China seeks development of lagging service industry

BEIJING, March 27 (Xinhua) -- The National Development and Reform Commission (NDRC), China's top economic planner, told Xinhua on Thursday that officials wanted to encourage development of the service industry.

Service industry output was 9.6 trillion yuan (1.37 trillion U.S. dollars) in 2007, up 11.4 percent year-on-year.

However, the service industry's contribution to gross domestic product (GDP) in 2007 decreased 0.3 percent from 2006, said Xia Nong, the deputy director-general of the NDRC's department of industrial policies.

According to a March 2007 proposal from the State Council, or Cabinet, China would increase the contribution of the service sector to GDP by 3 percent from 2005 to 2010. Services should become the dominant activity in some larger cities and out-perform the national GDP growth rate.

Experts warned that this would be a difficult task.

"The main problems of the service industry include its small scale, low quality, inefficient structure, slow reforms and weak innovation," said Xia.

GDP grew 11.4 percent last year, partly driven by secondary industry, whose output rose 13.4 percent. Fixed asset investment of the secondary sector grew 24.8 percent.

Xia added that China would act to enhance the tertiary industry's development by opening it up, providing policy and investment support and improving its managerial expertise.

The State Council publicized a notice in mid-March to promote the usage of foreign capital in the tertiary industry on the basis of optimizing the sector's structure and improving its service quality.

In a similar development, China encouraged banks to further support the service industry, according to a document co-released by the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission earlier this week.

The banks were urged to support middle and small-scale service enterprises, particularly those relying on intensive labor force, and the development of the logistic industry and electronic commerce.

Ni Yueju, a senior economic expert from the Chinese Academy of Social Sciences, told Xinhua on Thursday this move was to help these domestic service enterprises to solve the long-existing financing difficulties.

She added that although the government had taken various measures to boost the service industry, the country's tertiary sector was still weak compared with developed countries, where the contribution of the service sector to GDP normally is more than 70 percent.

In China the figure is currently below 40 percent.

Ni said in China traditional service activities like tourism were maintaining a strong momentum, adding that "in those newly-emerging service activities like computer technologies, finance, insurance and accounting, Chinese domestic companies' competitiveness still has a huge gap compared with those global industry leaders."

Experts held that after China opened up more of its service sector to foreign companies, the country's service companies were facing great challenges.

Ni added that it needed a long period of time for China to foster a strong service sector and one key bottleneck facing domestic service companies is the brain drain and small talent pool.