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China: Service Sector's Opening-up Critical to Sustainable Growth in China
Source: http://www.news.cn/
Source Date: Thursday, January 05, 2017
Focus: Knowledge Management in Government
Country: China
Created: Jan 10, 2017

Further opening up the service sector to domestic private investment is critical for sustainable growth in China, as services have become the major driver of economic growth in the world's second-largest economy, a leading U.S. scholar on China said recently.

Despite challenges such as anemic global growth and volatile financial markets, China's economic growth has stabilized at 6.7 percent in the first three quarters of 2016, within the government's target of between 6.5 and 7 percent.

"I think we've seen quite a lot of stability in the growth," said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics, a Washington D.C.-based think tank, pointing to signs of strong growth of the service sector, consumption expenditures and household disposable income in China.

Lardy says the service sector has continued to be a bigger contributor to Chinese economy from the production side, and consumption spending has become the most important source of China's economic growth from the expenditure side, and Chinese household disposable income growth is also running ahead of GDP growth.

"I think those factors have combined to provide a great deal of stability to the growth sustaining at a very high level, you know in the neighborhood of 6 to 7 percent," Lardy told Xinhua in a recent interview.

According to Lardy, the China bears, who had earlier predicted a Chinese economic collapse or a hard landing, "really didn't look carefully enough at what the sources of growth in China are and how they have changed in recent years."

"We're moving away from investment towards consumption, we're moving away from industry towards services, and more importantly, the wage share of GDP has gone up significantly in the last five years," he said.

Despite remaining downward pressure, Lardy doesn't believe the Chinese economy has to slow down. China's economy could continue growing at a pace of 6 to 7 percent for a number of years "with a more concerted and rapid reform program," he said.

In Lardy's view, "the most single important reform" to sustain growth is to allow domestic private firms to have a greater role in the service sector, as the share of state investment in the service sector is quite high but productivity low.

Further opening up the service sector to private capital would lead to more efficient firms in the sector, he suggested.

"Remember services are now more than half of the GDP, so if you can boost the service sector growth, it will do a great deal to sustain the overall expansion path for the economy."

In terms of the property market in major cities, Lardy said local government policy responses to cool soaring home prices have been "quite good", such as putting restrictions on house purchases for residents who already own one property, and requiring higher down payments, interest rates and tax charges.

"I think that's very important, because if potential investors think the prices can only go up, then you're creating a condition that could easily be led to a bubble," he said.

If periodically property investors keep in mind that home prices will go down maybe 5 to 10 percent, it would help "lead to a more balanced pattern of growth in the property sector," said Lardy. 

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