Executive Briefings

Is Growth in Services Hampering Chinese Manufacturing?

It has often been said that China will grow old before it becomes rich. But could it have too many offices, restaurants, and hotels before it becomes wealthy?

Is Growth in Services Hampering Chinese Manufacturing?

That's the warning from HSBC Holdings Plc's China economists, led by Qu Hongbin, in a recent report. Given China's GDP per capita is only 14 percent that of the U.S., it's too early for Beijing to eschew manufacturing in favor of services, with the latter’s growth risking a fall in the economy’s productivity in the medium term, the analysts caution. In short, the faster the services growth, the slower the productivity growth. 

The recent services boom — which has prevented a hard landing for the economy and kept unemployment in check for the past three years —could be too much of a good thing. Too many migrant workers that were previously in the agricultural sector are now gainfully employed in the less-productive services sectors, the analysts say:  

The pace of expansion in the services sector has remained strong in recent years, as growth in the industrial sector lost steam. This has helped cushion the slowdown in the overall economy, but such a ‘rebalancing’ also means that labor-intensive services have been replacing manufacturing as the main absorber of rural migrant labor.

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That's the warning from HSBC Holdings Plc's China economists, led by Qu Hongbin, in a recent report. Given China's GDP per capita is only 14 percent that of the U.S., it's too early for Beijing to eschew manufacturing in favor of services, with the latter’s growth risking a fall in the economy’s productivity in the medium term, the analysts caution. In short, the faster the services growth, the slower the productivity growth. 

The recent services boom — which has prevented a hard landing for the economy and kept unemployment in check for the past three years —could be too much of a good thing. Too many migrant workers that were previously in the agricultural sector are now gainfully employed in the less-productive services sectors, the analysts say:  

The pace of expansion in the services sector has remained strong in recent years, as growth in the industrial sector lost steam. This has helped cushion the slowdown in the overall economy, but such a ‘rebalancing’ also means that labor-intensive services have been replacing manufacturing as the main absorber of rural migrant labor.

Read Full Article

Is Growth in Services Hampering Chinese Manufacturing?