China is witnessing a significant transformation in its services sector as it leverages manufacturing-style efficiencies—speed, scale, and cost control—into the production and export of digital entertainment content. While the country’s goods trade surplus, valued at approximately US$1.2 trillion in 2025, has drawn international focus on products such as electric vehicles, batteries, and solar panels, a quieter shift is occurring in services exports, particularly in personal cultural and entertainment offerings.

In the first seven months of 2026, China’s services exports increased by 17.1 percent year on year, with personal cultural and entertainment services surging by nearly 58 percent. Although China still records a trade deficit in services and manufacturing remains dominant, digital services present an opportunity to scale globally without the infrastructure constraints of factories or shipping logistics.

A notable example of this trend is the rapid rise of microdramas—short-form video episodes generally lasting one to three minutes—produced and distributed with the aid of artificial intelligence (AI). Tailored for smartphone users and monetized through quick narrative twists and frequent cliffhangers, the microdrama sector’s annual revenue reportedly expanded from under 1 billion yuan (approximately HK$1.17 billion) in 2020 to around 100 billion yuan in 2025. Platforms such as ReelShort, backed by Chinese investors, have attracted significant overseas audiences.

Rather than merely exporting finished television content, Chinese companies are exporting a production model built on data-driven insights, rapid localization, targeted marketing, and AI-enabled content generation. This model draws from China’s established manufacturing strengths: shortening production cycles, compressing costs, producing diverse variants, and quickly scaling successful products.

In 2026 alone, about 430,000 microdramas have been released across the Chinese market, with AI contributing to over 90 percent of their production. These advances have drastically reduced production time and costs. For instance, South Korean firm Vigloo reported cutting its microdrama production from three months to one month and reducing costs to roughly one-fifth through AI, while studios in Shenzhen using ByteDance’s Seedance platform have achieved similar efficiencies.

The sector’s agility allows producers to monitor audience engagement from early episodes and rapidly shift marketing resources toward more successful titles, discarding those with limited traction. This capability enables multiple low-cost experiments rather than committing heavily to fewer projects. However, only a small fraction—about 0.48 percent—of AI-generated microdramas released on Douyin in early 2026 attracted over 100 million views, indicating that blockbuster successes remain relatively rare.

The rapid expansion has drawn regulatory attention, with Chinese authorities encouraging improvements in quality, originality, and copyright protection. The rise of microdramas is no passing trend; even established players like iQiyi, traditionally focused on premium long-form drama, saw their short-form content capture the largest domestic market share in the second quarter of 2026, despite the company’s overall revenue declining 5 percent year on year. Consequently, iQiyi has increased its investment in AI and short-form content production.

This evolution demonstrates how China is extending its industrial strengths into digital services, generating exports that transcend traditional trade barriers, such as tariffs and shipping logistics. Digital content crosses borders via apps at minimal cost, with AI facilitating translation, dubbing, and localization processes. Nonetheless, these services can still face regulatory challenges, as seen in restrictions targeting platforms like TikTok due to national security and platform governance concerns.

While manufacturing capabilities have underpinned China’s export dominance for decades, the application of those competitive strategies to services—including gaming, online literature, entertainment, and AI-driven content—could open new channels for global trade less vulnerable to conventional trade remedies. At the same time, the proliferation of AI-generated narratives raises questions about content biases and the reinforcement of stereotypes, as algorithms prioritize material that generates traffic.

Although services are unlikely to supplant manufacturing in the near term, the ongoing integration of manufacturing discipline into digital content production signals a potential shift in China’s export landscape, with the next wave of goods perhaps arriving more often through smartphones than shipping containers.