China - Economist: Service industries should be a new engine

China Information News
Economist: Service industries should be a new engine
1 December 2008

In the face of the current financial crisis emanating from the US, China needs to find new ways to support an economy that has long been dependent on exports.

Shen Minggao, chief economist at the business magazine Caijing, said China should further open up its service industry sector as a recipe to stimulate the limping economy as global demand for the nation's exports declines.

Referring to poor showings from the auto and real estate sectors, Shen suggested that service industries should play an important role in economic growth.

A report newly released by the National Bureau of Statistics indicated that China has become the second largest contributor to world export volumes, but this growth shows signs of slowing down.

The Europe, US and Japan remain the regions that absorb most of China's exports, but this proportion dropped during the first ten months this year.

Even if the economy in the US and Europe does pick up in the next few years, it will be hard to maintain more than 20 percent of China's export growth.

In the long run, whether China can be insulated from the global financial crisis rippling through the US and Europe depends heavily on domestic demand.

Automotive and real estate, the industries considered the two engines of demand growth, have slackened after supercharged growth in recent years.

"When the real economy slows down, service industries can make a greater contribution to economic growth," said Shen. "After the Asian financial crisis in1997, the contribution of China's service sector to GDP rose from 34.2 percent in 1997 to 41.5 percent in 2002, up 7.3 percent in five years."

If the government implements proper policies, service industries can make a considerable contribution to the transformation of the economic growth pattern and provide much-needed balm for the ailing economy.

The advantage of the service sector lies in the fact that it can stimulate both consumption and investment and ease the over-reliance of the economy on real estate and the automotive industry. Moreover, the service sector is environmentally-friendly and can bring about an increase in living standards.

In the short-term the service sector will not squeeze out manufacturing industry; rather it will act as an important supplement.

In the long run, the service sector is likely to become a new engine of economic growth in the future. An economy driven by services will not achieve double-digit growth, but will be sustainable.

To make the service sector a major player in boosting demand, the government needs to draw up a blueprint for the next 20 to 30 years. The first thing to do is lower the threshold for private capital flowing into the sector, and work out better policies for the development of such fields as financial, medical, education, business and information services, etc.

(China.org.cn by He Shan, December 1, 2008)