China Services Job Gains Key for Shift to Consumption

Seven years ago, Cheng Shuangping quit her assembly job at an electronics company in central China to move to Beijing to work as a waitress and a clothing saleswoman before managing a foot-massage spa.

“The assembly work was boring and the pay was meager,” Cheng, 34, said in an interview at Oriental Foot Massage near the Olympics stadium. Now, she earns about 6,000 yuan ($960) a month, or four times her pay in her home city of Hefei, which has about one-third the capital’s population. Services employment has climbed for four years, according to surveys by HSBC Holdings Plc and Markit Economics, while official data show manufacturing jobs shrinking for the past eight months.

Creating more jobs like Cheng’s will be key to limiting unemployment and meeting the Communist Party’s goal of an economy driven more by consumer demand and less by exports and investment. The country estimated its proportion of workers in services industries at 35.7 percent in 2011, less than Japan’s level in 1955, according to International Monetary Fund data.

“Authorities should take measures including liberalizing the financial sector and tackling monopolies in some key industries such as telecom to boost services job creation and consumption,” said Joy Yang, chief Greater China economist at Mirae Asset Financial Group in Hong Kong, who formerly worked for the IMF. “This should help economic rebalancing but the process could be long.”

Biggest Share

Services had the biggest share of China’s employment in 2011 for the first time, larger than agriculture’s 34.8 percent and manufacturing’s 29.5 percent, according to the most recent labor-ministry data. The gains have helped the Communist Party maintain social stability by keeping a lid on unemployment, estimated by a research center at more than 8 percent in urban areas in July.

“The robust services job growth is helping to create a resilient job market,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing, who previously worked for the World Bank. At the same time, prospects aren’t so bright in the future because of slowing economic expansion, Xu said.

Employment growth in services is important because of a direct link with boosting consumption, the IMF said in a 2010 working paper, noting gains that other export-dependent nations had previously made. In South Korea, the share increased to about 65 percent in 1995 from 30 percent in 1961. Japan’s level rose to about 60 percent in 1987 from 1955’s 38 percent.

The typical country at China’s income level has close to half of its workers in services, according to Mark Williams, an economist at Capital Economics Ltd. in London who previously advised the U.K. Treasury on China.

Reorient Economy

“The government’s plans to reorient the economy towards consumer spending depend on generating more jobs and greater labor demand so that wages continue to rise rapidly,” Williams said. “The best hope for job creation is for rapid growth in the service sector.”

Chinese stocks have rebounded over the past three months on brightening optimism for the economy following a seven-quarter slowdown in growth. The benchmark Shanghai Composite Index has increased 22 percent since Dec. 3 and fell 1.6 percent today.

Services employment rose by the most in more than two years in December, according to a purchasing managers’ survey released by HSBC and Markit in January. A government measure also showed a pickup in services jobs as factory employment stayed weak.

Job openings in information and software services rose 32.4 percent in the fourth quarter from a year earlier, compared with 9.7 percent in manufacturing, according to a labor ministry survey of 103 cities released Jan. 15. In central Wuhan, restaurants had 25 open positions for each applicant.

Easing Grip

Filling those jobs and adding more may require authorities to ease the state’s grip on the economy. The Chinese government maintains controls over media, education and telecommunications and Google Inc. shut its China search site in 2010 after saying it was no longer willing to censor content as required by Chinese law. The nation’s household-registration system also makes it difficult for people to settle permanently outside their hometowns.

“It would be good for the government to loosen controls on service industries and allow more private investment there to generate more high-paid jobs,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong.

The State Council’s five-year plan through 2015 for services calls for easing barriers to entry in industries such as railways and telecommunications. Authorities want to boost the share of services workers by 4 percentage points by 2015 from the 2010 level of 34.6 percent, according to the blueprint issued in December.

‘Woeful’ Data

Williams cautioned that the quality of China’s labor-market data is “woeful.” “I don’t have any specific reason to doubt these numbers, only general skepticism about the whole set of labor data,” he said.

Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, said in a report yesterday that the government may underestimate price increases in services industries, meaning inflation-adjusted growth was lower last year than official data indicate. He gave a “guesstimate” of 5.5 percent for 2012 expansion, compared with the official reading of 7.8 percent.

Elsewhere in the Asia-Pacific region, the Reserve Bank of Australia said there are indications that lower interest rates are starting to spur the economy and reiterated that tame prices provide scope to ease further if needed, according to minutes of the Feb. 5 meeting released today.

German Confidence

In Europe, German investor confidence may have increased to the highest level in more than 2 1/2 years in February, according to the median estimate of economists in a Bloomberg News survey.

In U.S., the National Association of Home Builders/Wells Fargo index of builder confidence may have climbed this month to 48, the highest reading since 2006, from 47 in January, according to the median forecast in a Bloomberg survey.

Compared with Brazil and Russia, China has a lot of room for services to grow, said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. Russia’s services jobs accounted for 62 percent of its workforce in 2009 and Brazil’s figure was 61 percent, World Bank data show.

At Oriental Foot Massage, Cheng said her biggest headache was recruiting and retaining people for a workforce of 30-plus. “Every parlor is bidding for them,” Cheng said. “You have to be very nice to them, providing them with better pay and better free food and accommodation.”