A study on the basic path for producer services to promote industrial upgrading and the related finance and taxation measures

Xia, Jiechang; Zhang, Xiaobing A icle A s udy on he basic pa h o p oduce se ices o p omo e indus ial upg ading and he ela ed inance and axa ion measu es China Finance and Economic Re iew P o ided in Coope a ion wi h: Sp inge Na u e Sugges ed Ci a ion: Xia, Jiechang; Zhang, Xiaobing (2014) : A s udy on he basic pa h o p oduce se ices o p omo e indus ial upg ading and he ela ed inance and axa ion measu es, China Finance and Economic Re iew, ISSN 2196-5633, Sp inge , Heidelbe g, Vol. 2, Iss. 1, pp. 1-11, h ps://doi.o g/10.1186/2196-5633-2-4 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/162017 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h p://c ea i ecommons.o g/licenses/by/2.0/ RESEARCH Open Access A s udy on he basic pa h o p oduce se ices o p omo e indus ial upg ading and he ela ed inance and axa ion measu es Jiechang Xia * and Xiaobing Zhang * Co espondence: [email p o ec ed] Na ional Academy o Economic S a egy, Chinese Academy o Social Sciences, Beijing 100836, China Abs ac Accele a ing he de elopmen o p oduce se ices is bo h conduci e o enhancing he le el and quali y o indus ializa ion, p omo ing indus ial upg ading, and he only way o ealize a mode nized and high-end se ice indus y, hus a ‘win-win’ s a egic choice o China. In he p ocess o i s indus ializa ion and u baniza ion, China mus ollow a de elopmen pa h d i en by he wo engines o p oduce se ices and mode n manu ac u ing. China should ein o ce he oles played by p oduce se ices in pene a ing and suppo ing manu ac u ing and ag icul u e amid he de elopmen o indus ial di ision, in eg a ion, and agglome a ion, enhancing he le el o p oduce se ices and ealizing he de elopmen o p oduce se ices. The go e nmen and ma ke a e he wo basic o ces in p omo ing he de elopmen o p oduce se ices. We should bo h ully ecognize he undamen al ole ha he ma ke mechanism plays, as well as make g ea e o s o gi e ull play o he posi i e oles o he go e nmen policy, especially inance and axa ion policies, in p omo ing p oduce se ices. Keywo ds: Indus ializa ion p ocess; P oduce se ices; Indus ial upg ading; Finance and axa ion policy How o boos indus ial upg ading, and by wha pa h and s a egy, has become a ho issue in academic and policy-making ci cles in ecen yea s. Li Keqiang, ice p emie o he S a e Council, emphasized in he na ional de elopmen and e o m symposium, ‘The s onges indus ial suppo o expanding domes ic demand is he se ice indus- y. We should, when ac i ely de eloping he hi- ech indus y and he ad anced manu- ac u ing indus y, place he s a egic emphasis o ou adjus men o he indus ial s uc u e on de eloping he se ice indus y, imp o ing he policy suppo sys em, in- c easing he p opo ion o he se ice indus y and enhancing he le el o he se ice indus y, and p omo ing he in eg a ed de elopmen o he se ice sec o and indus- y.’Li's speech p o ides a clea di ec ion o he ans o ma ion and upg ading o he indus ial s uc u e, ha is, p omo ing he ans o ma ion and upg ading o he indus- ial s uc u e by means o in eg a ing he se ice sec o and indus y as well as boos - ing he de elopmen o he se ice indus y. © 2014 Xia and Zhang; licensee Sp inge . This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/2.0), which pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. Xia and Zhang China Finance and Economic Re iew 2014, 2:4 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 The signi icance o p omo ing indus ial upg ading by means o p oduce se ices The basic meanings o p oduce se ices and indus ial upg ading P oduce se ices e e o he se ice indus y, which p o ides, di ec ly o indi ec ly, in e media e se ices o he p oduc ion o se ice p ocess, and he se ice indus y, which ca e s o companies o p oduc ion ac i i ies. I has he basic ea u es o con ain- ing high added alue, high knowledge con en , and a high deg ee o human capi al and agglome a ion. P oduce se ices p ima ily include anspo a ion, mode n logis ics, banking and insu ance, esea ch and de elopmen , indus ial design, managemen con- sul ing, business se ice, human esou ce se ice, es ing and ce i ica ion se ices, and legal se ices. Indus ial upg ading e e s mainly o he imp o emen o he indus ial s uc u e and he enhancemen o indus ial quali y and e iciency. We can analyze he con en s and o ms o indus ial upg ading om mul iple pe spec i es: i s , i e e s o ex ending o he a eas wi h high- echnology con en and high added alue along he in- dus ial chain; second, i e e s o he eplacemen and upg ading o p oduc echnol- ogy; hi d, i e e s o c ea ing new indus ies. Among he h ee o ms o indus ial upg ading men ioned abo e, he mos impo an and he mos u gen one o Chinese en e p ises is o ealize he upg ading o he indus ial chain, o hey ha e long been in he low end o manu ac u ing p ocess in he in e na ional di ision o labo . Fo ex- ample, nea ly all Ba bie oys a e cu en ly manu ac u ed in China, bu he p ocessing ee he Chinese en e p ises ea n o each piece is only US$0.35, while he US company possessing he in ellec ual igh s and b and ecei es US$7.9 (Chen 2011). The signi icance o p omo ing indus ial upg ading by means o p oduce se ices (1) In he middle and la e s ages o indus ializa ion, p oduce se ices ha e become he main suppo o indus ial upg ading. China has en e ed he new phase o accele a ed de elopmen in he middle and la e s ages o indus ializa ion. Howe e , he e exis se ious deba es conce ning he di ec ion o ans o ma ion and upg ading o he indus ial s uc u e a e his phase. Some schola s main ain ha he ans o ma ion and upg ading o he indus ial s uc u e mus ely on igo ously de eloping p oduce se ices, o hey a e no only he mos impo an suppo o indus ial ans o ma ion and upg ading bu also he majo ca ie s o labo ans e . Vigo ously de eloping he mode n se ice indus y, p ima ily in he o m o p oduce se ices, is he mos impo an way o sol e he p oblem o labo ans e . Bu some schola s say ha indus ial upg ading should s ill be based on hea y indus y and he chemicals indus y, and in he p ocess o China's indus ializa ion, China should no o e emphasize inc easing he p opo ion o he se ice indus y in he na ional economy. De eloping hea y indus y and he chemical indus y and eno a ing and upg ading he adi ional manu ac u ing indus y a e s ill majo asks aced by China. The au ho s o his pape hold ha he o me opinion be e sui s China's si ua ion and he objec i e laws in he p ocess o indus ializa ion, because igo ously de eloping p oduce se ices is mo e help ul o esol ing a ious con lic s in he p ocess o ans o ming China's economic de elopmen model. Fo example, he e is an inconsis ency be ween g ow h and employmen , and employmen elas ici y in he se ice indus y is Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 2 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 ob iously highe han ha in manu ac u ing. The numbe o jobs c ea ed by uni capi al in es ed in se ice indus y is abou 2.5 imes ha o hea y indus y and he chemicals indus y. In addi ion, he se ice indus y's demand o esou ces and ene gy is also much lowe han ha om manu ac u ing, wi h he se ice indus y using only 25% o he esou ces and ene gy o he manu ac u ing indus y o c ea e GDP o 10,000 yuan (Li 2012), which be e mee s he equi emen s o sus ainable de elopmen . (2) Vigo ously de eloping p oduce se ices is an impo an way o sol e he ‘ch onic and s ubbo n disease’o China's manu ac u ing being big bu no s ong. ‘Made in China’has a isen apidly and become an indispensable pa o he global economy, di ec ly a ec ing global ac i i y. In 2011, China' seconda y indus y ealized an added alue o 22.1 illion yuan, accoun ing o 46.8% o he GDP, and calcula ed by he yea -end exchange a e, i amoun ed o US$3.5 illion; while he added alue o US manu ac u ing was US$18.4 illion, accoun ing o 12.2% o GDP. Seen om he da a o e he yea s, he p opo ion o he added alue o China's manu ac u ing in ha o seconda y indus y is abou 70% (e.g., his p opo ion was 69.85% in 2009). Calcula ed using his da a, we can es ima e ha he added alue o China's manu ac u ing in 2011 was abou 15.4 illion yuan, US$2.4 illion which was 1.33 imes ha in he USA. Howe e , we mus ecognize ha China's manu ac u ing is mos ly big bu no s ong, elying p ima ily on he ad an age o low-cos labo , and succeeds by quan i y. Mos o China's manu ac u ing is in he low end o he indus ial chain, which necessi a es indus ial ans o ma ion and upg ading. P oduce se ice is an impo an d i ing o ce o i s ans o ma ion and upg ade, which, by hei s ong suppo and pene a ion oles, can se e as a p opelle o he g ow h o manu ac u ing and suppo o manu ac u ing's ise. Today, mo e and mo e coun ies and hei companies see de eloping p oduce se - ices as a way o enhance hei indus ial compe i i eness and hei con ol o he global economy, and hey p omo e hei indus ial ans o ma ion and upg ading ia p oduce se ices. A p esen , p oduce se ices, including mainly communica- ions, logis ics, and banking se ices, accoun o mo e han 50% o he o e all se - ice indus y in de eloped coun ies such as he USA and Japan, and hese coun ies a e con inuously s eng hening he pene a ion and in eg a ion o p odu- ce se ices wi h o he indus ies. Many well-known ansna ional co po a ions ha e ans e ed hei main business om manu ac u ing o he se ice indus y, and he p opo ion o se ices in sales and p o i s has been inc easing. In e - na ional expe ience shows ha accele a ing he de elopmen o p oduce se ices is bo h conduci e o enhancing he le el and quali y o indus ializa ion and p o- mo ing indus ial upg ading, he only way o ealize a mode nized and high-end se ice indus y, and is a ‘win-win’s a egic choice o China. Di ision, in eg a ion, and agglome a ion: he basic pa h o p omo ing indus ial upg ading h ough p oduce se ices Deepening indus ial di ision and coope a ion, ollowing he pa h o de elopmen d i en by he wo o ces o mode n manu ac u ing and p oduce se ices China is in he phase o accele a ed de elopmen in he middle and la e s ages o indus ializa ion. As seen om he in e na ional expe ience, coun ies gene ally ollow Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 3 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 a de elopmen pa h ha is d i en by wo ac o s, mode n manu ac u ing and p oduce se ices, which a e in eg a ed wi h each o he . This means ha China can nei he ol- low he old ou e o elying on adi ional manu ac u ing and hea y indus y and he chemicals indus y, no de elop p oduce se ices sepa a ed om indus y. Ins ead, China should selec he s a egy o de elopmen d i en by bo h mode n manu ac u ing and p oduce se ices along wi h hei di ision and in e ac ion and should especially ocus on he ‘en i y economy’o manu ac u ing o igo ously de elop p oduce se - ices, embedding high-end se ice elemen s solidly in o manu ac u ing and p omo ing he ans o ma ion and upg ading o manu ac u ing as well as enhancing i s compe i- i eness by p oduce se ices. China has a la ge manu ac u ing indus y. Wi h he en- hancemen o manu ac u ing's de elopmen le el and deg ee o specializa ion, he e exis s a equi emen o sepa a ing p oduce se ices om manu ac u ing. The key o es ablishing he se ice economy is o make co esponding policies, c ea e a a o able en i onmen , and enable manu ac u ing companies o ha e he incen i e and capabili y o sepa a e p oduce se ices. An impo an way o achie e his s a egic goal is o e- ine he di ision o labo based on specializa ion, encou age he se ice segmen o manu ac u ing en e p ises o be hi ed o , and acili a e business ou sou cing, i.e., manu ac u ing en e p ises making a e ical decomposi ion o a se ies o p oduce se - ices ac i i ies p e iously p o ided in e nally, ou sou cing hose ac i i ies such as R&D, designing, in e nal anspo a ion, and p ocu emen o p o essional se ice p o ide s. The bigges bene i o his ype o di ision based on specializa ion is ha i can enable each pa y o ully exe hei own compa a i e ad an ages, ealize he op imal alloca- ion o esou ces and ac o s, expand ma ke demand om o he pa ies, and enhance he indus y's de elopmen po en ial. S eng hening indus ial in eg a ion and ein o cing he pene a ion and suppo o p oduce se ices o manu ac u ing and mode n ag icul u e One impo an ea u e o he de elopmen o mode n indus y is indus ial in eg a ion. In he wo ld oday, he ela ionships among he se ice indus y, manu ac u ing, and mode n ag icul u e ha e become igh e and igh e , all o which a e gaining de elop- men by in eg a ing and in e ac ing wi h each o he . In he sys em o mode n indus y, ma e ial p oduc ion demands inpu om ela ed p oduce se ices, and i s de elop- men and expansion mus ely on p ecu so s including p oduce se ices, especially i- nancial capi al and human capi al. Only h ough he coo dina ion and in e ac ion o ad anced echnology, R&D, logis ics, ma ke ing, and o he links can ma e ial p oduc- ion be ans o med in o ma e ial weal h. Wi h he inc easingly in ensi e and wide- sp ead employmen o in o ma ion echnology, global manu ac u ing is changing om ‘manu ac u ing based on physical ma e ial inpu s’ o ‘manu ac u ing based on se ice inpu s,’i.e., p oduc s manu ac u ed a e mo e and mo e ‘so ’and ‘indi idualized,’and p oduce se ices ha e become one o he mos impo an inpu s o manu ac u ing. Simila ly, he se ice model canno be ealized and se ice ac i i ies canno be ul illed wi hou manu ac u ing and manu ac u ed goods, which a e he ma e ial ca ie s. Se - ices and p oduc s ely on each o he o mee he demands o human beings. The e- o e, he ela ionship be ween he se ice indus y and manu ac u ing should be desc ibed as ollows: hey coexis wi h each o he and sha e weal h and woe (Li and Xia 2012). Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 4 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 China is de o ed o ealizing new-s yle indus ializa ion and p omo ing indus ial upg ading. The mos impo an way is o igo ously de elop p oduce se ices and p o- mo e he in eg a ion and in e ac i e de elopmen o p oduce se ices and manu ac u - ing, which is a new emphasis o China's indus ial policies and a s a egic choice ha mus be adhe ed o o e he long e m. Simila ly, de elopmen o mode n ag icul u e canno go wi hou he suppo o he se ice indus y. E o s canno be concen a ed only on c op a ming in de eloping mode n ag icul u e; ins ead, China should build a comple e chain con aining he links in ol ed be o e p oduc ion, du ing p oduc ion, and a e p oduc ion. Gene ally speaking, he links in ol ed be o e p oduc ion and a e p oduc ion basically belong o he scope o p oduce se ices. I mo e p oduce se ice elemen s a e in eg a ed in o mode n ag icul u e, China can bo h d i e he mode niza ion o ag icul u e by means o a mode n se ice indus y and b oaden he space o he de elopmen o p oduce se ices, c ea ing s onge ma ke demand o p oduce se ices. S eng hening indus ial agglome a ion, es ablishing se e al agglome a ion a eas and unc ional pa ks o p oduce se ices, and p omo ing he upg ading o manu ac u ing by se ice indus y clus e s De elopmen o indus ial agglome a ion is one impo an ea u e and he end o p o- duce se ices o which China should ake ad an age. Va ious le els o go e nmen s in China a e now laying pa icula s ess on he de elopmen o se ice indus y agglom- e a ion and es ablishing a ious ypes o se ice indus y agglome a ion a eas. This model o agglome a ing a la ge numbe o companies in he se ice indus y and e- la ed ins i u es in a special a ea e lec s he in e nal equi emen o mode n se ice in- dus y de elopmen and de e mines, o some ex en , he sp eading in luence and compe i i eness o he indus ies in he ci y whe e he agglome a ion a ea is loca ed. Seen om he expe ience o manu ac u ing de elopmen bo h domes ically and ab oad, any a eas wi h ad anced p oduce se ices and a high le el o agglome a ion always ha e a ela i ely p ospe ous, mo e compe i i e manu ac u ing indus y. Compa ed wi h he cen al and wes e n egions o China, he sou heas e n coas a eas o China do no possess an ad an age in e ms o esou ces. Howe e , manu ac u ing in he sou heas - e n coas a eas is much mo e ad anced han ha in he cen al and wes e n egions, which is due o he ac ha he sou heas e n coas al a eas ha e a sound p oduce se - ices sys em and p oduce agglome a ion a eas and unc ional pa ks wi h a ela i ely high le el o specializa ion. I is exac ly his ype o de elopmen o p oduce se ices agglome a ion, h ough embedding knowledge-in ensi e p oduce se ices elemen s on a la ge scale, which d i es he upg ading o manu ac u ing. Geog aphic agglome a ion o he se ice indus y is an ine i able choice o he ex e - nal economy, scale economy, and scope economy. Howe e , China mus gua d agains he de elopmen o agglome a ion being apped in o he p ac ice o ‘agglome a ion o he pu pose o agglome a ing,’ o agglome a ion is only a means and no a goal. Taking he ou e o agglome a ion de elopmen should a oid collec ing companies in one e- gion ha seem o be in e ela ed bu a e no ac ually ela ed o each o he and canno p oduce a syne gis ic e ec . Real agglome a ion is a g oup composed by companies e- la ed o each o he : p o essional supplie s, se ice p o ide s, i ms ela ed o he indus- y, ela ed R&D ins i u es, and ele an indus y associa ions, which a e collec ed Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 5 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 geog aphically. I is a phenomenon in which a la ge numbe o companies closely e- la ed o one indus y and ele an suppo ing ins i u ions ga he oge he in one spe- ci ic egion and o m a s ong and con inuous compe i i e ad an age. Taking he ou e o agglome a ion de elopmen mus gua d agains ‘agglome a ion in appea ance bu no in spi i .’Taking he ou e o agglome a ion de elopmen should i s espec he companies' eedom o choose, and a oid agglome a ion by o ce. Sec- ond, go e nmen s should play he oles o leade ship and guidance, s eng hening hei guidance in planning he cons uc ion o se ice agglome a ion a eas, aking se iously he cons uc ion o public in o ma ion pla o ms, echnical pla o ms, and signi ican communica ion in as uc u e in he p oduce se ice agglome a ion a eas o unc- ional pa ks, and es ablishing s anda ds and e alua ion sys ems o he agglome a ion a eas. China should b ing he in as uc u e cons uc ion o p oduce se ices unc- ional pa ks in o he budge and allo a ce ain po ion o unds o suppo his con- s uc ion. China should especially suppo he cons uc ion o a ma ke o la ge-scale se ice p oduc s exchange and in as uc u e o eleasing se ice p oduc in o ma ion, he eby speeding up he de elopmen o se ice indus y agglome a ion. I has been sugges ed ha a na ional se ice indus y guidance und o a na ional special und o se ice indus y cons uc ion be used o os e , in egions wi h com- pa a i ely ob ious ad an ages in manu ac u ing, se e al key p oduce se ice agglome - a ion a eas o unc ional pa ks ha possess s ong capabili ies o inno a ion, a good en i onmen o s a ing businesses and p ominen cha ac e is ics, incen i izing se ice esou ces o ga he in hese agglome a ion a eas and unc ional pa ks. The go e nmen should guide he o ma ion o high-end p oduce se ices agglome a ion a eas wi h he leading en e p ises unc ioning as he co e and small and medium-sized en e p ises de- eloping collabo a i ely. China should, by he demons a ion and guiding oles o hese key agglome a ion a eas and unc ion pa ks, es ablish he g ow h pole o high-end p o- duce se ices, os e a new suppo o local economic g ow h, inc ease ax sou ces, and change he adi ional me hod o simply elying excessi ely on indus ial pa ks o d i ing egional de elopmen . Imp o ing inance and axa ion policies conce ning he de elopmen o China's p oduce se ices Whe he analyzed om size o quali y o de elopmen , China's p oduce se ices a e a behind hose in de eloped coun ies and some de eloping coun ies. Boos ing he de elopmen o p oduce se ices and implemen ing a s a egy o p io i izing he de el- opmen o p oduce se ices a e bo h impo an and p essing asks. Go e nmen and he ma ke a e wo basic o ces o p omo e he de elopmen o p oduce se ices. We should ully ecognize he undamen al ole played by he ma ke mechanism and make g ea e o s o gi e ull play o he posi i e oles played by go e nmen policies, espe- cially inance and axa ion policies, in p omo ing p oduce se ices. Financial in es men should p ope ly a o he se ice indus y and guide o he social capi al o in es in p oduce se ices De elopmen o China's p oduce se ices demands a signi ican amoun o capi al. Gi en he con inuous inc ease o he na ional weal h, inancial in es men should p op- e ly a o p oduce se ices and guide o he social capi al o in es in he se ice Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 6 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 indus y. O cou se, in es men o inancial capi al in p oduce se ices mus mee he equi emen s o public inance and he ma ke economy, ollow he p inciple o ‘doing wha is igh , and e aining om doing wha is w ong,’gi e ull play o he ole o inancial capi al in ‘achie ing he g ea wi h li le,’and ocus on p oduce se ices in key a eas, weak links, and a eas wi h ob ious ex e nali ies. O cou se, i is no adequa e o ely me ely on go e nmen in es men o de elop he se ice indus y, and we should g adually change he pa e n o in es men solely by go e nmen o in es men by di- e si ied sou ces including go e nmen , en e p ises, indi iduals, and socie y. To his end, we should b eak he indus y monopoly, lowe he h eshold, simpli y o mali ies, and mobilize a ious social o ces such as o eign capi al and p i a e capi al o in es in p oduce se ices. Imp o ing he go e nmen p ocu emen sys em and p omo ing he de elopmen o p oduce se ices Compa ed wi h de eloped coun ies, he p opo ion o go e nmen p ocu emen in China's GDP is compa a i ely low, and he s uc u e o go e nmen p ocu emen is ai ly i a ional, wi h he p opo ion o se ice p oduc s being s ill lowe . Go e nmen p ocu emen in Wes e n de eloped coun ies usually accoun s o 10% o he GDP and 30% o he go e nmen spending. In China, go e nmen p ocu emen in 2011 su - passed 1 illion yuan, which amoun ed o only 2.13% o he GDP and 9.65% o go e n- men spending. The gap is ob ious (Xia e al. 2012). Mo eo e , he s uc u e o go e nmen p ocu emen in China is qui e i a ional. I s majo componen is bidding o public wo ks and he pu chase o o ice supplies, and he p opo ion o se ice p oduc s is abno mally low. The go e nmen should enla ge he scale o p ocu emen o a p ope ex en and expand o and a o enginee ing p ojec s and especially se ice p ojec s. Only by enla ging he scale o go e nmen p ocu emen and se ing es ic- ions o he p ocu emen ac i i ies o go e nmen can he goals o implemen ing he go e nmen p ocu emen sys em be achie ed. G adual imp o emen o he public i- nance sys em and budge sys em equi es he con inuous expansion o he scope o go e nmen p ocu emen . We mus change he p e ious pa e n o emphasizing p o- cu emen o ma e ial p oduc s and downplaying ha o se ice p oduc s, and include mo e se ice a eas in o he scope o go e nmen p ocu emen , in oducing he ma ke compe i ion mechanism, and making open, jus and equi able bid in i a ions o se ice indus ies, so as o inc ease ma ke demand o p oduce se ices. Employing inance and axa ion policies o guide he upg ading o he in e nal s uc u e o he se ice indus y, p omo ing he de elopmen o a mode nized and high-end se ice indus y Mos o he se ice indus y has high knowledge con en and high added alue, and pa o p oduce se ices ha e bo h he cha ac e s o knowledge in ensi eness and labo in ensi eness, which can sa is y he dual goals o indus ial upg ading and em- ploymen in China, e lec ing he majo di ec ion o mode n indus ial de elopmen . China should bo h gi e play o he compa a i e ad an age o adi ional labo -in ensi e se ice indus y in o de o alle ia e he p essu e o employmen and p io i ize, by means o inance and axa ion policies, he de elopmen o high-end p oduce se ices, including banking and insu ance, so wa e and in o ma ion, esea ch and de elopmen , Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 7 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4 mode n logis ics, indus ial designing, managemen and consul ing, business se ice, es ing and ce i ica ion, and legal se ices, and op imize he in e nal s uc u e o se - ice indus y o p omo e he mode niza ion o he se ice indus y. I has been sug- ges ed ha China should, acco ding o No es on Rele an Taxa ion Policies o En e p ises in Se ice Indus y wi h Ad anced Technologies eleased by he Minis y o Finance, Na ional De elopmen and Re o m Commission and S a e Adminis a ion o Taxa ion in 2009, ca ego ize he se ice indus y, cla i ying ha companies in he mod- e n se ice indus y wi h a high deg ee o knowledge in ensi eness and echnological con en should e e o he managemen o high- ech en e p ises and enjoy p e e en ial axa ion policies. Implemen ing inance and axa ion policies conduci e o he de elopmen o p oduce se ices agglome a ion unc ional a eas, gi ing play o he d i ing e ec s o se ice indus y agglome a ion o indus ial upg ading As seen om he expe ience bo h domes ically and ab oad, he oles played by p odu- ce se ices o indus ial upg ading a e mainly ealized in he o m o ‘agglome a ion’ o ‘ unc ional a eas.’This is because only by he o ma ion o agglome a ion can he posi i e oles o he se ice indus y's ex e nal economy, scope economy, and spillo e o knowledge and echnology be gi en ull play in indus ial upg ading. The e o e, we should make g ea e o s o inc ease he inancial in es men in agglome a ion a eas o unc ional pa ks o p oduce se ices and es ablish public in o ma ion pla o ms, echnical pla o ms, and key communica ion in as uc u e o he mode n se ice in- dus y. China should b ing in as uc u e cons uc ion o p oduce se ices unc ional pa ks in o he budge and allo a ce ain po ion o he und o suppo he in as uc- u e cons uc ion o he unc ional pa ks. China should especially suppo he cons uc- ion o ma ke o la ge-scale se ice p oduc s exchange and in as uc u e o eleasing se ice p oduc in o ma ion, speeding up he de elopmen o se ice indus y agglome a ion. I has been sugges ed ha a na ional se ice indus y guidance und o a na ional special und should be used o cons uc na ion-le el demons a ion pa ks o unc ional a eas o p oduce se ices, and h ough he demons a ion and guidance oles o hese unc ion a eas es ablish he g ow h pole o high-end p oduce se ices, so as o p omo e he upg ading o manu ac u ing in i ue o s ong p oduce se ices. App op ia e p e e en ial axa ion, suppo , and ewa d policies should be imple- men ed o p oduce se ice agglome a ion a eas. Fo example, a ce ain amoun o e- wa d is gi en in some ci ies o se ice en e p ises newly se led in he p oduce se ices agglome a ion a eas ha a e encou aged by he ci y and submi an annual ax su passing a ce ain amoun . Fo small- and medium-sized se ice en e p ises newly se led in he p oduce se ices agglome a ion a eas ha ha e di icul y paying axes, land use ax, p ope y axes, and o he s a e egula ly educed o exemp ed a e he ap- plica ion is epo ed and app o ed acco ding o he cu en axa ion managemen au- ho i y. Fo key p oduce se ice p ojec s newly cons uc ed in agglome a ion a eas ha do no di ide and sell he p ope y igh s a e he cons uc ion, he go e nmen awa ds a subsidy equal o 50% o he local e en ion o he sales ax and co po a e in- come ax le ied on he business and p ope y en al wi hin 2 yea s om he s a ing o he business. The policy suppo measu es o hese ci ies ha e e ec i ely p omo ed he Xia and Zhang China Finance and Economic Re iew 2014, 2:4 Page 8 o 11 h p://www.china inanceandeconomic e iew.com/con en /2/1/4