 percent; BYD's charging networks in Europe have spurred significant service export growth, setting a "green globalization" standard. These spillovers offer developing nations pathways to bypass the "middle-income trap," shifting global dynamics from zero-sum to shared prosperity. China's infrastructure investments and green technology exports enhance local efficiency while contributing to low-carbon service models globally.

Challenges and the road ahead

Geopolitical barriers and technological bottlenecks persist as challenges for global services. China is addressing these with approximately $800 billion in special bonds in 2025 to support innovation, including in services. By 2030, services are poised to dominate GVCs, with "re-globalization" fostering open and collaborative systems. Stronger international dialogue is essential to overcome obstacles and achieve sustainable growth.

In this context, I propose the "China model of global service integration and value creation": a framework rooted in market-driven innovation, entrepreneurial dynamism, and international cooperation. Through platforms like the Belt and Road Initiative and RCEP, China embeds itself in GVCs while exporting knowledge-intensive services and technological spillovers. This model, emphasizing mutual benefit, sustainability, and private-sector vitality, aligns with market economy principles, enhancing China's competitiveness and offering replicable strategies for emerging economies. It drives GVCs toward greener and more inclusive horizons, promoting fairness and efficiency in global economic governance – though its full potential depends on navigating domestic pressures like economic inequality.

In this pivotal era of GVC restructuring, services are redefining globalization's narrative, moving from passive integration to active leadership. Through efficient, green and inclusive solutions, international collaboration will power value chain evolution, forging a more equitable global economic order.