How China’s tech prowess could help it overtake India as ‘office of the world’
Beijing’s ambition to move up the value chain could see it becoming a major exporter of digital services, AI to global high-end providers
As Shanghai resident Adam Liu drives his new Mercedes CLA – a German-manufactured car he has long revered – this edition of the luxury vehicle is carrying another point of pride: a smart system hailing from his home country.The recently launched was assembled in Rastatt, Germany, but engineers at Beijing-based ByteDance designed its interactive system, based on the popular chatbot Doubao.
“To me, it’s a fusion of German meticulous craftsmanship and China’s smart digital core,” Liu said.
While carmakers traditionally procured components in-house or through joint ventures, Liu’s vehicle marked a shift: ByteDance, an external specialist firm, was contracted to deliver a complete, cutting-edge digital service.
Researchers said the partnership underscored China’s growing prominence in outsourcing – particularly AI-powered services and research capabilities – and its ambition to challenge India’s long-standing dominance.
The “world’s factory” aspires to move up the value chain as a high-end service provider, though it still lags behind India, known as the “office of the world”.
That ambition became clear in December, when Beijing pledged to cultivate internationally competitive service outsourcing leaders and upgrade digitalisation and intelligent services by 2030.
Outsourcing would become “a significant part” of China’s services trade, according to the action plan issued by multiple government agencies, as the seeks to foster stronger service exports.
Despite running a huge surplus in physical goods, China’s services trade remains in a deficit, though the gap has narrowed in recent years, official data showed.
China has already surpassed India in total service outsourcing volume, thanks to its much larger economy. But its offshore outsourcing business remains only about 78 per cent the size of , according to a report by Chinese consulting firm Devott last year.
“Under the conventional service outsourcing model, it would be very challenging for China to displace India’s leading status,” said Qi Haitao, the firm’s CEO.
“Yet, viewing [it] from the perspective of China’s swift advancements in AI, there appears to be potential for China to overtake via a ‘corner overtaking’ strategy.”
India was an early mover and remains a dominant player in service outsourcing – from information and communication technology to business process management – mainly thanks to its vast pool of engineering talent and linguistic and cultural proximity, he noted.
Indian firms, including Tata and Infosys, generate operating revenue about five times that of leading Chinese peers and more than triple their net profits, his research suggested.
However, India’s advantage in low-cost labour with fluent English is being eroded by AI, an area where China is far ahead, Qi said. “This has loosened the cornerstone of India’s success over the past 50 years.”
China’s strengths in service outsourcing include traditional IT services and biotech research and development.
The evolution of these sectors towards more sophisticated, value-added capabilities, together with the emergence of more advanced, technology-driven domains such as big data and cloud computing, have also given the country a competitive edge.
The market size of China’s contract research organisations – specialised companies that provide outsourced research and development (R&D) services to the pharmaceutical, biotechnology and medical device industries – grew from 9 billion yuan (US$1.3 billion) in 2021 to 12.6 billion yuan in 2024, with a compound annual growth rate of 28 per cent. These figures, included in a recent report from Qianzhan Industry Research Institute, were far above the global average.
“Thanks to China’s expanding advantages in cost, talent pool and clinical resources, global pharmaceutical R&D outsourcing is shifting towards China, further expanding the market,” the report’s authors said.
And as Chinese services upgrade, the use of AI is “already sweeping” Indian firms in IT and business process outsourcing, hitting jobs in the contracting space, said Pramit Pal Chaudhuri, South Asia practice head at Eurasia Group.
“India’s weakness is a lack of sovereign AI languages, but that is expected to happen in the next couple of years,” he said.
Outsourcing in India and elsewhere is increasingly about global capability centres (GCCs) – subsidiaries of multinational companies – rather than independent contractors. Over 2000 such centres have been set up in India, employing over 2 million people, and “they tend to be high-end services, including research and development and legal and accounting activity”, Chaudhuri added.
The industry also represents a large number of potential jobs in China, which is grappling with a tough employment market. One of the goals listed in last month’s action plan was to achieve a “significant increase” in employment by 2030.
Expansion of the industry is also seen as a solution for cities facing natural resource depletion, such as Datong, historically known as the country’s coal capital.
The document stated the government would “support eligible resource-based cities in central and western regions to develop service outsourcing businesses related to cloud computing, supercomputing, intelligent computing, artificial intelligence … and explore new pathways for the digital transformation of resource-based cities”.
Compared with India, China’s expansion as a service provider has taken a more self-directed and diversified course, some observers argue.
Mao Keji, an assistant researcher at the International Cooperation Centre, a think tank under China’s top economic planner, said India’s service outsourcing industry had always been externally driven – primarily by demand from the US and Europe – rather than rooted in domestic needs. This allows it to align with global top-tier standards from the start, an area where China currently lags.
On the flip side, India’s model is heavily dependent on Western clients, limiting its reach. China, by contrast, benefits from its mature manufacturing base, which creates strong opportunities for related service outsourcing.
“These services in China first achieve full application and maturity in its own domestic market before spilling over externally, giving it greater autonomy,” he said.
“Many of China’s AI applications serve the real economy – for example, in mining and ports – and can be deployed anywhere in the world. From this perspective, China holds a clear advantage.”
In September, Huawei Technologies, a leader in port intelligence, launched two advanced digital solutions to make seaports smarter, safer and more efficient. Over 100 port enterprise representatives from dozens of countries attended the event, the company said in a press release.
A representative of Tangier Med Port in Morocco expressed interest in partnering with the Chinese tech giant to advance port digitalisation, as it seeks to build a smart, green port using AI, blockchain and the Internet of Things (IoT) as core technologies, it said.
In Mao’s view, India currently serves the “low-end of the high-end market”, while China is well positioned to capture the high-end segment.
“I don’t see this as a catching-up game – India simply doesn’t have this segment,” he said. “Whether their previous low-end advantages can extend to the high-end is their real challenge.”
While the Asian giants have their own strengths and weaknesses, geopolitics pose equally significant challenges to both.
“Two-thirds of GCC firms in India are American, many of the remainder are European, and now Japanese firms are coming too,” Chaudhuri said. “These firms are wary of working in China because of geopolitical friction between their governments and Beijing. They also have intellectual property rights concerns about China.”
Qi, the consulting firm's head, recalled that one client specialising in service outsourcing was required by its US partner to relocate to a Southeast Asian country before renewing its contract due to geopolitical concerns.
“With the growing prevalence of strategies such as ‘friendshoring’ and ‘small yard, high fence,’ there has been a quite pronounced trend that Chinese companies providing services to the US are receiving increasing client demands to scale down operations in China or even relocate to other countries,” he said.
But India also faces challenges. Western offshore outsourcing markets are shrinking amid deglobalisation and the digital technology revolution, with businesses increasingly retaining more operations at home.
“The US is tightening work visa policies, primarily targeting India, to keep jobs within the country. This has a far greater impact on India’s outsourcing industry than on China’s,” Qi said.
