The result was underpinned by strong growth in the service sector, which continues to outperform (up 7.7 per cent in the period) and contributed 62 per cent of the headline growth.
China’s government had previously projected the service sector would only reach this level of growth between 2021 and 2025, according to the China 2030 report published jointly with the World Bank.
The growing significance of the service industry in China can be gauged from its share in the economy.
In 2006, the industry accounted for 41.3 per cent of the GDP while the secondary industry accounted for 47.0 per cent.
The growth in the industry has picked up significantly in recent years and surpassed the secondary industry in 2012. In Q1, the service sector represented 57 per cent of the GDP, higher tan a decade ago by 16 percentage points.
The notion the expansion of the service sector is crucial for China’s economic advancement has been emphasised by the authorities on various occasions. In the aforementioned World Bank report the shift to high-value services was cited as a means to help avoid the middle-income trap.
In ANZ Research’s view, China’s growth sustainability is not measured or determined by the weighting of services in its GDP. Instead, productivity holds the key.
Deindustrialisation is not a solution for China to cope with external dependence and global uncertainty. Failure to boost service sector productivity will pose a drag on investment yield and weigh on the long-term outlook of real interest rates.
The growing influence of the service industry in China’s headline GDP has prompted us to develop an index to track its monthly performance.
The reality is the service sector comprises a wide range of activities, whose growth is underpinned by diverse drivers.
If the evolution of China’s service industry had simply followed conventional cyclical forces, its expansion would not have helped economic diversification.
Our index is constructed by tracking 16 indicators, covering a broad range of service sector activities. The index forecasts China’s service GDP should have grown by 7.8 per cent in Q1, close to the 7.7 per cent reported officially.
ANZ CHINA SERVICE ACTIVITY INDEX