China’s Transition from Manufacturing to Services: Tertiary Sector to Become the Backbone of the Economy

The Chinese government has in recent years adopted policies actively encouraging the growth of its tertiary sector. These include reforms easing access to the Chinese market for foreign companies, as well establishing a fund which will assist companies in the services sector.

Key Questions Answered

– How did China's economic rise occur?

– What were the consequences of this economic growth?

– Why does the Chinese government want to reduce reliance on manufacturing and encourage transition towards services?

– Will this transition result in strong double digit growth?

Scope

Overall, China’s percentage share of global GDP has risen from 4.6% in 1950 to more than 20% by 2016.

Emissions from factories and a growing middle class population that is increasingly able to afford fossil fuel driven vehicles instead of relying on bicycles for transport, means that pollution at certain times of the year exceeds 20 times the limit set by the World Health Organization (WHO) as to what it considers “maximum healthy exposure” to pollution.

One major way in which the Chinese government wants to move the country towards becoming a service oriented economy is by boosting the exports of services and thereby reducing reliance on manufacturing exports.

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Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

Strong GDP growth brings about immense changes in Chinese society 5

Chinese middle class the world’s largest as wages and urbanization continue to rise 5

Manufacturing key to strong historic growth yet consequences include heavy pollution 7

Transition from manufacturing to service oriented economy recieves government support 9

Demand for higher-end products, increasing wages and declining health increase calls for change 9

Government establishes $4bn fund to encourage high end services exports 10

Double digit rise in foreign funded companies indicates early success 11

Services will increasingly form the backbone of the Chinese economy 12

Tertiary sector now accounts for half of Chinese GDP 12

Export oriented services market will struggle to emulate high growth precedent set by manufacturing exports 13

Conclusions 15

Tertiary sector will become the backbone of the Chinese economy but will not provide the same growth the manufacturing sector provided in the past 15

Appendix 16

Sources 16

Further Reading 17

Ask the analyst 18

About MarketLine 18

Disclaimer 18

List of Figures

List of Figures

Figure 1: China real GDP growth, %, 2000-2015 5

Figure 2: Shanghai’s financial district transformation, 1987-2003 6

Figure 3: Nominal GDP per capita, $, 1990-2016 6

Figure 4: Average annual wage in China, $, 1990-2017 7

Figure 5: 93% of all imported US flags have been made in China 8

Figure 6: New automobile registrations in China, 2002-2015 9

Figure 7: Face masks are worn by many Chinese people due to high pollution levels 10

Figure 8: China’s tertiary sector GDP composition, %, 1980-2015 12

Figure 9: WeChat has employed international celebrities like Lionel Messi in its bid to expand abroad 13

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