Editor's Note:
On April 15, Nomura released an Asia macro report titled "China: Beijing Has More Counterbalancing Tools in the Service Sector Amid the Trade War," pointing out that since the United States is China's largest source of service trade deficits and China is the largest contributor to America's service trade surplus, Beijing has certain counterbalancing capabilities when responding to escalated measures in the U.S. goods trade sector.
Main contents of the report are as follows:
With the escalation of the tariff war, most of the goods trade between the U.S. and China has stopped, and services trade may become a new front line in the trade war, with the U.S. enjoying a significant surplus in its services trade with China. Beijing has issued warnings reminding people to exercise caution when traveling and studying in certain states of the U.S., and the number of American movies imported has also decreased. The measure restricting travel to the U.S. may be the most deterrent approach, while the impact of reducing imports of American films is relatively small.
Rapid expansion of U.S.-China services trade
Chinese imports of services from the U.S. surged from $5 billion in 2000 to $55 billion in 2024, increasing more than tenfold. Among these, travel services accounted for the largest proportion, making up 43% of total imports, followed by intellectual property licensing (15%), legal and consulting services (11%), financial services (9%), transportation services (8%), information and communication technology (5%), and entertainment products (4%). In travel services imports, education-related expenditures accounted for 71%, leisure travel accounted for 22%, and business travel accounted for 7%.
On April 9, the State Council released a white paper outlining China's position on economic and commercial relations with the U.S., stating that China is the largest contributor to the U.S. service trade surplus. The white paper also emphasized the asymmetry in market revenue between both sides: in 2022, U.S. affiliates in China generated sales of $491 billion, while Chinese enterprises in the U.S. generated sales of only $7.9 billion. Although these figures are not reflected in official merchandise or service trade statistics, they indicate that U.S. businesses have reaped substantial profits from the Chinese market.
Retaliatory measures and impacts on travel and entertainment imports
Retaliatory actions against the U.S. travel and entertainment industries have already begun. On April 9, the Ministry of Culture and Tourism of China advised tourists to exercise caution when traveling to the U.S. On April 10, the National Film Bureau indicated that it might reduce the number of American films imported annually.
In our view, if restrictions on travel to the U.S. are imposed, it may have the most significant economic impact among all retaliatory measures in services trade. We estimate that if Beijing significantly strengthens restrictions on travel to the U.S., it could involve $24 billion in economic interests. Under conditions of escalating geopolitical tensions, changing U.S. visa policies, personal safety concerns, and limited resumption of commercial flights between the two countries, the number of Chinese students and tourists traveling to the U.S. may take many years to recover to pre-pandemic levels.
By contrast, the impact of reducing imports of American films may be smaller. We estimate that Hollywood's revenue in China in 2024 will be approximately $200 million, less than 1% of China's total service imports from the U.S. Overall, the total import value of entertainment products, including films, television, and other media, is only $2 billion, accounting for 4% of China's total service imports from the U.S. and 5% of the U.S.'s such exports.
Other possibilities for retaliation through services trade are limited
Although restricting imports of legal, consulting, and financial services is feasible, given their relatively small scale, their economic impact may be limited. These measures may also suppress foreign capital inflows and disrupt China's domestic job market in the short term. Similarly, strictly controlling imports of intellectual property licenses may accelerate the technological decoupling between the U.S. and China. Given China's reliance on advanced U.S. technologies in key industrial sectors, this development may cause greater damage to China.
Brief overview of U.S.-China services trade
Over the past twenty years, U.S.-China services trade has grown significantly. According to data from the U.S. Bureau of Economic Analysis (BEA), China's imports of services from the U.S. increased from $5 billion in 2000 to $55 billion in 2024, growing more than tenfold. This growth was accompanied by a significant increase in the U.S. trade surplus with China, rising from $2 billion in 2000 to $32 billion in 2024. By 2024, this surplus accounted for 10.8% of the U.S. total services trade surplus. China's service imports reached a peak in 2019 at $59 billion, resulting in a trade deficit of $40 billion, equivalent to 13.3% of the U.S. total services trade balance for that year.
According to the latest细分data from the U.S. Bureau of Economic Analysis in 2023, China's total imports of services from the U.S. amounted to $47 billion. Of this, travel services accounted for the largest share, at 43%, followed by intellectual property (IP) licensing (15%), legal and consulting services (11%), financial services (9%), transportation services (8%), information and communication technology (5%), and entertainment products (4%).
Figure 1: Growth of U.S.-China services trade
Figure 2: Growth of U.S.-China services trade surplus
Figure 3: Overview of U.S.-China services trade in 2023
Travel services for educational and tourism purposes
According to data from the U.S. Bureau of Economic Analysis, China's imports of travel services from the U.S. (reflecting spending by Chinese people in the U.S.) reached $2 billion in 2023, accounting for 43% of total U.S. service exports, down from 52% in 2019. Travel services trade surplus accounted for 72% of the U.S. trade surplus with China in services in 2023. From 2007 to 2019, spending by Chinese people in the U.S. grew tenfold, rising from $3 billion to $31 billion. In travel services, education-related expenditures accounted for the highest percentage, at 71%, followed by leisure travel (22%) and business travel (7%).
Education is the largest single service import
Educational services imports refer to tuition, accommodation fees, textbook costs, and related expenses incurred by Chinese students in the U.S. This expenditure increased from $200 million in 2008 to $1.9 billion in 2019. Before the pandemic, educational spending consistently accounted for about 50% of total travel spending in the U.S., making it the most important category of single service imports. During the pandemic, travel activities were widely restricted, but educational spending showed resilience, remaining above $1 billion annually. In 2020 and 2021, its share in the total travel services imports surged to 92% and 97%, respectively, dropping to 71% in 2023 with the recovery of leisure and business travel.
For the U.S., in 2023, its exports of educational services to China accounted for 28% of total educational services exports, down from 37% in 2019. These imports made important contributions to the local economy; according to the U.S.-China Business Council, California, New York, and Massachusetts each received over $1 billion in income from Chinese students. Even during the pandemic, Chinese students remained the largest group of international students at U.S. universities.
Strategic pressure impact from travel advice
The travel advice issued by the Ministry of Culture and Tourism shows the intention to exert pressure on the U.S. tourism and education industries. Similar warnings were issued during the U.S.-China trade war under the Trump administration in 2019, but their full impact was not realized due to the subsequent outbreak of the pandemic.
Based on the 43% share of travel services imports in 2023, applied to the total service imports of $55 billion in 2024, we estimate that this may involve $2.4 billion in economic interests. Under conditions of escalating geopolitical tensions, changing U.S. visa policies, personal safety considerations, and limited resumption of commercial flights between the two countries, the number of Chinese students and tourists traveling to the U.S. may never fully recover to pre-pandemic levels.
Figure 4: China's imports of travel services from the U.S.
Figure 5: China's imports of educational services from the U.S.
Imports of entertainment products
In 2023, China's imports of entertainment services from the U.S. (classified by the U.S. Bureau of Economic Analysis as "personal, cultural, and recreational") amounted to $2 billion. This category includes media content such as films, music, and television programs, typically involving licensing fees and royalties, accounting for 4% of China's total service imports from the U.S. and 6% of the U.S.'s such exports.
Historically, these imports grew from $140 million in 2007 to $1.5 billion in 2017, increasing tenfold. During the U.S.-China trade war in 2018, the import volume fell by 30%. The outbreak of the pandemic reversed this decline, driving online entertainment demand due to travel restrictions, reaching a peak of $3 billion in 2021, accounting for 7% of China's total service imports from the U.S. and 11% of the U.S.'s entertainment service exports that year (see Figure 6). The decline after 2022 reflects the return of people to offline services and the growing rise of the domestic entertainment industry, particularly in films and video games.
Figure 6: China's imports of entertainment products from the U.S.
Economic impact of film import restrictions
On April 10, the National Film Bureau announced a reduction in American film imports, blaming U.S. tariffs for decreasing Chinese audiences' interest in American films. The agency emphasized following market rules, respecting audience choices, and moderately reducing the number of American films imported.
In our view, this move carries more symbolic significance with limited actual economic impact. According to data from the National Film Bureau, China's box office revenue reached $5.8 billion in 2024, with domestic films accounting for 80% of the market share, and Hollywood films, as one of the main foreign contributors, accounting for 15%. Assuming a 25% revenue-sharing model, Hollywood's revenue in China in 2024 was approximately $200 million, less than 1% of China's total service imports from the U.S.
Figure 7: China's imports of entertainment products from the U.S.
Legal, consulting, and financial services
In 2023, China's imports of legal and consulting services from the U.S. amounted to $5 billion, and financial services imports totaled $4 billion (see Figures 8 and 9). These figures represent relatively small shares of the U.S.'s total exports in their respective categories, at 2.1% and 2.4%, respectively.
China has several potential policy options to regulate U.S. service companies, including suspending licenses, raising qualification review thresholds, or placing these companies on the "Unreliable Entity List" to prohibit them from conducting business activities in China. However, given the relatively small scale of these service industries, the economic impact of such measures may be limited.
Moreover, these actions could cause greater unintended damage to China's own economy. Restricting the operations of U.S. service companies may suppress foreign capital inflows and cause short-term disruptions in China's domestic job market. Notably, the "Big Four" accounting firms (PricewaterhouseCoopers, Deloitte, Ernst & Young, and KPMG) collectively employ over 100,000 employees in China. A reduction in white-collar hiring, especially for recent graduates, may further suppress domestic consumption.
Figure 8: China's procurement of commercial services from the U.S.
Figure 9: China's procurement of financial services from the U.S.
Intellectual Property Licensing Review
Intellectual Property (IP) licensing is a key component of U.S.-China services trade. In 2023, China's imports of IP licensing services from the U.S. (mainly including research and development results and computer software services) totaled $7 billion, accounting for 15% of its total imports of services from the U.S. (see Figures 10 and 11). By verifying patent implementation and reviewing compliance with technology transfer, China can reduce imports of intellectual property from U.S. companies.
Figure 10: China's procurement of intellectual property from the U.S.
Although IP licensing has significant economic scale, implementing strict restrictions may accelerate the technological decoupling between the U.S. and China. Given China's continued reliance on advanced U.S. technologies in key industrial sectors, such developments may cause greater damage to China.
Figure 11: Breakdown of China's IP procurement from the U.S. in 2023
This article originates from Zhitong Finance APP.
Original source: https://www.toutiao.com/article/7493714702690681356/
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