Feng Fei& Yang Jianlong, Research Department of Industrial Economy of DRC Research Report No.038, 2005

I. The Basic Characteristics of China’s Evolution of Industrial Structure

1. The three noticeable changes occurred to the industrial structure in the 26 years after the reform and opening-up, but in recent years, the proportion of the tertiary industry has declined

From 1978 to 2003, the proportion of the added value of the primary industry declined by 13.5 percentage points from 1978 to 2003; the proportions of the secondary and tertiary industries rose by 4 and 9.5 percentage points respectively (See Chart 1). The three industrial structures underwent obvious changes, and the change to employment structure was much greater than that of income structure. The gap between the labour productivity of the three industries has been further widened.

Different periods of time see different degrees of changes during the industrial structure changes. The fastest rise of the proportion of the income structure of the tertiary industry took place during the Sixth Five-Year Plan and Seventh Five-Year Plan periods (1981-1990, see Chart 2), respectively representing an increase of 6.7 and 2.4 percentage points. During the Eighth Five-Year Plan period, the proportion of the tertiary industry obviously declined. After the proportion of the tertiary industry returned to the level of the closing period of the Seventh Five-Year Plan during the late period of the Ninth Five-Year Plan, the first three years of the 10th Five-Year Plan period saw a decline again, and the secondary industry grew obviously faster than the tertiary industry.

Since 1991, the contribution rate of the secondary industry has been mostly higher than 60%. The two peak years appeared in 1994 and 2003 as the rates respectively reached 70.5% and 69.8%. (From the China Statistics Yearbook, 2004). The contribution rate of the tertiary industry to GDP varied from 20% to 35%. If the growth rate of GDP is studied together with the changes of the proportion of the income from the secondary and tertiary industries, we can find that the period when the proportion of tertiary industry obviously increased was basically when the economy indicators went down; and the noticeable rise of the proportion of the secondary industry pushed the economy into a new round of fast growth. Therefore, the secondary industry (especially the industry) is still the main force that drives the economic growth, and the tertiary industry’s driving role is relatively limited. It might still be too early for the country to develop a service-based economy.

2. Since 2001, the heavy and chemical industries have been sped up

The proportion of the light manufacturing industry (mainly industries that produce production materials and living materials) in the total industrial added value declined from 33.79% in 1987 to 27.14% in 2003. At the same time, the proportion of the heavy manufacturing industry (mainly industries that produce production materials) rose from 49.17% to 54.04%. After 2001, in particular, the proportion of heavy manufacturing industry rose even faster, increasing by 3.96 percentage points in three years (See Chart 3). The country saw an obviously accelerated development of heavy and chemical industries.

The contribution rate of the manufacturing industry changed drastically from 1987 to 2003. From 2001, the rate rose in an accelerated way and reached 63.35% in 2003, of which , the heavy manufacturing industry’s contribution rate to economic growth rose in a most drastic way. In 1987, the light and heavy manufacturing industries were no different in terms of contribution rate. But in the 21st century, the heavy manufacturing industry’s contribution rate rose drastically, and in 2003 it reached 46.84% while the light manufacturing industry’s contribution rate was only 16.52%. It meant that nearly three-fourths (73.93% in 2003) of the industrial contribution to the economic growth came from the heavy manufacturing industry.

3. Fast-growing industries emerge alternatively. At present, they are mainly concentrated in technology-intensive industries, such as heavy and chemical industries and electronics and information industries

Since the reform and opening-up, there were three rounds of fast-growth cycles pushed by fast-growing industries forming a pattern that structural changes push economic growth. The first round was in the mid-1980s when the economic growth cycle was driven by light and textile industries to meet the goal of food and clothing the residents. The second round, which started in the early 1990s, was brought along by the high-growth industries, including infrastructure and basic industries (highway, port and electricity, etc.) and household appliances (color TV, refrigerator, washing machine and air conditioner). The third round of growth, which occurred after 2001, include housing, automobile, urban infrastructure and telecommunication that were the new industrial leaders. They also led to the fast development of iron and steel, machinery, building materials and chemical industries that produced intermediary products. These three industrial structure changes were all linked with the upgrading of the residents’ consumption, thus shaping the law of development that the upgrading of consumption structure pushes the upgrading of industrial structure.

The leading industries appeared alternatively within 20 years (See Chart 4). From the 1980s to early 1990s, the first five leading industries were those related to residents’ food and clothing. After 2001, the first five industries were mostly heavy and chemical industries and electronics and telecommunication equipment industries while the relevance of these fast-growing industries was intensified, and the clustering effect of leading industries was more apparent. This was different from the situation of the past, where there were relatively fewer leading industries.

Compared with the industrial structure of Japan and other countries during their heavy and chemical industrial development, the greatest difference from China lies in the fact that its electronics and telecommunication equipment industries developed even faster while the heavy and chemical industries grew fast. Such a difference arose in a new technology era and indicated the nature of great-leap-forward development.

II. The Prominent Problems Existing within the Country’s Industrial Structure and Their Causes

1. The relatively slow development of modern service sector and low urbanization level are the main causes leading to the imbalance of three industrial structures

The lagging development of the tertiary industry is mainly due to the two causes as follows:

First, modern service sector is lagging behind, and the level is low within the structure of the tertiary industry. Life-oriented service trade has long taken a dominant position while the production-oriented service trade has long lagging behind, and the services in finance and insurance, real estate, logistics, scientific development and information consulting have been seriously falling behind.

Second, urbanization is also lagging behind. In 2002, the urbanization level of the country was 40.5%, about 10 percentage points lower than the world average level. China’s low urbanization level has limited the room for the development of traditional service trade. As the modern service industry has also been less developed, the overall tertiary industry is lagging behind. The excessively large population and the "dual economy" structure have, on the one hand, led to a manufacturing industry catering to the whole world as the international manufacturing has been transferred to China. On the other hand, the tertiary industry that mainly serves the domestic market has been limited due to urbanization lagging behind the economy.

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* This report is one of a series of papers on "Guiding Principles for the 11th Five-Year Plan and the Long-Term Goals by 2020".