Service sector in driving seat of growth, say experts

Diners eat around an extra large hotpot at the 8th China (Chongqing) Hotpot and Food Culture Festival in Southwest China's Chongqing, Oct 20, 2016. [ Photo/Xinhua]

Helped by a robust service sector, China is expected to see 6.64 percent economic growth this year, but the sluggish private sector might influence the overall outlook, according to a report released by Xiamen University on Wednesday.

Following 6.7 percent growth in 2016, the economy might expand at a slower pace year-on-year starting from this year during the 13th Five-Year Plan (2016-20), but there is little likelihood of growth falling below the 6.5 to 7 percent target range set in the plan, according to the forecast released by the university's Center for Macroeconomic Research.

The consumer price index is expected to rise 2.15 percent year-on-year, up 0.15 percentage points compared to the previous year, and Producer Price Index is expected to reach 2.41 percent, up by 3.81 percentage points compared to 2016.

Lu Furong, an economist with the research center, said the strong service sector that has become the main driver of the economy since 2015 would ensure that the economy would not lose its momentum.

Data from the National Bureau of Statistics showed that the service sector has outpaced the manufacturing sector since 2015, accounting for more than half of the nation's gross domestic product.

Zhang Liqun, an economist with the Development Research Center of the State Council, said that the service sector would continue to drive the economy, at a time when the nation is seeking to upgrade the sector, aiming to see faster growth in industries such as e-commerce.

But the flagging private sector would be a problem this year, according to Lu.

The growth rate of urban fixed-asset investment this year is only expected to reach 8.09 percent, down 0.01 percentage point compared to 2016, the report said.

Lu expected that fixed-asset investment, where the private sector plays a key role, is unlikely to improve much unless the government finds ways to revive business confidence, such as providing more policy support, including tax cuts.

The report suggested to speed up reform, giving certain privileges to the private sector to help it get loans from banks.

"Otherwise the depreciation pressure on the yuan would lead more business to make investments overseas," said Lu.

The report predicts a further 3 percent depreciation of the yuan against the US dollar this year, after it depreciated by around 6.8 percent in 2016.