Expanding the service sector

The service industry will play an important role in creating jobs and restructuring the economy

The Chinese Government encourages foreign investors to increase investment in the service sector. The State Council issued on December 12 the 12th Five-Year Plan (2011-15) on the Development of the Service Sector, requiring government officials to emancipate their minds in order to further expand the scope of opening up. The plan also proposes to deepen reform of monopolistic service industries, open the service sector wider to the outside world and improve the mechanism to diversify investors.

This is China's first five-year plan on the development of the service sector. The Chinese Government says that in the next few years the average annual growth rates of the sector's added value and fixed assets investment will surpass those of the GDP and the country's total fixed assets investment.

In China, state capital is far less enthusiastic than private and foreign capital about involvement in the service sector. Therefore the plan brings huge opportunities for the development of private and foreign capital.

In the past five years, foreign capital has been actively investing in financial institutions, capital markets and the health care sector, and the proportion of foreign investment in the service sector among total foreign investment has kept going up. A research report by Shenyin and Wanguo Securities Co. Ltd. estimates that in the next few years foreign investment in the service sector will further grow and investment procedures will be more convenient.

Promoting domestic demand

"The plan will accelerate the development of the service sector," said Zhao Ping, Deputy Director of the Department of Consumption Economy Studies at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Among total domestic consumption, commodities still account for a large proportion while service consumption takes up a small proportion, with a lower growth rate than that of commodities. In the past three decades, commodity consumption has kept a double-digit annual growth, while the growth of service consumption has stood below 10 percent.

Zhao thinks the development of the service sector faces two bottlenecks—monopoly in some service industries, such as telecom and the sale of refined oil, and some consumer service industries, such as culture, entertainment, sports and leisure, that are less developed to meet people's demands.

Zhao says the plan proposes to deepen reform of the telecom, railway and other industries, further relax market access and diversify the types of investors. The plan also proposes to encourage and guide private capital to enter industries like finance, transportation, telecom, health care, education and urban construction, along with creating a sound environment for private investment. All these measures will help increase development of the aforementioned industries and stimulate consumption growth.

According to the Shenyin and Wanguo report, the 12th Five-Year Plan on the Development of the Service Sector will offer important employment guarantees for the Chinese economy as plans to intensify urbanization continue.

The report says a major obstacle to China's plans to expand urbanization has to do with its focus on heavy and chemical industries, which contribute little to boosting employment, unlike the service sector. The plan proposes to improve the capacity of the service sector to offer jobs. By 2015 the proportion of workers in service sectors will be 4 percentage points higher than in 2010. Higher employment increases the potential for further consumption.