Forbes – Multinationals are investing more in the service sector than in the manufacturing sector as recent as 2008, marking a structural shift in the Chinese economy. Rising wages, in addition to the changing policy landscape, have cooled investment in the manufacturing sector, especially on the coastal cities of Shanghai and Beijing. Monthly wages in China have risen by an average of nearly 12% a year in real terms over the past five years, pushing investors into higher-end sectors requiring more capital and less labor.
Within five years, says Victoria Lai, editor of Access China at EIU, nearly one-half of foreign direct investment will go to areas outside of the eastern seaboard, compared with less than 20% in 2000. That’s not just a geographical shift. It’s a shift away from the export driven markets and into a China state of mind.
“The bulk of FDI (foreign Direct Investment) is going towards service sectors now,” says Lai. “Over the last five years you’ve seen a 40% spike in investments in retail. That’s not for retail to be exported. It’s for Chinese consumers.”
Lower skilled labor has moved to Vietnam and Malaysia. China is creating more value-added products. Moreover, as it creates more services to attend a bulging urban population — currently just 50% of the population’s total compared to around 75% in the U.S. — professional services such as medical and financial faces a skills gap.
China’s ever-expanding consumer story is reflected also in its trade surplus, now just 4% of its GDP compared to 10% in 2007. EIU expects it to be 1% by 2016. China’s done just making things for the U.S. consumer at Toys R Us and Macy’s. They’re making it for themselves. And with over a billion people to serve, and another 120 million seen moving to the cities over the next five years, that’s a big market to go after.
US doing the best on Business Activity Growth Now
The Purchasing Managers’ Index (PMI) is an indicator produced by Markit Group and the Institute for Supply Management of financial activity reflecting purchasing managers’ acquisition of goods and services. A number over 50.0 indicates an improvement while anything below 50.0 suggests a decline.