Economy

Service sector: China's emerging powerhouse

By Liu Jie (China Daily)
Updated: 2011-03-02 15:36

Diversified services

In the aviation service market, emerging low-cost carriers are testing the waters in China.

In November, the Singapore-based budget airline Jetstar Asia added a twice-weekly, third direct flight to China - between Guilin and Singapore - and it is looking for further penetration in the nation's booming travel sector. The airline established flights to Haikou, Hainan province, and to Shantou, Guangdong province, in 2009.

Air Asia, a low-cost airline based in Kuala Lumpur, operates flights from seven mainland cities, including Tianjin, Hangzhou, Chengdu, Guangzhou and Guilin.

According to a survey conducted by global payments technology company Visa and released in September, Chinese tourists are planning on average at least seven trips over the next two years. Of these, four would be international trips. "Global carriers are competing to satisfy the ever-increasing and more diversified demands of Chinese travelers with tailored services. It's a trend to a market turning complicated," Li Lei, an aviation analyst at China Securities Co Ltd, said.

Xia Jiechang, a researcher at the Institute of Finance and Trade Economics, affiliated with the Chinese Academy of Social Sciences, said that the opening up of China's service sector should be cautious and based on various conditions of different segments.

The service sector has become China's key source of foreign direct investment (FDI). According to the Ministry of Commerce, FDI chalked up $4.69 billion in January, a year-on-year increase of 31.8 percent. Meanwhile, the sector accounted for 46.8 percent of the nation's FDI as a whole, up 3 percentage points from the previous year.

Yao Jian, spokesman for the ministry, said that FDI in the service industry will continue to surge and more will turn to businesses that meet domestic consumption demands.

Supporting policies

"In addition to luring foreign investment, the service industry's fast growth will depend on the development of domestic small- and medium-sized enterprises, something that needs government support in terms of tax and fund raising channels," said Xia Jiechang.

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The Chinese high-end restaurant chain South Beauty is striving for listing this year to fuel its expansion at home and acquisitions abroad, according to Chairwoman Zhang Lan. Many other eateries, including the tea restaurant Chamate and hotpot chain XiabuXiabu, are also favorites of venture capitalists and private equity operators. XiabuXiabu has provided more than 20,000 job opportunities, most of them for workers who had been laid off and migrants in key cities.

"These kinds of businesses can add not only fiscal revenue for local governments but also help create job opportunities for citizens and migrant workers and improve people's standard of living, so they deserve favorable tax," said Pang Wei, an analyst from Guotai Junan Securities.

The government is planning to include the sector in the value-added tax group to reduce the tax burden on services and further advance economic rebalancing, said Liu Zuo, director of the taxation science research institute affiliated with the State Administration of Taxation.

"Value-added tax is levied only on manufacturing, while services are subject to a business tax that raises a much smaller amount. Given the heavy dependence of local governments on value-added tax revenue, they have a strong incentive to promote manufacturing rather than services," said the Asian Development Bank in a report.

Zhang Ping vowed to implement more favorable tax policies, support the efforts of qualified services enterprises to list on the markets and issue bonds, and ensure that the sector can obtain electricity, water, gas and heat at the same prices as other industries during the next five years.

"The employment-intensive domestic sector can be the turning point in the government's efforts to solve the dilemma of restructuring the economy and ensuring rapid growth to maintain employment levels," said Li Wei, economist at Standard Chartered Bank.