Expanded and upgraded service sector benefits China and world: China Daily editorial

As the outline of the 15th Five-Year Plan (2026-30) indicates, the service sector has a more strategic role to play. The shift demonstrates a recognition of where the economy is already heading, toward the high-quality development of the service sector.

Services now account for 57.7 percent of China's GDP and close to half of the total employment in the country, with the shares even higher in large cities. In recent years they have contributed over 60 percent of growth, emerging as the main driver of domestic demand. Service exports, too — especially digital and financial services and logistics — have held up well.

More significantly, the change is qualitative. As incomes rise, spending tends to drift away from physical goods toward healthcare, education, leisure and professional services. An expanding middle-income group in China is not just buying more, but buying differently. At the same time, the digital economy — estimated at over 40 percent of GDP — is dissolving the neat divide between factories and services. Manufacturing now comes bundled with design, data analysis, financing and after-sales support.

There is also a growing sense that services and manufacturing are becoming mutually reinforcing. Research suggests that a modest increase in digital service inputs can yield a noticeable uplift in factory productivity. In practice, this shows up in smarter supply chains, more reliable maintenance and more responsive production systems. The factory floor is no longer just physical; it is increasingly informational.

The external environment further necessitates the shift. Services — particularly those that can be delivered across borders — offer a more sustainable growth engine and China has the advantages of its large digital ecosystem, extensive infrastructure and sizable pool of skilled labor.

Against that backdrop, policy thinking is evolving in a pragmatic direction. Skills are an obvious place to start. A service-heavy economy leans heavily on human capital, not just in technical fields but in areas that involve communication and judgment. Expanding higher education and vocational training, and making digital literacy more widespread, look more like necessities than before.

Regulation, too, is catching up with reality. Digital services raise questions — about data, intellectual property, cross-border transactions — that older frameworks were not designed to handle. More predictable and coherent rules can help companies invest with greater confidence, particularly in emerging fields.

Opening up the service sector has been a gradual and prudent process, and is likely to remain so. There has been progress in finance and telecommunications, but more can be done to promote the high-quality development of related sectors at home while bringing opportunities to the world. In the first two months of this year, the total value of China's service exports grew by 4.7 percent, while the tourism revenue generated by visitors from overseas rose by 22.5 percent to reach 60.96 billion yuan ($8.85 billion).

More healthy competition could help sharpen performance and encourage innovation. Experimental approaches, such as free trade zones and negative lists, offer a meaningful way to test pilot reforms.

Small companies and businesses in the service sector that absorb large numbers of workers but often struggle to increase productivity will also benefit from the process. Here, incremental progress — better access to finance, wider use of digital tools, some degree of consolidation — could make a noticeable difference. Labor protections that travel with workers, rather than jobs, may also help soften the edges of a more flexible service economy.

For companies, the shift is already visible. Many manufacturers are discovering that the real margins lie not in the product itself but in the services wrapped around it. Design, logistics, maintenance and data analytics are becoming integral to business models. At the same time, digital platforms are making it easier — even for smaller businesses — to reach customers abroad.

That said, the development of China's service sector over the next five years will matter well beyond its borders. A more capable and outward-looking services economy could generate demand, deepen trade links and offer a different template for growth. The task is not just to expand it, but to shape it — so that it remains productive, balanced and broadly shared.

Services, once an afterthought after industry and agriculture, have become the main stage. How China manages that transition will say a great deal about the quality of its next chapter.

And software, e-commerce, engineering and professional services all have scope to travel. If they do, the benefits will not be confined to the world's second-largest economy; a stronger flow of services trade could lend some energy to the sluggish global economy.