The 3 Industries Driving China’s Economy

China is one of the largest countries in the world and a significant manufacturer and producer of industrial goods. China’s total output as measured by gross domestic product (GDP) is expected to increase by more than 8% in 2021, following a 2.3% growth rate in 2020. China’s economy has been recovering in 2021 from the coronavirus pandemic, which caused significant economic disruption.

China’s GDP growth for 2022 is expected to decelerate to slightly more than 5% as it’s expected to take time for more countries to reopen from the pandemic and investment spending to rebound within China. In years past, China’s annual GDP rate was typically over 10%, whereas it’s been fluctuating from 5-8% in recent years. The major sectors and industries driving growth for China include the services sector, agriculture, manufacturing, and technology. China is also one of the world’s largest exporters and importers in the world.

China’s communist government began to institute capitalist market reforms in 1978, and over subsequent years, the Chinese have taken a sharp turn away from state-owned enterprises, or SOEs. As of 2013, SOEs only accounted for 45% of all Chinese industrial output. That figure was nearly 80% in 1978; the remaining 22% were “collectively owned” enterprises. The result is an economic explosion that catapulted China to the second-largest economy in the world, trailing only the United States.

In recent years, the country has been in transition from predominately an industrial to a consumer-based spending economy. Over the years, initial reforms focused on agriculture but soon spread to the services and light manufacturing sectors. However, more than 75% of the population is exposed to harmful air pollution and carbon dioxide emissions, which have increased over the years. Also, China’s income inequality is higher than most developed nations, with the poorest 20% of households earning only 6.5% of total income.

1. Services

China’s services sector represents more than 54% of the economic output in 2020. To put this in comparison, in 2010, the services industry represented slightly more than 44% of GDP. Consumption of goods is a major factor and driver of growth, representing more than 39% of China’s GDP in 2020. Those goods include jewelry, home appliances, garments, autos, office supplies, and furniture.

However, China’s retail sales jumped by more than 13% from January to November 2021, versus the same period one year earlier. Retail sales represents consumer spending within the economy. In comparison, the United States posted retail sales of 18.2% from November 2020 to November 2021.

A healthy services sector is a sign of healthy domestic consumption and per capita wealth increases; helping the Chinese people gain the capacity to afford their own output.

2. Manufacturing

China’s manufacturing and industrial sector represented nearly 38% of China’s GDP in 2020. However, China’s industrial production has been on the decline in recent years, coming in at 3.8% in November 2021—down from 7% one year earlier.

China’s manufacturing sector has been declining as a percentage of GDP. In 2010, manufacturing and industry accounted for 45.5% of GDP. The decline is likely due to China transitioning towards a domestically-driven consumer spending economy. Chinese goods within the manufacturing and industry sector include iron, steel, aluminum, textiles, cement, chemicals, toys, electronics, rail cars, ships, aircraft, and many other products.

China exports many goods globally, including to the U.S. The top exported goods for China as the end of 2020 were machinery, electrical equipment—such as personal computers—furniture, bedding, lighting, and plastics.

China has a thriving automobile manufacturing industry and is the world’s largest car manufacturer. As of September 2021, China produced more than 12.8 million vehicles versus 8.5 million produced in the U.S. year to date. Japan was the third-largest producer with 2.4 million and Germany with 1.5 million units produced as of September 2021.

3. Agriculture

Agriculture is the third-largest sector in China, representing 7.5% of the country’s total output as measured by GDP as of the end of 2020. The share of GDP is down from 8.94% in 2013. Although the percentage is not as high as emerging economies in Africa and Latin America, it is higher than the .92% share of GDP in the U.S. and 1.51% in the euro area.

China produces many agricultural goods, including corn, rice, wheat, soy, cotton, peanuts, and apples. China also produces 69% of the world’s nectarines and peaches, while it’s the leader in peanut, rice, and wheat production as of 2020.