China’s Services Sector

The Economist writes:

The world’s factory, it turns out, has a sizeable canteen attached, not to mention an office block and shopping mall. Last month’s official revision of China’s gross domestic product revealed an economy worth 16 trillion yuan ($1.9 trillion) in 2004, 17% more than previously thought. Some $265 billion of the increase93% of itwas ascribed to the services sector. As a result, services’ share of the economy has jumped by nine percentage points, to 41%, compared with 46% for manufacturing and 13% for primary industries (mainly agriculture and mining).

Where has all this extra activity come from? The bulk of it is obvious to any traveller in China. As people grow wealthier, they want more restaurants and bars, clothes stores, car dealerships, bookshops, private hospitals, English language classes and beauty salons. In many of these businesses, however, turnover and profits have not previously been captured by a statistical system geared to measuring factory production. The small, often private, companies that dominate these areas have also often been at pains to escape noticeand therefore taxes.

But there is more to China’s services boom than dishing up stir-fries, shipping boxes and fitting out apartments. Recent years have seen a surge in media and technology services, including the internet; in financial services such as leasing; and in education and leisure. In a small way, for example, China is starting to rival India as an outsourcing hub: less for call-centres that require excellent English than for such tasks as preparing reports and patent filings.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.