China Voice: Booming service sector will not replace industry

It would be unwise, especially during an economic slowdown, for China to solely rely on the service sector, as it belittles the significance, and potential, of its industry.

While it is true that the service sector is outperforming industry in terms of the share of GDP, industry remains the backbone of the economy.

After all, services are dependent on the development of the industrial and agricultural sectors. To underestimate this relationship would result in an unsustainable economic model.

Manufacturing, especially the processing trade, was the main fuel firing China's rapid expansion for the past decades.

Given the size of the economy, over-dependence on exports and credit expansion is no longer tenable. China needs to shift to a more consumption- and service-driven growth model to sustain growth, albeit at a slower rate, over the next decade and beyond.

The aim of such a transition, however, is to make the traditional industrial sector more competitive, rather than less significant.

To this end, programs such as "China Manufacturing 2025" and "Internet Plus," aim to support the upgrading of the industrial sector by focusing on modernization and innovation, and to rebrand China from "the factory of the world" to a premier industrial power.

While the need to maintain its industrial might is influenced by its own development story, there are untold number of lessons to be drawn from developed nations.

The United States is one such example. Once the world's largest industrial producer, in the 1980s it started to out-source manufacturing. The service sector not only flourished but actually replaced manufacturing as the backbone of the economy, eventually accounting for as much as 70 percent of the economy. Without the support of a real economy, it was only a matter of time before the bubble burst, triggering the 2008 mortgage crisis that spiralled into the worst economic disaster since the Great Depression.

The United States is now trying to claw back the lost advantages of its industrial sector. This time, however, by focusing on innovation it aims to create a stronger sector that is able to compete globally.

Alexander Hamilton, one of America's founding fathers, once said, "not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufacturers." That judgement still holds true for today's China. Endi