Nobelist: Service sectors key to “Made in China 2025”
China’s service sectors need to receive greater support if the “Made in China 2025” strategy is to succeed, according to Christopher A Pissarides, the 2010 Nobel Prize winner in economics.
The strategy, which is focused on the manufacturing sector, was unveiled by China’s State Council in May 2015 and it is the first 10-year action plan designed to upgrade China’s capabilities so that it can become a world manufacturing power by 2025.
Last week, during a lecture at the University of Science and Technology of China in Hefei, capital of East China’s Anhui province, Pissarides said that the service sectors will be vital in addressing the consequences that will arise from the strategy.
“Though it is growing, China’s industrial productivity is still very low. The ‘ Made in China 2025’ strategy, which emphasizes on automation, will help to increase the productivity substantially, but this will result in numerous mid-level workers, especially those from the manufacturing sectors, losing their jobs and China has to be prepared for it,” said Pissarides.
China has been facing pressing employment issues in recent years as an increasing number of manufacturers plan to replace human workers with industrial robots. A recent report by Economic Daily predicted that the number of industrial robots in China has surged by 36.6 percent from the previous year to 75,000 in 2015.
Pissarides added that post-2025 China, which will be home to a small but dynamic manufacturing sector that will drive productivity growth and exports, will need to respond to this problem by having a much larger service sector that can provide jobs.
“The strategy needs to be accompanied by other supporting policies that will generate employment. About 90 percent of the country’s employment will have to be in service sectors which cannot be automated,” said Pissarides.
As part of the strategy, authorities have also vowed to promote service-oriented manufacturing and manufacturing-related service industries, and Pissarides believes that the service sectors will take on broader scopes. He suggested that China will need to reform its economy in order to encourage more private sector development, especially in the services industry.
“The main sectors that will benefit are the labor-intensive ones such as healthcare, education, personal services, household services, real estate management and the hospitality industry,” said Pissarides, adding that these particular sectors in China are not doing very well.
“Most of the companies in these service sectors are small and mediumsized enterprises. In order for them to perform, finance needs to be liberalized and the focus on state enterprises should be relaxed. The country will need a good legislative framework and good tax incentives for SMEs in the service sectors, since their profits margins are very low,” said the economist.
“There is no better time to do that than the present, since the process is inevitable. The earlier they start the campaign, the better development chances they will have in the future,” he added.
Pissarides, together with Peter A Diamond and Dale Mortensen, won the Nobel Prize in 2010 for contributions to the theory of search friction and macroeconomics. He is a professor at the London School of Economics and Political Science, specializing in the macroeconomics of labor markets, structural change and economic growth.
Christopher A Pissarides