Behind the slackened acceleration of GDP, there are further challenges for China to face in the near future as this nation develops. For example, the increasing leverages ratio of the government and enterprise, the aging of population, and the reduction of profitability from businesses. In accordance with many developed countries, except for fostering service industry, China is obliged to promote the transformation towards technology-intensive and R&D-driven industrial sectors to boost productivity growth, which could ease the wage increase due to lack of labor forces. Meanwhile, economizing the resource of production will lessen the production cost and thus increase the return on assets. Such transformation and the thereafter enhanced productivity is able to withstand, as they are driven by the endogenous industrial upgrading instead of increased financial leverage or favorable policies and subsidies that harm the economy in the long-run.
With the climb of income level and the acceleration of urbanization, service sectors start to account for a greater portion of the national GDP. The composition of the entire service industry is going to transform towards a heavier concentration on consumer services from other traditional types of services. As have experienced by all developed countries, when income per capita arises, service sectors are going to occupy a larger percentage of the total national GDP, with a simultaneous decrease in weight from the agricultural and industrial sectors. As GDP soars and thereafter the transition within the service industry, consumer services as a whole will embrace even more swift growth.
China’s Economy is challenged by the sharp increase of leverage ratio across government and enterprises, the aging of population, and the decline of private sector’s profitability. Since 2010, over 3,000 enterprises have experienced a decline of returns on invested capital (ROIC), which dropped from 10.3% to 7.4%. China is obliged to promote the transition towards technology-intensive and R&D-driven industrial sectors in order to foster future productivity.
The improvement over production efficiency could ease the wage increase due to lack of labor forces. Meanwhile, economizing the resource of production will lessen the related cost and thus give rise to the return on assets. As technology progresses, the nation’s manufactures would move up along the value chains towards the more advanced and intelligence-intensive manufacturing stages. This kind of endogenous growth from industrial upgrading ensures the sustainability of the increased return on capital.
During 2015, China’s State Council unveiled its first 10-year national plan for the transformation of China’s manufacturing industry, the “Made in China 2025”. The plan explicated the direction and upcoming supportive policies to advance manufacturing restructure. Hence, we have determined to concentrate on R&D-driven and efficiency-centered sectors, including industrial robots, sensors, semiconductor devices, optical-communication devices, as well as the upstream and downstream fields, such as cloud computing, information security software, and artificial intelligence.
With the climb of income level and the acceleration of urbanization, service sectors start to account for a greater portion of the national GDP. The development of modern consumer services is becoming a significant driven-force of the growth of GDP and the upgrading progression of the China’s economic structure.
Modern service industry mainly consisted of four sub-categories: circulation services, productive services, consumer services, and public services. Since the 50s, developed countries, such the U.S., have gone through rapid grow and restructure within the service sector. From 1970 to 2005, OECD nations had experienced variation in the relative proportion of the value-added of each service sub-category over the total value-added of the entire services industry: circulation services dropped from 34.23% to 25.35%, while productive services increased from 23.93% to 29.01% and consumer services surged from 17.59% to 21.32%.
Consumer service industry will benefit from the overall growth of the service industry and bonus from the restructure within the industry. To comply with such trends, we would pay close attention to education, tourism and healthcare sectors.