Chinese are ready to spend on services for a sustainable growth

China's next phase of sustainable growth will be driven mostly by high quality services, said Gordon Orr, the Shanghai-based chairman of McKinsey Asia, part of the multi-national management consulting company of the same name.

Orr said China has already efficiently made a structural shift from export-driven growth to consumption-led growth. While this is slowing down during economic structuring, the emergence of quality services will likely become a new catalyst expansion.

"The consumer is already feeling more anxious today, and less certain about what they have to spend on because they have already bought their home and their car. Spending on services is discretionary and not compulsory," Orr said.

These new service opportunities exist in such areas as entertainment, sports, leisure and travel, financial services, education and healthcare.

"What consumers are looking for is the ability to have a higher quality of life. The consumer wants a healthy lifestyle. People have more leisure time, but they don't want to sit around waiting," Orr said.

Many service sector firms in China are already stepping into the market to satisfy these needs, but the quality of service they provide still lags behind mature Western economies. This is partly because traditionally China's growth was driven heavily by exports.

In recent years, the Chinese government has devised policies leading to a structural shift toward a more sustainable domestic consumption-driven growth model, as can be seen in the 12th Five-Year Plan (2011-15).

Fundamental to this structural shift is a desire to help China's industries move up the value chain, from low to high-end manufacturing, high-tech services and creative industries.

Orr observes that these initiatives have been very effective in China, noting that as a result the Chinese have more wealth, and feel more secure in their lives and jobs. Consequently, they spend more on basic consumption items like property and automobiles.

But he said as growth rates are now slowing, consumption now faces the risk of declining, because China's increasingly competitive market is making people feel less secure about their jobs and they are holding back from spending.

"Incomes are now rising more slowly. Many white-collar workers' incomes are rising by just 5 percent, and some are not rising at all. At the same time, property prices are now flat, meaning that people with apartments are not getting any wealthier.

"Meanwhile, job security is becoming a problem even in State-owned enterprises. Companies are facing pressure to become more efficient," he added.

In addition, those with children graduating from universities are seeing their sons and daughters having trouble finding well-paid jobs upon graduation. Traditional sectors like coal, steel, shipbuilding and automotives are also experiencing slowing growth.

Within this uncertain landscape, high-quality services in China will be able to generate growth and stimulate related sectors by training local workers, and equipping them with essential skills, Orr said.

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