As industry loses ground, old methods will no longer work

The government recently released the nation's latest economic results, which the stock market didn't celebrate. The GDP growth rate declined to a six-year low, registering 7.4 percent year-on-year in the first quarter and 7.5 percent in the second before falling to 7.3 percent in the third.

This year, the government's annual growth target was set at 7.5 percent. For next year, not just overseas financial institutions but the usually more optimistic domestic business press are suggesting a lower target, based on major change in this year's trend.

Indeed, despite the launch of all its mini-stimulus programs and public spending projects since the middle of the year, striving for 7.5 percent growth still appears to have placed a lot of strain on the central government. More importantly, incurring so much strain doesn't seem to be really necessary, at a time when the nation's priority is to build new engines for development rather than recharging the old engines.

In a sector-by-sector breakdown, one can see that much of the slowdown in growth has been contributed by the sluggish land development and real estate industries. The industries have up to now been a very important sector, which used to generate not just large direct sales, but demand for supplies from other industries - building materials, mortgage loans, and the provision of public utilities and services.

From January to September, the housing sector registered growth of 12.5 percent year-on-year, down from the same period by 1.6 percentage points.

Although some of the restrictions in the housing market, designed to cool down the speculative buying-and-selling of three years ago, have recently been removed, the buying-and-selling frenzy is unlikely to make a comeback anytime soon.

It is even less likely for local governments to become bold enough as to take on many large, expensive projects again. There can be experimental projects, as corresponding laws have been made, for local governments to back up their fiscal plans through debt financing, such as by bond issues. But like everything else in the world, from can-do to actually doing it may still take a long time.

In the meantime, an important change may be taking place sooner than many expected. The economy is no longer as dependent on manufacturing as it is on consumer services. This is a change that economists have recommended, so it will further distance itself from the old production-focused, planned-economy model to become more consumer-oriented.

The growth of industry and mining, which had been leading overall growth for a long time, has been overtaken by growth in the so-called tertiary industry, or services. The situation has remained stable in the last couple of years. Despite weak growth in retail business, services have, as a whole, gained their share of importance. For the first three quarters of the year, the tertiary industry contributed a larger share to the economy than industry and mining.

With GDP close to 42 trillion yuan ($6.86 trillion), the former reported 19.6 trillion yuan in added value, and the latter reported 18.6 trillion yuan.

It is clear enough that stimulating industry, especially manufacturing, can no longer help the economy as much as nurturing new services.

Most services are not big capital games. By their very nature, services don't need so much monetary stimulation. The most precious type of help that they look forward to is for the government to make and enforce good laws to protect fair competition. And whether the Chinese government can keep providing its own service in this regard is clearly the most important challenge it will face in 2015.

The author is editor-at-large of China Daily. Contact the writer at [email protected]

Growth pangs	Understanding the slowdown