How Deregulation Would Benefit China’s Services Economy

One 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.

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