Warning not to split ‘real’ and ‘virtual’ economies
With Beijing keen to develop its advanced manufacturing sector while shifting from Washington’s service-centric growth model, a former official has warned against miscategorising what the “virtual economy” really entails.
Echoing calls from the Chinese leadership and prominent advisers, he also wants more drastic measures taken to enhance R&D and high-end producer services.
The comments by Sheng Songcheng, former chief of the central bank’s statistics department, came as the nation looks to learn from countries such as Germany that have embraced advances in manufacturing.
“My view is, we cannot simply categorise the service sector as the ‘virtual economy’,” Sheng said at a forum in Shanghai this week while comparing China’s service sector with that of the United States.
China’s service sector, the country’s largest source of jobs, accounted for 54.6 per cent of national gross domestic product last year, lower than the 81.2 per cent in the US, he said.
China has long been viewed as the world’s workshop. However, its service sector has grown fast in recent years, and the much-ballyhooed China International Fair for Trade in Services has been held annually in Beijing since 2019.
As of late, there has been unprecedented emphasis on shoring up support for the real economy. Major financial regulators and state-controlled banks have injected 1 trillion yuan (HK$1.1 trillion) worth of liquidity into the market this year by cutting the reserve requirement ratio, and officials have hinted more moves could be in the pipeline.
But Sheng warned against splitting the economy along the lines of real and virtual parts, arguing that high-end elements of manufacturing – including research and development, design, patents, branding and sales – also fall into the realm of producer services.
“Without a hi-tech, high-quality service sector – particularly producer services – there would be no advanced manufacturing.”
China’s producer services – which fall under the services sector – account for 31.4 per cent of GDP, compared with 47.7 per cent for the US, according to data provided by the former bank official.
To spur the development of advanced manufacturing and “new productive forces”, Sheng said, China must increase the share of high-end producer services in the broader economy.
“These high-end elements of manufacturing also belong to the service sector and are tallied as economic output,” he said.
Citing the example of Huawei Technologies, he said: “Its core competitiveness is far more than just manufacturing. It’s also in R&D, design and patents – all high-end services.”
He also noted that Huawei diverted more than 23 per cent of its 2023 revenue of 704 billion yuan into R&D, the highest total among all Chinese companies.
Sheng said Beijing should nurture high-end producer services, encourage consumption in the digital, green and health sectors, and fuse digital technologies with the real economy to better integrate service sectors with manufacturing.