Beyond goods, services offer untapped potential for stronger Sino-European relations

Trade relations between China and the European Union are feeling the heat following the release of the latest customs data in mid-July.

In the first half of 2026, China’s trade surplus in goods with the EU climbed to a record high.

Yet the broader picture tells a more nuanced story. For example, a considerable share of China-EU trade is generated by European companies operating in China, with 40 percent of their output exported back to Europe, leaving China with the surplus and the EU with the profits.

Nor should it be overlooked that the EU has long maintained a surplus in services trade with China. In 2025, China’s services trade deficit with the EU reached $48.3 billion, accounting for 41.6 percent of its total services trade deficit, according to Chinese authorities. The EU was, therefore, China’s largest source of such a deficit.

With China’s 15th Five-Year Plan (2026–30) explicitly calling for a better balance between imports and exports, as well as an expansion of trade in services, experts said there remains immense potential for win-win cooperation in the sector, which could help grease the wheels of bilateral ties.

Alex Zhou, a consultant at China Macro Group, a macroeconomic consulting and research company with offices in Zurich, Munich, and Beijing, said the precise wording in the document is key to understanding the depth of China’s commitment.

“China is seeking to transition toward a growth model driven more by domestic demand, rather than relying heavily on external markets amid growing geopolitical uncertainty,” he said.

“Imports then become increasingly important, because in many areas, including services, the domestic supply of high-quality offerings remains insufficient, which leaves room for European providers to play a greater role.”

Betty Wang, head of Northeast Asia research at United Kingdom think tank Oxford Economics, noted that services accounted for nearly 58 percent of China’s GDP and close to half of total employment in 2025. These figures demonstrate the sector’s already substantial role in driving growth and stabilizing the job market.

Yet its share of economic output remains below the 70 to 80 percent typically seen in developed economies, suggesting that the shift still has further to run.

Media headlines tend to focus heavily on goods trade, partly because tangible products, particularly those linked to national security, make for more eye-catching figures, Wang said. Services, along with the sheer size of China’s untapped market, tend to fade into the background.

In many types of services, experts see ample scope for the EU to export more producer services to China. While both are manufacturing powerhouses, European manufacturing is more service-oriented.

The more sophisticated manufacturing becomes, the more it relies on services. Wang pointed to the automotive industry as an example.

When a German carmaker invests in China, it sells more than vehicles alone. Engineering services design how each stage of assembly fits together. Industrial software coordinates the machinery and workers. Supply-chain and logistics optimization ensure that thousands of components arrive where and when they are needed.

After a car goes on sale, services continue throughout its lifecycle, including maintenance and infotainment system updates.

“Knowledge-intensive producer services tend to have higher labor productivity than traditional services. They can therefore contribute not only to economic growth, but also to improving the overall quality of that growth,” Wang said.

Zhou added that a big share of the revenue in European manufacturing often comes from value-added services, as well as the proprietary know-how embedded in them.

In China, services accounted for only 26 percent of the value-added inputs in manufacturing’s total backward linkages. That compares with more than 41 percent in Germany, another major manufacturing economy, according to OECD data cited in a 2019 report jointly produced by the World Bank Group and China’s Development Research Center of the State Council.

The figure suggests a “weak linkage” between services and manufacturing in China, the report said.

China needs not only to learn from Europe how to deepen such linkages, but also to embrace the “awareness” underpinning them, Zhou said.

“You cannot simply sell a product and think that is the end of it.”

And as successive waves of Chinese companies go global, professional services could offer another avenue for cooperation.

Regulatory environments in Europe can be far more multilayered and complex, spanning taxation, employment, data protection, environmental standards, competition law, and corporate responsibility, before companies even turn to marketing and branding.

Miguel Otero-Iglesias, a professor of practice in international political economy at Spain’s IE University and a senior analyst at Elcano Royal Institute, said: “It is a whole different political, social, legal, and media environment. You seek out local partners because you are out of your depth … This is a revolution that a lot of multinational corporations have experienced before. The Americans did it before, the Japanese did it before.”

Businesses may naturally want domestic professional-services companies to follow them, and China is seeking to build its own “China Services” brands. But on-the-ground expertise is only part of the equation, Wang said, as European regulators are often more accustomed to working with local advisors, making such interactions more familiar and smoother.

What also sets Europe’s professional-services sector apart is a track record built over decades of helping its companies at home build an international presence, Zhou said.

“They have learned which pitfalls to avoid, with those lessons embedded in their institutional knowledge. That accumulated expertise is extremely valuable to Chinese companies.”

The demand for higher-quality services from Europe is not confined to factories and businesses.

As incomes rise, people naturally begin to spend more on services, Wang said. According to China’s National Bureau of Statistics, the growth rate of service retail sales at 5.3 percent outpaced that of goods retail by 4.2 percentage points in the first half of 2026.

China has pledged to lift household spending through higher wages and improved social welfare, while expanding service consumption in areas including elderly care, childcare, healthcare, culture, tourism, sports, and education. The policies were outlined in the country’s first dedicated five-year plan to boost consumption, which was approved by the State Council, China’s Cabinet, in July.

The blueprint said China will also ease market access restrictions and further open up service sectors, including telecommunications, the internet, education, culture, and healthcare.

Sports offers a particularly vivid example of how Europe’s mature ecosystem of services built around marquee events can fuel Chinese consumers’ growing pursuit of elevated lifestyle experiences, as well as unlock further consumption, said Sharon Adesola David, a consultant at Shanghai-based S&M Agency, which specializes in helping international brands navigate the Chinese market.

“Many of the world’s most commercially successful sports properties, particularly in football, have been developed in Europe,” she said.

As grassroots leagues boom across China, a European league could work with a Chinese competition to build a membership program, train its fan-engagement team and develop activities that keep supporters involved long after the final whistle.

For China, getting the engine of the service economy up to speed will take time.

“It has something to do with the maturity of the economy and the market, and as I said, where you put your emphasis,” said Otero-Iglesias.

Zhou from China Macro Group returned to his earlier point: the need for greater “awareness” of the importance of services.

“If buyers do not value services highly enough, professional expertise cannot command the price it should. That, in turn, constrains supply, because providers may struggle to invest in developing and retaining highly skilled professionals. That is why mindset matters,” Zhou said.

Under pressure, China-EU trade relations may remain strained for a while. Luckily, a trade and investment consultation mechanism has been established to seek a cooldown.

At the mechanism’s inaugural meeting in June, both sides agreed on the new positioning of a stable and balanced key trading partnership. The second meeting is expected this fall.

For Europe, China will remain complex to navigate. Otero-Iglesias said the issue is less whether Europe approves of the changes China is driving than whether it can adapt.

“There is a lot of fear about China in Europe. My argument has always been: You cannot stop a storm. You will need to weather it. A storm creates big waves, and their force can be challenging. But those waves also create opportunities for you to ride them,” he said.

Contact the writers at zhengwanyin@mail.chinadailyuk.com