Services to give economy long-term boost

Restructuring and upgrading also expected to offset slow growth

The Chinese economy carried on with its restructuring and upgrading in the first quarter of the year despite the slowest expansion in 18 months, a highlight amid pessimistic data which is expected to offset further downward pressure on growth over the long term.

Although observers see uncertainty in future gross domestic product growth following the 7.4 percent figure reported on Wednesday, there are remarkable figures on the service sector and consumption side which bring some comfort.

By the end of March, the service sector was the major driver of the world's second-largest economy, contributing nearly half (49 percent) of the growth, data from the National Bureau of Statistics shows.

The service sector share picked up 1.1 percentage points from the same period last year and was 4.1 percentage points higher than the manufacturing sector. The statistics bureau said the importance of the service sector is still climbing.

In the meantime, consumption was growing at a steady pace amid the weakening momentum of investment growth. Consumption accounted for 64.9 percent of the first quarter's GDP growth, 1.1 percentage points more than the same period in the previous year.

"Even though it's too early to say the Chinese economy has transformed from a manufacturing-driven one to one that is service-driven, or from being investment-driven to consumption-driven, this change is indeed happening, and is becoming more obvious," statistics bureau spokesman Sheng Laiyun said during a news conference.

"GDP growth in the first quarter beat analysts' estimates, mainly because of higher-than-expected growth in the service sector," said Yang Weixiao, a senior analyst with Lianxun Securities Co Ltd.

Yang said more reforms in the pipeline will release larger consumption demand, which will be the major support to the "twitch" of slowdown during the economic transition.

According to Nielsen Holdings, China could see a boost in household consumption from today's 35 percent of GDP to between 45 and 50 percent by 2020.

The upper end of this range means an additional spending of approximately 26.9 trillion yuan ($4.3 trillion) over 2012 levels, said Mitch Barns, global CEO of Nielsen. Rising Chinese purchasing is characterized as one of the six mega trends shaping most of China's industries and driving much of its impact on the Western world, according to a new book by investor Jeffrey Towson and McKinsey and Co Ltd senior partner Jonathan Woetzel.

As urbanization accelerates, China's consumer spending is becoming more like that of the West's middle class - the world economy's growth engine throughout the 20th century. China's urbanization is forecast to exceed 70 percent and contribute to 95 percent of GDP by 2030, according to Woetzel.

However, Lian Ping, chief economist with Bank of Communications Ltd, warned such prospects might be dragged by slower GDP growth.

"Employers are reluctant to increase employees' salaries in the shadow of slower GDP growth, and there may be less government expenditure to boost consumption facing slower revenue," he said.

Apart from the consumption and service sectors, a good performance was also seen in high value-added sectors such as equipment manufacturing and high-tech sectors, both of which were growing 3 percentage points faster than the average, statistics bureau data showed. Overall, energy consumption per GDP unit has declined by 4.3 percent from a year before.

Some technology-driven manufacturers, such as Guangdong Fivestar Solar Energy Co Ltd reported strong sales figures among poor export data.

Fivestar its saw sales jump by 15 percent in the first quarter. The solar heating system manufacturer was even more upbeat about growth this year by setting a 30 percent annual growth target, said Liao Yu, an official with the company.

"Our robust performance is backed by the strong research and development team that holds 115 world-leading patents," Liao said. "The cutting-edge heating technology has put us in the driver's seat, enabling us to take a tougher stance in international pricing and secure higher margins."