That does not bode well for stable growth.
There is a point beyond which increases in the service sector’s share of GDP become less effective in boosting growth and productivity. In ANZ Research’s view, the composition of China’s service sector has to be altered to achieve more stable economic growth.
A plausible approach could be the development of high value-add services such as professional and commercial services as well as information and technology – parts of the ‘new economy’ industry.
Accounting for 12.1 per cent of service GDP in 2018, these industries are less financially leveraged and thus more acyclical. To boost growth, future reforms should focus on removing entry barriers, reducing state ownership and building the innovative capacity of these industries.
China’s service sector expanded rapidly in the 1990s but the pace of growth slowed in the 2000s as the manufacturing industry took centre stage.