The service industry has been regarded as the one with low productivity, compared with the manufacturing industry because it was characterized by the production with low level of a technical standard and its labor-intensity.
However, the importance of this industry begins to be newly recognized. That is because the development of information- communication technology and transportation contribute to the improvement of productivity and enable the commodity to be delivered at long distance. The services previously supplied at the market, with those embodied in goods, is now getting more separate from tangible goods.
Compared with the classic manufacturing industry, the service industry is highly value-added. And it also encourages the stable growth of national economy by stimulating other industry like manufacturing, creating jobs and promoting consumption.
The service trade in this context is of greater significance. Although the ratio of service trade over world trade is just 20%, the ratio of the value-added which it creates is over 70%. Therefore it is expected to expand further.
When it comes to current balance, both of Korea and China enjoy the trade surplus in goods while both countries suffer trade deficit in service. This facts demonstrate that two countries have comparative disadvantage in service industry.
In order to identify the international competitiveness of service trade in Korea and China, several indexes such as the Trade Specialization Index (TSI), Revealed Comparative Advantage (RCA) and International Market Share (IMS) was calculated. However, because the service trade statistics between the two countries is not so far measured, I can't help analyzing it by using the IMF's balance of payments (BOP) statistics as Proxy.
The results of this analysis are as follows. Korea has a comparative advantage in four sectors (Transportation, Financial services, Royalties & license fees and Personal․ recreation), while China has a comparative advantage in six sector (Travel, Communication services, Construction services, Insurance services, Computer & information services and Other Business services). This facts will play a role as good references to understand the international division of labor if the negotiation between two countries for Free Trade Agreement is begun in the future. However the interpretation should be limited because the indirect data in service trade which means the share of Korean service trade and the share of Chinese service trade in the world market, not the service trade between two countries, was used. cultural․