By Xinhua authors Zhou Qianxian, Chen Yongrong

BEIJING, Aug. 15 (Xinhua) — China, the world’s second-largest economy and a manufacturing giant, has the potential and is on track to become a major player in the services sector, a former senior official of the International Monetary Fund (IMF) told Xinhua.

The future prospects for China’s manufacturing sector, which accounts for more than 30 percent of total global production, lie in digitalization and mechanization, and this is where industrial services could step in, said Zhu Min, former deputy managing director of the IMF.

“There is so much to do,” Zhu said, highlighting areas with great potential such as software development as the country looks to make its manufacturing industry smarter.

According to Zhu, China’s technological advances in mobile networks and artificial intelligence, as well as its institutional and market strengths, can contribute to the development of the service sector and greatly boost service consumption.

China’s economy is increasingly driven by consumption and services after China’s per capita GDP exceeded $12,000. This shift, marked by a growing services sector and a declining share of manufacturing, reflects a global trend, Zhu noted.

On the consumer side, there is plenty of room for expanding service consumption, he said, adding that in the past, consumer spending on goods was mainly driven by real estate, but now demand for services such as education, entertainment, tourism and culture is increasing as China moves toward the high-income phase.

According to a landmark conference on priorities for the second half of 2024 at the end of July, services consumption will be an important driver of the expansion and upgrading of consumption.

According to official data, retail sales in China’s services sector rose 7.5 percent year-on-year in the first six months of this year, 4.3 percentage points higher than goods. Services consumption accounted for 45.6 percent of the country’s per capita consumer spending.

“China’s next round of reform priorities, which include raising the national income level through reasonable distribution policies, continuing the urbanization process, and improving social security, education and health care systems, promise stronger demand for services consumption,” Zhu said.

A recently issued guideline by the State Council set out 20 key tasks for the development of service consumption, including harnessing the potential of services such as hospitality, household services, elderly care and tourism, promoting new consumption forms and scenarios, facilitating market access and providing more policy support for service consumption.

However, if the share of the service sector grows but the productivity of this sector stagnates, average GDP growth will inevitably slow down, Zhu said, pointing out that the key challenge to maintaining China’s growth is to increase labor productivity in the service sector while expanding service consumption.

He is convinced that the Chinese economy will continue to grow steadily in the future as China evolves from a pure manufacturing giant to a service giant with a world-class competitive service industry.

Looking ahead, Zhu said the biggest risks to the Chinese economy for the remainder of 2024 would come from external uncertainties, particularly fluctuations in global financial markets and geopolitical changes.

“The recent fluctuations in the US stock market were merely initial corrections,” he said, pointing out that the stability of the market depends on the Federal Reserve’s interest rate decisions and the strength of the US economy.

On an external level, he said, the global economy is likely to experience only modest growth over the next five years, while geopolitical tensions and an ageing workforce are expected to lead to a further decline in efficiency and productivity.

“The above factors could all weigh on China’s foreign trade,” Zhu said, warning that maintaining trade growth in the second half of this year will be one of the country’s biggest challenges. ■