China’s economy is shifting to Services and the Chinese leadership now has a mix of Engineers and Economists

China’s output of services are poised to overtake its industrial production in 2013.

China’s GDP report brings that crossover even closer. In the past four quarters (running from the second quarter of 2012 to the first quarter of 2013), services and industry accounted for the same amount of China’s GDP.

China’s service sector (which includes transport, wholesaling, retailing, hotels, catering, finance, and real estate among other things) is still unusually small. In other economies at China’s stage of development, services typically account for about 55-60% of GDP. Prices for services have also been rising faster than industrial prices, contributing to the shift in their favor.

Engineers used to dominate Chinese policymaking. But the Communist Party’s highest organ, the seven-member standing committee of the Politburo, now includes three economists, for better or worse, including Li Keqiang, the prime minister.

New figures showed China’s economy growing by 7.7% in the year to the first quarter, falling short of expectations and the previous quarter’s pace. The figures were puzzling as well as perturbing. The job market still seems tight: there are 1.1 job vacancies for every applicant, the highest ratio since records began in 2001, points out Zhang Zhiwei of Nomura, a bank. Meanwhile, credit seems incredibly loose: the broad flow of financing to China’s economy (including bank loans, trust-company loans and corporate-bond sales among other things) set a monthly record in January, then matched it in March.

A frugality campaign championed by the president, Xi Jinping, may have hit conspicuous consumption. According to the National Bureau of Statistics (NBS), the revenues of big restaurants fell (year-on-year) in January and February for the first time since 1978. Tighter curbs on property speculation, including the revival of a 20% capital-gains tax, have also slowed construction.

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