China's services sector on the rise, but economic imbalances persist

China is making some headway in restructuring its economy and revving up its domestic consumption growth engine, but it still has not weaned itself off a reliance on investments, which was the biggest driver of last year's 7.7 per cent GDP growth, analysts say.

The world's No. 2 economy kept its growth pace level from 2012, which saw the slowest expansion since 1999.

President Xi Jinping's administration has indicated its tolerance for slower growth to free up resources for reforms that can rebalance the economy by unleashing the spending power of its 1.3 billion population, while reining in state monopolies and excessive local government spending.

It is also looking to shift China from the world's low-cost factory to a services and high-tech powerhouse.

China's 2013 economic figures showed that its restructuring efforts were starting to show results, said statistics bureau spokesman Ma Jiantang at a press conference on Monday morning.

Last year, the tertiary industry, which comprises higher-end sectors like services, overtook the manufacturing sector in contribution to growth for the first time.

It grew by 46.1 per cent last year, drawing closer to Beijing's target of having services contribute 47 per cent of GDP by 2015.

Meanwhile, retail sales - a key indicator of domestic spending - has held steady, expanding by 13.1 per cent in 2013. It was boosted by increasingly affluent Chinese's strong appetite for items like cars and gadgets. Communication equipment like smart phones, for instance, surged 21.8 per cent in December alone.

This helped final consumption to contribute 50 per cent of China's GDP growth. But it still lagged behind investments in fixed assets such as factories and property, which accounted for 54.4 per cent of growth.

This was a reversal from 2012, when Mr Ma had highlighted Beijing's success in making final consumption the key growth driver, making up 51.8 per cent of GDP. Capital formation in 2012 accounted for 50.4 per cent.

This came as property investments, as well as stimulus spending on investment projects such as railways and official buildings continued to grow strongly last year despite Beijing's efforts to moderate credit growth.

China's property market - which has been a key pillar of growth since the 2008 financial crisis - surged to new highs, official data showed.

New home sales last year crossed the US$1 trillion (S$1.28 trillion) mark for the first time, rising 27 per cent to 6.8 trillion yuan (S$1.42 trillion).

Still, analysts such as Moody's Analytics associate economist Katina Ell observed that with retail spending holding steady between 13 per cent and 14 per cent since the middle of last year (2013), "China's economy looks to have stabilised and taken household consumption along with it".

China's growth could improve further this year, which could boost household incomes and encourage them to spend more, she added.

graceng@sph.com.sg

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