Advancing sustainable growth in the United States and China

How Deregulation Would Benefit China’s Services Economy

Andrew Batson of GaveKal Dragonomics examines the heavy regulation of China’s services sector and makes policy suggestions to increase the sector's growth.


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Customers use computers at an internet cafe in Taiyuan, Shanxi provinceOne of the central goals of China’s current round of economic restructuring is to foster a transition away from a deeply industrial economy to a more services-driven one. China’s services sector now comprises more than 50 percent of GDP, and there has been remarkably fast growth in “modern” services such as information technology.

But the bad news, Batson argues, is that finance and real estate account for a large portion of these gains, making the ostensible shift to a services economy less sustainable. Indeed, China’s modern services sector, including finance, actually looks over-developed in comparison to other Asian economies. What is more, the Chinese household services sector by contrast looks somewhat under-developed, and many service sectors in China are still heavily regulated.

Further deregulation of many service sectors, including the use of public and quantitative targets, says Batson, will be needed if China is to successfully shift the pattern of services development in a healthier direction.

Batson’s memorandum offers some ideas about why such deregulation is needed. It begins with an economic analysis and a look at the data to explore the sources of recent growth in China’s service sector. Then, it turns to some high-level policy prescriptions, offering a three-part outline of what an effective program of service-sector liberalization should look like.

ABOUT THE AUTHOR

Andrew Batson

Director of China Research, GaveKal Dragonomics

Andrew Batson

Andrew Batson is Director of China research at GaveKal Dragonomics, an independent economic and financial research firm. He is also a Nonresident Senior Fellow of the Paulson Institute’s small “virtual” Think Tank. He has lived and worked in China since 1998. Over the course of a long career as an award-winning journalist and analyst, Batson has written hundreds of articles on Chinese business, economics, government, and society. Before joining GaveKal in 2011, he covered the Chinese economy for The Wall Street Journal.

Topics: Economy