The services sector
The post-industrial future is nigh
Feb 19th 2013, 5:27 by S.C. | HONG KONG
CHINA is known for its industrial might. Manufacturers, miners, utilities and builders accounted for over 45% of China's GDP in 2012. In America, by contrast, they contributed less than 20%. China, according to caricature, makes things—things you can drop on your foot. Soft-toed America merely designs, brands and peddles them.
Industry has long made an outsized contribution to China's output. This is true not only in comparison with post-industrial America. It is also the case when China is compared with other economies at a similar stage of development. According tocalculations by Ejaz Ghani of the World Bank and Homi Kharas, now of the Brookings Institution, manufacturing's share of China's GDP was more than 18 percentage points above the global norm in 2005. Services, in contrast, were almost eight points below (see this first chart, to the right).
Armed with numbers like these, critics have accused China's policymakers of a factory fetish. Subsidised land, credit and power have favoured industry, which tends to be capital-intensive and power-hungry. A cheap yuan has also favoured manufactured items, which can be sold abroad, over services, which often cannot be.
But 2013 may mark an interesting turning point. It may be the year that China's services sector officially eclipses industry. According to the national statistics, services (which include transport, wholesaling, retailing, hotels, catering, finance, real estate and scientific research, among other things) accounted for 44.6% of China's GDP in 2012. That is less than one point behind industry's 45.3%. And services are growing faster (see the second chart).
The surge in services may reflect the ongoing rebalancing of Chinese demand away from exports and towards consumption. The surge may also help to promote that rebalancing. Because services tend to be labour-intensive, their expansion should encourage faster job creation, higher wages and greater household spending.
Before heralding the dawn of China's post-industrial future, however, I should note a number of caveats. Despite its growth, the role of services in China's GDP still falls short of global norms. This type of economic activity may play a more prominent part than it did in 2005, when its share of GDP fell eight points short of China's peers. But China's economy has also moved on since then. Eyeballing the chart by Messrs Ghani and Kharas suggests services should be about 55-60% of China's GDP by now. (I'm assuming that log GDP per capita is the common logarithm, with base 10.)
Service prices have also been rising faster than those in industry. Measured at constant 2005 prices, services are still a much smaller share of China's economy than of its peers. But the increasing cost of services does not change the fact that more is being spent on them, which should encourage greater investment and hiring within the sector.
China's statisticians struggle to count things they cannot drop on their foot. Given these statistical shortcomings, it takes a little temerity to suggest we can identify the precise year when services will overtake industry. But, hey, that's why I'm in journalism. I would note that, if anything, China's dodgy figures probably still understate the importance of services. After the 2004 economic census, for example, China revised up its estimate of services output by a whopping 48.7%! Statistics is one service China definitely needs to develop further.