Megatrends of China's Service-led Economic Transformation towards 2020

  Time:2015-06-30   Hits:0

Megatrends of China’s Service-led Economic Transformation towards 2020

 

Chi Fulin

China Institute for Reform and Development

June 30, 2015

 

Currently, historic changes are taking place in driving mechanisms for China’s economic growth, and as a happy result, a consumption-driven growth pattern is gradually taking shape. With this trend in mind, I am confident that China will keep speeding up its service-led transformation and reforms in its 13th Five-year Plan period in order to form a service-led economic structure by 2020. This plan will not only have a decisive impact on China’s economic transformation and upgrading, but also create rare and new opportunities for deepening China-EU cooperation.

 

Ⅰ.General Trend of the Development of China’s Service Sector in the Next 5 Years

1. China’s service sector will continue to grow at an average annual rate of 9-10%. In the 13 years between 2001 and 2013, the average annual real growth rate of China’s service sector was 10.6%. With the rapidly upgrading of its consumption structure and accelerated opening-up of its service market, it is widely believed that China’s service sector will keep on growing at an average annual rate of around 10% in the next 5 years. 

2. The total annual output of China’s service sector will be doubled again in another 5 years’ time. The total annual output of China’s service sector expanded from 13.12 trillion Yuan in 2008 to 26.2 trillion Yuan in 2013, almost doubled in 5 years’ time. It is anticipated that this figure will further climb up to 47.3 – 51.1 trillion Yuan by 2020, to be doubled again in another 5 years.

3. The share of China’s service sector will take up more than 55% of its total GDP by 2020. In 2014, China’s service sector accounted for 48.2% of its total GDP, and in the first quarter of this year, this figure jumped up to 51.8%, hitting a historical new high. So it is believed that the share of China’s service sector in its total GDP will be more than 55% by 2020, thus bringing a service-dominated economic structure solidly in place.

 

. Service-led Economic Transformation Will Lead the New Normal of China’s Economy

1. Service-led economic transformation will support Chinese economy to grow at more or less an average annual rate of 7% in the next 5 years. Over the past 10 years, every percentage point of growth of China’s service sector brought along 0.43% economic growth. In the next 5 years, if the yearly added value of China’s service sector keeps an average annual growth rate of 10%, the service sector alone will drive the GDP to grow by 4%, laying down a solid foundation for China’s economy to grow at an average annual rate of around 7% in the 13th five-year plan period.

2. Service-led economic transformation will help form a consumption-driven economic growth pattern by 2020. In consideration of the rapidly growing demand for both producer and consumer services, it is widely believed that the total volume of consumption demand in China by 2020 will reach 45 to 50 trillion Yuan while the   consumption rate may well reach 55% to 60%.

3. Service-led economic transformation will create a larger space for “popular entrepreneurship and mass innovation”. Recent years’ statistics have shown that one percentage point of growth of China’s service sector has created 1 million new jobs. In its 13th five-year plan period, an average annual growth rate of 10% of China’s service sector will create 10 million new jobs every year. This means that the service sector will have the largest absorptive capacity of employment in China. Moreover, a growing wave of new start-ups in the service sector based on “Internet Plus” is already becoming an important driver for China’s growth in the new period.

4. Service-led economic transformation will promote optimization of the structure of interests and the structure of the society. It is roughly calculated that, by 2020, the total size of employment in China’s service sector will be as large as 400 million, taking up 50% of the country’s total employment. And it is believed that China’s service sector will take the lead in expanding the size of middle class.

5. Service-led economic transformation will quicken China’s steps towards green development. Development of the service sector needs much less energy and resources. If the service sector accounts for 55% of the total GDP by 2020, China’s energy consumption would fall by about 14%, and the emission of SO2 would decrease by 18%. This would be good news for the whole world.

. Opening-up of China’s service sector will be continuously accelerated

1. Opening-up of the service sector to private capital. In the past years, policies for deepening the opening-up of the service market have been intensively introduced. China’s pilot free trade zones in Shanghai, Guangdong, Tianjin and Fujian have taken up the important historical mission of piloting and speeding up opening-up of the country’s service sector. In the forthcoming 13th Five-Year Plan period, China is sure to further speed up opening-up of its education, medical care, health care, elderly care and other service industries to non-state owned capital. At the same time, China is making energetic efforts to improve the market environment for developing producer service sectors such as R&D, logistics, sales and information industry.

2. Trade in services will develop at a much higher speed. In 2014, China’s foreign trade in services reached more than 600 billion US dollars, accounting for 12.3% of its total foreign trade. However, this share was far below the global average of 19.6%, 22.1% in US and 26.5% in India in 2013. Nevertheless, it is estimated that, in the next 5 years, China’s trade in services will grow at an average annual rate of 10% or even higher. With this growth rate, the total volume of trade in services in China by 2020 will reach 1 trillion US dollars and the share in China’s total foreign trade will climb up to 20%.

3. China will keep deepening structural reforms to further promote development of its service sector. For example, structural reforms of the fiscal and taxation system, the financial system, the education system and others will be accelerated in order to solve structural problems hindering the development of its service sectors.

. Service-led Transformation and Quickened Development of the Service Sector in China will Create New opportunities for Deepening China-EU Cooperation

1. Trade in services between China and EU has a huge potential to be tapped. China and EU are two of the largest economies in the world. Though the two economies put together take up 1/3 of the world economy, their bilateral trade only accounts for 1.5% of the world’s total. This means that the bilateral trade cooperation still has a large space for expansion. If China’s trade in services reaches 1.2 trillion US dollars in 2020 and the share of China-EU trade in services rises from 13.2% in 2013 to 20% 2020, the total value of China-EU trade in services will reach 200-220 billion Euros.

2. Speeding up the process of China-EU FTA. EU has unique advantages of advanced technologies and mature management not only in producer services such electronics, information and communication, life science, energy, and environmental protection, but also in consumer services such as health care. A new driver for EU’s economic recovery and growth is sure to be created if China and EU work together to combine China’s huge market demand with EU’s advanced technologies for developing the service sector. Not many days ago, when China and Australia signed their FTA, there was a popular comment that this bilateral FTA has opened a huge market of 1.3 billion consumers for 23 million people. So we may well say that, if China and EU sign such an FTA, it will open a huge market of 1.3 billion consumers for 570 million people, the benefits of which would be immeasurable. 

3. China and EU should join hands to advance the reform of the global economic governance. The global economic governance is now in a new period and being reshaped. And competition for dominant roles in making new rules for global economic governance and in reshaping a new international economic order is unfolding at all levels. As both China and EU need to push forward the reform of global economic governance to obtain guarantees for sustainable growth, I would like to appeal that China and EU, as two of the world’s largest economies, further enhance communication and more closely coordinate actions in speeding up the reform of global economic governance, with institutionalizing G20 as a top priority. In this way, China and EU can make contributions to global sustainable growth.

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