Abstract: Since the reform and opening up, the service industry has become the largest industry in China's national economy. However, compared with developed countries, China's service industry (especially modern service industry) still lags behind in terms of total scale and internal industry structure. The logic behind this phenomenon is that the international OEM model under the export-oriented strategy has a positive technology spillover effect on domestic localized service enterprises on the supply side, but it also has a negative market crowding out effect on the demand side. Moreover, with the deepening of global division of labor, this market crowding out effect is gradually surpassing the technology spillover effect. Therefore, this paper puts forward the important proposition that the development of China's service industry urgently needs to turn to the domestic demand led strategy under the background of the new era. We advocate relying on the effective demand of domestic market subjects, siphoning high-quality production factors at home and abroad for our own use, and promoting the innovation and development of service industry in differentiated monopoly competition.
