Quantification Of China’s Service Sector Restrictiveness

Along with the rapid development of world economy and the deepening of global trade, service sector got rid of the impression as a marginalized sector in the system of national economy. The trade in services is becoming more and more important in the world trade system, with the share of the output of service sector in each country’s gross domestic production growing continuously. And the development of service sector and the liberalization of the trade in services have become one of the major focuses of bilateral and multilateral cooperation and regional organizations. What make the service trade barriers so special? One of the explanations is that the traditional tariff is not a feasible approach for service trade because the customs cannot clearly observe the border-crossing activities of service. Moreover, the service trade always happens within one country’s territory, therefore the restrictions imposed on the service trade also happens behind the border. The World Trade Report 2012 points out that the Non-Tariff Measures and the service measures continue to be one of the challenges for world trade cooperation in the 21st century, and the purposes and the designing of these measures are becoming more and more dynamic and complicated, raising the difficulty of pursuing effective and stable international cooperation in the future.The researchers have done plentiful studies on the quantification of service trade barriers, such as Hoekman’s frequency index based on the GATS commitments, World Bank’s Service Trade Restrictiveness Index, indirect approaches based on how the service trade barriers influence the price gap or the quantity gap between the actual state of service trade and the ideal situation when there is no restrictions and the service trade is absolutely free. Besides, there is another approach to percept the actual degree of restrictions imposed on the service sector and service trade and this approach is based on the financial data collected from the financial statements of listed companies.On the basis of the microeconomic market supply and demand analysis and the producer theory, the paper use a simple model to explain the relationship between the tax equivalent of the industry barriers and the average operating margin and the changing rate of the major players’ market share in this industry. The data used in this paper comes from the listed companies’ annually reported financial data from the Wind Database during the time period from 2002 to 2012. After the process of sampling, sorting, screening and weighted calculation, the author estimates the tax equivalents of the restrictive barriers for the China’s service sector as a whole, the subdivisions of service sector and the manufacturing sector. Then the paper compares the results with the Hoekman frequency index and the Service Trade Restrictiveness Index published by World Bank to examine whether the tax equivalents calculated by the financial approach can offer some useful and correct information about the actual service trade barriers in China. In addition, the paper also provides some policy-making suggestions for the development and the opening up of service sector in China.