Business / View

On the backs of its consumers

By Chi Fulin (China Daily) Updated: 2015-03-02 07:00

This will advance the structural re-adjustment of the economy. Changes in the consumption structure are bound to bring profound changes to industry. As is estimated, the service sector's contribution to GDP in China will climb from 46 percent to 49 percent in the next two years. And it is likely that service sectors will take up 55 percent of total GDP by 2020.

In the next seven years, if the economy grows at around 7 percent (as anticipated), GDP per capita will rise to around $12,000 by 2020. Thus, China will have become a high-income economy.

China's consumer-driven economy will have some vastly different characteristics in 2025 from its economy of the past few decades. The major change will be the rapid development of service sectors in the new era of consumption. Next year, China's tertiary industry will account for more than half of its total GDP, initially establishing the dominant role of service sectors in driving economic transformation and development. Yet the key to developing tertiary industry is to open up the market and to promote institutional innovations.

Evidence has shown that China's service supply cannot meet the demand of its society, and that the investment gap in service sectors is not because of capital shortage, but because of the delay in opening up the economy. To promote the development of the tertiary industry, the key lies in breaking up administrative and monopolistic control, and in giving full play to the role of private capital.

Another major trend is migration from rural to urban areas. In 2013, China's physical urbanization rate was 53 percent, while the population urbanization rate was only 35 percent. Not long ago, the central government made a resolution to reform the hukou (household registration) system, allowing rural residents to register their residences in medium and small-sized cities and townships, while restricting the population size in major cities such as Beijing and Shanghai.

Therefore, the process of integrating rural migrants into urban areas - in terms of granting rural migrants urban hukou and equal access to public services now enjoyed only by urban residents - is sure to speed up in the next three to five years, and the population urbanization rate is likely to surpass 53 percent by 2020.

Upgrading the consumption structure and expanding the total size of consumer demand will determine the orientation of structural changes in investment growth. A core goal of consumption-driven economic transformation is to expand investment by increasing demand for services. In 2010 and 2011, investment in the manufacturing sectors and real estate industry took up 54.7 percent and 59.1 percent of total investment, respectively, leading to a serious shortage of investment in the service sectors.

China needs to make greater efforts to promote structural reform of investment. This will help realize a dynamic balance between investment and consumption so as to stimulate investment in the service sectors.

The author is president of the China Institute for Reform and Development in Hainan province. The views do not necessarily reflect those of China Daily.

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