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The writer is head of market strategy at Merrill and Private Bank at Bank of America
No country in the world exports as many goods as China. But having conquered the global trade in goods, it is now rapidly rising internationally as a leading exporter of knowledge-intensive services.
China’s new trade front with the world is the export of services such as information and communications technology, construction management, engineering services, data analytics and research and development. And to a lesser extent financial services and intellectual property rights.
Based on World Trade Organization data, China is already the world’s sixth-largest exporter of digitally delivered services, up from 17th in 2005.
The country now earns more from exporting ICT services ($100 billion in 2024) than from traditional exports such as toys ($82 billion) and shoes ($51 billion). Exports of “other business services” – a combination of consultancy services, research and development and technology-related activities – totaled $113 billion in 2024, well exceeding exports of iron and steel ($71 billion) and clothing ($85 billion). And exports of construction services in 2024 ($34 billion) exceeded exports of glassware ($25.5 billion).
Services exports have surged, thanks in large part to China’s One Belt, One Road initiative, which has poured billions of dollars into infrastructure projects around the world. This has boosted not only exports of steel, cement, heavy equipment and other goods, but also the services needed to keep ports, railways and power plants running – think contracts for operations management, digital monitoring systems, technical training, maintenance agreements, software upgrades and cloud computing capabilities.
When a Chinese telecom leader installs a network in Pakistan, or a Chinese tech giant builds a data center in Brazil, that is not the case. What follows are multi-year service agreements that include technical support, network maintenance and related activities.
In addition, as China has moved up the value curve of exports of electric vehicles, robots, drones, solar panels and wind turbines, an expansion of knowledge-intensive service exports has followed. Each of these products is highly digitalized and comes with a series of recurring service requirements.
The export of electric vehicles involves software upgrades; the export of robots and drones is accompanied by the export of cloud connectivity services and remote monitoring systems; and the export of solar panels and wind turbines is accompanied by the export of technical services and maintenance.
Now AI is coming into the picture, especially with China’s progress in open-source AI. DeepSeek’s major language models and other Chinese iterations are more affordable and accessible to end users and are gaining popularity around the world, particularly in Africa, the Middle East and other emerging markets. They are also gaining popularity and higher levels of acceptance in the US. The number of global downloads of open source AI models from China surpassed that of the US last September.
The increasing adoption of these models means more AI-enabling activities and greater demand for Chinese knowledge-intensive exports, ranging from predictive maintenance data analysis to smart infrastructure management.
Given all of the above, China’s trade in knowledge-intensive services has gone from a perpetual deficit over much of this century to a surplus starting around 2015. The surplus in trade in ‘other services’ amounted to more than $80 billion in 2024 – with only the US, Britain and India having larger surpluses in this area.
China’s overall service exports still remain second fiddle to the country’s goods trade. In 2024, total services exports were equivalent to only 12.5 percent of 2024 goods exports. Moreover, China still has an overall deficit in total services. This is largely due to a significant shortfall in travel (Chinese spend more abroad than foreign visitors in China) and a shortfall in education revenue. The country is also short on intellectual property royalties as the country remains a net importer of intellectual property.
But investors need to see the big picture: Chinese trade has entered a new phase. If history rhymes, look for China’s surplus of knowledge-intensive services to grow at the expense of other countries, including the US. Against this backdrop, we remain constructive on the shares of Chinese technology leaders. Their drive for global knowledge-intensive trade predicts more profit increases.
