Does Digitalisation Promote the Servicification of Manufacturing? Firm‐Level Evidence From China

ABSTRACT In this paper, we explore the digital transformation of Chinese firms and their impact on service integration within manufacturing activities in China. Using highly disaggregated firm‐product level data, we examine various dimensions of the servicification in manufacturing and assess how digital adoption affects these processes. Our findings indicate that the adoption of digital technologies significantly drives Chinese manufacturing firms to generate more service outputs, either by complementing traditional manufacturing activities or by increasingly substituting manufacturing products with services. Moreover, we observe that digital adoption substantially improves the productivity and profitability of these firms, further incentivising them to expand their service offerings. Using text mining and sentiment analysis, we find that only manufacturing firms with positive attitudes toward digitalisation strategy tend to increase their service outputs. These results highlight the transformative effects of digital technology on manufacturing production, shedding new light on the evolving trends of service‐led global value chain upgrading in China.