The services-led economy

New economy sectors take the lead in China

05 Sep 2018

China’s economy passed a watershed moment in 2012 when the services sector took a dominant share of GDP and eclipsed manufacturing as the economy’s main driver and confirmed that the process of economic rebalancing was well underway.

Though China is on track to meet its goal of making services 56% of the economy by 2020, there is still ample room for China’s services sector to catch up as a share of the economy with more developed nations.

Services sectors compared globally, 2015 (% of GDP)

Source: World Bank Open Data Resources, December 2017

Total STEM graduates, 2016

Source: World Economic Forum, March 2017

Healthcare

China faces the challenge of boosting healthcare coverage whilst also managing increased demand for health services from its rapidly ageing population which will see an extra 110.7 million residents aged over 65 by 2030, according to United Nations’ forecasts1.

With this in mind, China is boosting spending on public healthcare services, passing reforms to promote private investment in healthcare services and medical products, reducing waiting times for drug approvals, and strengthening intellectual property protection laws.

China: Healthcare profit pool: 2010-2020 (USD billions)

Source: Bain & Company: Healthcare 2020, June 2013

Internet services

China’s rapidly expanding internet user base represents a high-potential market for IT services companies. Mobile users account for an increasingly large share of China’s online population, and it’s via widespread mobile usage that we are seeing drastic changes in consumer behavior.

Chief among them is the growth of online retail. China is the world's largest online retail market, accounting for an estimated USD 1.05 billion in 20174, compared with USD 453.5 billion in the US6, and USD 111.3 billion in Japan5. Online retail now accounts for an estimated 19.6% (4) of total retail sales in China, compared with 13% in the US6, 17.9% in the UK7, and 8.2% in Japan2.

But China's internet sector has much more room for growth. Though its internet user base is the largest in the world, penetration rates (54.6% in 2016) lag behind developed markets such as the UK (94.8%), Japan (93.3%), and the US (87.9%)3, this factor, combined with government efforts to improve telecoms coverage as laid out in the 13th Five Year Plan, means this user base will likely grow considerably in the future.

China: Mobile Internet Users as % of Total Internet Users, 2007-2017

Source: CNNIC: 40th Survey Report, June 2018

Education

As rapid urbanization raises competition for places in China’s best schools and universities, Chinese parents are spending increasing amounts on their children’s education, and this is fueling demand for private education and after-school tuition services.

Adults, especially graduates, are also increasingly looking for additional tuition services amid fierce competition for jobs in local markets and employers’ increasingly high-end demands for labor as they shift up the value chain. Recent reforms to open the education sector to private investment are presenting great opportunities to private firms to benefit from this trend.

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