China’s Services Surpass Factory-to-the-World: Chart of the Day

Services have replaced manufacturing and construction as the biggest part of China’s economy, a sign that the Communist Party’s goal of getting people to spend rather than just make cheap exports is working.

The CHART OF THE DAY tracks contributions from services, industry and agriculture to gross domestic product since 1992, with sectors such as real estate, retailing and finance overtaking manufacturing last year for the first time since at least 1978, with a 46 percent to 44 percent proportion. In 1996, the breakdown was 48 percent industry and 33 percent services. Agriculture’s contribution fell by half in the period to 10 percent, according to National Bureau of Statistics data compiled by Bloomberg.

“It’s an irreversible trend that the share of services in the Chinese economy will keep growing,” said Chen Xingdong, the Beijing-based chief China economist at BNP Paribas SA. “The days are gone when everything is manufactured in China,” partly because the younger generation is more demanding and better-educated, he said.

The lower panel compares urban and rural populations, with cities taking the biggest share starting in 2011, the data show. As recently as 1998, the rural population was twice as big as its urban counterpart, the data show. Of China’s 1.36 billion residents as of 2013, 54 percent lived in cities.

The shift toward services marks a milestone for the government and Premier Li Keqiang, who has made a priority of moving people from farms to cities to spur domestic demand as people accumulate more wealth and spend their money on homes, electronics and entertainment. There is room for more growth: China’s urbanization rate compares to 80 percent in developed nations like the U.S.

“In the past, a Chinese worker basically ate and prepared for work, but now they are pursuing a better lifestyle,” said Chen, who previously worked at the World Bank. Shifts in habits and demographics will put pressure on traditional industries like cement and steel and bring new opportunities to consumer, health-care and education businesses, he said.

— With assistance by Xin Zhou, and Penny Peng

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