A cashier using a point-of-sales machine uses a customer's credit card for payment at a shop in Haikou, the capital of South China's Hainan province. The banking and financial system is contributing a lot to the rapid development of the country's service industry. [Photo / China Daily]

Tertiary business plays a growing role in gross domestic product

BEIJING - Since China entered the World Trade Organization 10 years ago, national economic restructuring has substantially improved, with the service industry playing a more important role in the growth of gross domestic product (GDP).

According to the latest data from the National Bureau of Statistics (NBS), China's economic output grew 9.4 percent year-on-year to 32.07 trillion yuan ($5.02 trillion) for the past three quarters this year, more than three times that of the 9.6 trillion yuan in 2001, with the tertiary industry accounting for 42 percent of the GDP figure, compared with 33.6 percent 10 years ago.

In contrast with the performance of the service industry, primary industry contributed only 9.5 percent to GDP, a decline compared with 15.2 percent a decade ago, while secondary industry saw a slight dip from 51.2 percent to 48.3 percent, according to the NBS data.

Similarly, the country's domestic consumption also saw a large increase during the period.

Retail sales for first three quarters of this year totaled 13.1 trillion yuan, up 17 percent from a year earlier, more than four times the figure of 3.76 trillion yuan for the whole year of 2001, according to the NBS annual report.

Liang Da, an economist with the NBS, said in an article that the past 10 years saw "rapid growth" in domestic demand and investment, which contributed significantly to economic growth. He also warned about challenges caused by difficulties in economic transition, mainly from dependence on foreign trade and investment to domestic consumption.

In the first three quarters, domestic consumption and investment contributed 47.9 percent and 53.4 percent respectively to the economic growth, compared with 50.2 percent and 49.9 percent in 2001, according to Liang. Because of the minus growth of exports, foreign trade contributed nothing to the economic growth in the same period.

In 2009, domestic demand driven by the Chinese government's 4 trillion yuan stimulus package contributed a 100 percent share to economic growth, an increase of 15.2 percentage points compared with the 2005 level, mitigating the impact caused by the decline in external demand due to the financial crisis in 2008, Liang wrote.

Since 2008, because of external economic uncertainties, the government unveiled a package of measures to stimulate domestic demand and consumption in an attempt to shift focus from heavy reliance on exports to the domestic market.

Prosperity in urban and rural markets was reflected in retailing sales of consumer goods, which rose to 15.7 trillion yuan last year from 3.8 trillion yuan in 2001 with an annual growth rate of 14.9 percent, marking the decade in Liang's words as "one of the golden periods" for rapid growth of the consumer market.

The past decade also witnessed changes in consumption structure with consumers spending more on housing, medical care, tourism and education rather than food and clothing, the former category of which Liang saw as emerging "consumption hot spots".

According to data from the National Tourism Administration, a record-breaking 302 million people traveled during the seven-day National Day holiday this year, compared with 254 million last year, with revenues from tourism during the holidays rising to 145.8 billion yuan from 116.6 billion yuan in 2010.

In the 2006-2010 period, retailing sales of automobiles reported the most rapid growth rate of 39 percent, followed by 38.1 percent in jewelry, 37.9 percent in architecture and upholstery materials, 20.3 percent in home appliances and 15.9 percent in telecommunications equipment, according to data provided by Liang.

Liang said the country's sound economic development, which laid "a solid foundation" for the rapid expansion of the domestic consumer market, also contributed to growing consumption and residents' increasing income and purchasing power.

"The government also formulated a series of measures and policies to stimulate domestic demand and consumption," said Liang, seeing the policies as forming "a favorable condition" for the release of consumption potential.

Investment also played a large part in China's economic growth, said Liang. According to NBS statistics, investment in fixed assets rose from 3.72 trillion yuan in 2001 to 27.81 trillion yuan last year, an annual increase of 23.8 percent.

According to data from the NBS, in the 11th Five-Year Plan (2006-2010) period, completed investment of fixed assets in urban areas amounted to 79.49 trillion yuan, with an annual growth rate of 26.1 percent on average, while the figures for rural areas were 12.79 trillion yuan and 21.7 percent.

Money was also spent on infrastructure, which accounted for a large part of investment. The past five years saw a completed spending of 22.06 trillion yuan on urban infrastructure with an annual growth rate of 21.8 percent.

Last year also saw completed spending on urban infrastructure rising 16.7 percent to 6.48 trillion yuan, accounting for 26.9 percent of total investment in urban areas.

Increased investment in central and western China began to narrow the gap in development terms with eastern China.

Over the past five years, fixed-asset investment in western China amounted to 19.77 trillion yuan with an average annual growth rate of 28.2 percent, 2.7 percentage points higher than the national level for the same period, according to Liang.

But challenges still lie ahead, given the difficulty in economic restructuring to reduce the world's second largest economy's over-reliance on exports and foreign investment. Domestic consumption needs to be a bigger contributor to China's economic growth and this is considered to be a "pressing task", wrote Liang.

"Whether domestic demand can maintain growing momentum further in coming years needs to be closely watched," said Liang, citing "growing income disparity between urban and rural areas" and "swelling inflationary pressure" as constraints to consumption.

China's consumer price index, a major gauge of inflation, pulled back further to 5.5 percent in October, after peaking at 6.5 percent in July and declining to 6.2 percent in August, according to data released by the NBS.

Liang suggested the government consider residents' rising incomes, higher employment rates, tax reform and a more developed social security system as measures to spur consumer demand. Liang's opinion was shared by Zhang Zhiwei, chief China economist at Nomura International (Hong Kong) Ltd.

In a report released by Nomura in late September, Zhang said the government is "likely to provide social security and financial subsidies to lower-income households" to fend off pressure from the price hikes while forecasting inflationary pressure would remain persistently higher for years to come.