The world’s factory, it turns out, has a sizeable canteen attached, not to mention an office block and shopping mall. Last month’s official revision of China’s gross domestic product revealed an economy worth 16 trillion yuan (＄1.9 trillion) in 2004, 17% more than previously thought. Some ＄265 billion of the increase – 93% of it – was ascribed to the services sector. As a result, services’ share of the economy has jumped by nine percentage points, to 41%, compared with 46% for manufacturing and 13% for primary industries (mainly agriculture and mining).
Where has all this extra activity come from? The bulk of it is obvious to any traveller in China. As people grow wealthier, they want more restaurants and bars, clothes stores, car dealerships, bookshops, private hospitals, English language classes and beauty salons. In many of these businesses, however, turnover and profits have not previously been captured by a statistical system geared to measuring factory production. The small, often private, companies that dominate these areas have also often been at pains to escape notice – and therefore taxes.
Li Deshui, commissioner of China’s National Bureau of Statistics, confirms that most of the newly unearthed GDP comes from three categories. The first is wholesale, retail and catering; the second, transport, storage, post and telecommunications. While postal and telecoms services are still state-controlled and thus readily measured, more than a million small tracking and removal companies are not. The third activity is real estate, booming particularly in the coastal cities and increasingly inland too, leading to an influx of private money – not least from overseas speculators. Property development has, in turn, boosted demand for architects, decorators, do-it-yourself stores and other building services.
There is more to China’s services boom than dishing up stir-fries, shipping boxes and fitting out apartments. Recent years have seen a surge in media and technology services, including the internet; in financial services such as leasing; and in education and leisure. In a small way, for example, China is starting to rival India as an outsourcing hub: less for call-centres that require excellent English than for such tasks as preparing reports and patent filings. In October Microsoft took a stake in a Chinese software firm in Dalian, a city in north-east China with a thriving outsourcing industry preparing tax returns and software for companies from Japan and South Korea.
China’s rapid economic growth is fuelling demand for accountants, lawyers, bankers and all manner of consultants, as Chinese companies expand and restructure. Specialists in marketing, advertising and public relations advise on the relatively new area of marketing products and developing brands. The new wealth has other consequences, too. China now has nearly a million security guards. It can offer its new rich everything from cosmetic surgeons to pet salons.
Meanwhile, a huge new market is opening up for private education–fuelled by the combination of a poor public system, the preoccupation of middle-class parents with giving their (often) only child the best chances, and demand from business. Chinese families spend more on education than on anything except housing – the market for courses, books and materials more than doubled from 2002 levels, to ＄90 billion in 2005. Richer households have also caused a tourism boom, which is still chiefly domestic, though more mainlanders are venturing overseas as visa restrictions are lifted. The World Travel & Tourism Council predicts that China’s annual tourism market will more than triple to ＄300 billion within a decade.
China’s services sector, on this basis, is well-developed and roughly as large as those of Japan and South Korea were at a similar stage of development, notes the HSBC bank. In reality, it is bigger still, since the GDP revision cannot capture activities such as kerbside lending and tax-dodging cash transactions in property or entertainment–all of which Dong Tao, chief Asia economist at CSFB, another bank, reckons add another ＄220 billion to the economy. Even so, the 41% of GDP claimed by services in China remains below the 60-75% typical in developed countries. It is smaller even than India’s 52%.
One reason for this is a bias towards manufacturing–“China’s ‘real-men-make-stuff’ attitude,” as Gordon Orr of McKinsey’s Shanghai office puts it. This has led to a plethora of ill-thought-through regulations for services, made worse by China’s continuing suspicion of private business, which is mostly concentrated in the services sector. The lack of a national trucking licence, for example, means hauliers must get approval from each province to move goods across the country and unload them on to different trucks at each border–delaying delivery and increasing spoilage and pilfering. In retailing, local governments often maintain inefficient supply chains, in part to protect local jobs. David Wei, head of B&Q in China, says his 48 do-it-yourself stores on the mainland are served by 1800 suppliers, compared with 600 suppliers in Britain for more than 300 stores.
Worse, though China took an early decision to invite foreign direct investment into manufacturing, it has been reluctant to open up services. Diana Farrell, director of the McKinsey Global Institute, the consultancy’s think-tank, argues that allowing more foreign investment in services could bring not just capital and technology but a competitive dynamic. The presence of Carrefour and Wal-Mart has led to domestic copycats, creating innovation and productivity growth.
Questions 27-30
For each question, only ONE of the choices is correct.
27. “The world’s factory” refers to
A the total mount of goods produced in the world.
B China.
C the United States.
28. It is not easy to measure the finances of
A large state-owned companies.
B foreign companies.
C numerous small companies.
29. Real estate has helped increase the size of the service economy because
A real estate is a service industry.
B it involves a lot of investment from abroad.
C developing real estate requires services.
30. The largest portion of household spending in China goes towards
A education.
B accommodation.
C travel.
Questions 31-35
Complete the following sentences using NO MORE THAN THREE WORDS from the text.
China is not really a rival to India in the role of an (31)……………………..
Most tourism in China is (32)……………………..
Many transactions in the real estate and leisure industries are in cash and that leads to (33)………………….
Most private business in China is (34)………………………in the service sector.
China has brought far less (35)……………………….into services, slowing development of that sector.
Questions 36-40
Do the following statements agree with the information given in Reading Passage 3?
TRUE if the statement agrees with the information
FALSE if the statement contradicts the information
NOT GIVEN If there is no information on this
36. Officially, the largest sector in China is the service sector.
37. Some of the newly-discovered GDP comes from the education sector.
38. Dalian is a successful outsourcing center for Japan and Korea.
39. As visa restrictions are lowered, Chinese people are expected to spend more than＄300 billion on tourism.
40. China’s services sector is about the same size as Japan’s and South Korea’s.