By Liu Tao

Research Report Vol.19 No.2, 2017

I. The Overall Development of Service Industry in 2016

In 2016, China’s service industry made steady progress with a modest expansion of aggregate demand and deepening of supply-side structural reforms.

1. The service industry enjoyed steady and rapid growth and contributed nearly 60 percent of GDP

In the first three quarters of 2016, the value-added of the service industry in China registered a year-on-year increase of 7.6 percent, exceeding both the growth rate of GDP and the secondary industry for the eighth consecutive quarter. The value-added in the service industry accounted for 52.8 percent of GDP, up 1.6 percentage points from the same period in 2015. The service industry contributed 58.3 percent to GDP growth, 3.2 percentage points higher than a year earlier and 20.7 percentage points higher than the secondary industry (See Figure 1).

2. The service innovation that keeps emerging is more involved in manufacturing

In recent years, the increasing R&D investment of the service sector in China has strongly supported the innovation of related technology and business models. Statistics show that the R & D expenditure of the top 500 service enterprises in China grew by an average of 10 percent in 2016, 1.7 percentage points higher than that of the manufacturing enterprises. More and more service enterprises have attached great importance to online and offline interaction, integrated standardized service resources and explored a variety of “Internet Plus” cross-border cooperation models.

What’s more, all kinds of service innovation have optimized the allocation of resources, and the interaction between service sector and manufacturing sector has become closer. Manufacturing enterprises have shifted from simply providing products to providing both products and service and even a complete set of service solutions. The service enterprises in command of core technologies or businesses are seeking the added value of the whole industrial chain by embedding Original Equipment Manufacturer (OEM) into the manufacturing process. According to statistics, in 2016 integrated manufacturing enterprises (with manufacturing as the main business supplemented by service provision) from China’s top 500 manufacturing enterprises earned a revenue of 905.57 billion yuan, accounting for 3.4 percent of the total. The r integrated service enterprises (mainly service providers with manufacturing as supplemental business), among the top 500 service enterprises, earned a revenue of 710.47 billion, accounting for 2.6 percent of the total.

3. The demand for services is brisk, and the consumption of new services is gaining momentum

In 2016, the residents’ service consumption in China grows rapidly. Deducting the influence upon service price of CPI moderate increase, the actual growth of service consumption was supported by a strong demand. At the same time, there are new features in the demand of service consumers. First, the increasing number of middle-income groups and the growth of the new generation of young people lead to higher demands on service experience and quality. Second, as personalized demand grows, the scattered small group of people begin to feel good with their “long-tail needs” satisfied. Third, the closed loop where the consumers can have offline experience, purchase online and enjoy offline delivery has been further improved. Fourth, consumers use more and more of the convenient mobile payment means and their interaction with the social platforms and personal finance services has unleashed enormous consumption potential.

With regard to the major service expenditures, the consumption on emerging services shows a notable growth momentum. In the first three quarters of 2016, the mobile games market value amounted to 70.23 billion yuan, growing by 93% year on year; online car-booking services had a market value of 101.16 billion yuan, one-fold increase year on year; the online catering market registered a trade volume of 76.06 billion yuan, increasing by 1.8 times over the same period of the previous year. In addition, in the first 10 months of 2016, the inbound and outbound cruise ship passengers totaled 3.785 million, up 81% year on year; and the mobile Internet traffic consumption reached 7.19 billion GB, up 1.2-fold year on year.

4. The investment in the overall service industry investment is in steady growth and the investment growth has sped up in some service sectors

In the first 11 months of 2016, the fixed assets investment in China’s service industry grew by 11.3%, 0.3 percentage points higher than the rate registered over the same period of the previous year and 8 percentage points higher than the growth rate of the secondary industry. As for the individual sectors, the five sectors like leasing and business service were growing at a rate higher than that of the service industry and the growth had accelerated year on year; the real estate investment was growing at a rate below the average growth rate of the service industry, up 3.7 percentage points over the rate recorded over the same period of the previous year. The four sectors covering healthcare and social work were growing at a rate higher than the average level of the service industry, but their growth had slowed down to some extent, as compared with the same period of the previous year. The five sectors like wholesale and retail recorded a growth rate below the average level of the service industry, and even lower than the rate registered over the same period in 2015 (See Figure 2).

In the first 11 months of 2016, the service industry actually used foreign direct investment totaling 75.85 billion US dollars, growing by 3.7% year on year. Notably, the real estate investment was the highest, reaching 17.62 billion US dollars, but its growth rate had lowered by 33.7% than the same period of the previous year. The wholesale & retail, and the leasing & business service sectors each registered an investment topping 13 billion US dollars, respectively growing by 39.8% and 51.8% over the same period of the previous year.

5. TIS continuously expands and new progress is made in TIS overseas

In the first 10 months of 2016, China earned a revenue of 4.2915 trillion yuan from foreign trade in service, growing by 16% year on year, accounting for 18% of total foreign trade income. Specifically, the service export earned 1.4625 trillion yuan while the import 2.829 trillion yuan, respectively growing by 3.6% and 23.7% year on year. The export of some services with high added-value was growing fast. For example, the technology export valued 61.6 billion yuan, growing by 14% year on year; the export of advertisements fetched 25.5 billion yuan, growing by 63.4%; and the export of maintenance and repairing services earned 27.7 billion yuan, growing by 67.5%. The emerging business such as cross-border e-commerce, procurement market trade and integrated foreign service companies is on the way to grow into a new engine driving the growth of foreign trade. Moreover, in the first 11 months, Chinese enterprises signed contracts on offshore service outsourcing worth 392.55 billion yuan, up 15.2% over the same period of the previous year; they undertook to provide the outsourced services of relevant countries along the Belt and Road, worth 64.99 billion yuan, up 6.8% over the same period of the previous year.

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