Inexorable China: China at Your Services
November 20th, 2007 | by This is China! |
Spring Festival (or Chinese New Years, as it is called in the West) is a time for Westerners to lay low or to escape China altogether. It is also the time when China’s services sector thrives the most. Whether the travel and tourism industries, or restaurants, or financial or marketing, every service in China is strained to the limit. Chinese book week-long trips back to their hometowns to visit relatives they haven’t seen in the past year; they make reservations in hotels and resorts throughout the country; they eat and they eat and they shop and they shop like there is no tomorrow. It is at this time China’s services sector gets a quantum shot in the arm that makes it one of the fastest growing in the world.
Foreign investors are fully aware of China’s Tipping Point on its east coast away from labor-intensive manufacturing toward capital- intensive and heavy-industries and toward services. Capital-intensive and heavy industries include: automobiles, engines, heavy machinery, shipbuilding, marine parts, aviation and aerospace, semiconductors, biotechnology and medicine. According to data provided by the United Nations Conference on Trade and Development, the service industry now accounts for 67.4 percent of international direct investment in China. Official sources cited that in the first three quarters of 2005, the service sectors in 16 major cities in the Yangtze River Delta amounted to 39.2 percent of the combined gross domestic product (GDP) of the cities. Total output of China’s tertiary industries accounted for just 32.3 per cent of its entire economy, rising at an annualized rate of about 8%. The average rate in the industrialized world is as high as 64 per cent, according official Chinese sources, so China has a long way to go to tertiary sector maturation.
The Chinese government has several motivations for promoting the tertiary industries in China: job creation, wealth creation and the environment. The Central government knows that the light manufacturing sector – sneakers, toys, lighters and other commodity-driven, labor intensive manufacturing - will only be able to employ a proportion of the working age population. Issues such as land use, resource usage intensity, technical training and experience constrain the degree to which China – or any country – can industrialize. In particular, over the last two years, land for building manufacturing facilities has become highly restricted, and economic development zones in China can no longer expand the size of the land available for investment in their locales. The cost of materials has increased, as well, as Chinese factories have sucked in greater amounts of metals, plastics, wood and other resources to meet production quotas inside and outside China. The havoc unregulated light manufacturing has wreaked on the environment will take decades to reverse; air, water and land throughout China is poisoned to an extent that in some regions in China the pollution has entered the human food chain.
The Chinese government sees the tertiary industries as a social release-valve, of sorts. In particular, the Chinese government is looking to commercial, travel and leisure, financial and banking, logistics and to what it calls the “cultural” sector to soak up the labor pool. Currently, Chinese universities are annually churning out hundreds of thousands of graduates who are un- and under-employed. Further, with per capita GDP in the nominally poorer interior of China rising, more students are able to go beyond the compulsory nine years education to complete twelve years. The Chinese government will have the additional responsibility of creating jobs for the millions that do not go on to University but who are better educated than previous generations. The tertiary industry provides an outlet for the labor pool that a diminishing light manufacturing sector will not be able to.
The sector also includes the very active and lucrative Animation Outsourcing industry, in which thousands of graphic artists render animations in shops centered mainly in Shenzhen, Shanghai and Suzhou, and Beijing for production houses in America and Europe. Products range from children’s TV shows through full-action Hollywood movies.
The logistics industry will become an increasingly important component of China’s services base as China’s ports support products and materiel from abroad for the Chinese marketplace; and as China becomes an entrepot for products bound for Southeast Asian markets.
The Chinese trend toward developing an over-arching services sector is inexorable, as the Western countries and Asian Tigers such as Japan, South Korea and Taiwan have already illustrated in their economic development curves. One day, a Chinese service may even be synonymous with efficiency, politeness and customer care. Maybe even within my lifetime.
Bill Dodson
SUZHOU, China
1. Inexorable China
2. Inexorable China: Land Grabs
3. Inexorable China: Increasing Water Demands
4. Inexorable China: Increased Infrastructure Availability
5. Inexorable China: Go West for Cheap Sneakers
