The China`s economics

9. Services

China's services output ranks fifth worldwide, and high power and telecom density has ensured that it has remained on a high-growth trajectory in the long-term. In 2005 the services sector produced 40.3% of China's annual GDP, second only to manufacturing. However, its proportion of GDP is still low compared with the ratio in more developed countries, and the agricultural sector still employs a larger workforce. Prior to the onset of economic reforms in 1978, China's services sector was characterized by state-operated shops, rationing, and regulated prices. With reform came private markets and individual entrepreneurs and a commercial sector. The wholesale and retail trade has expanded quickly, with urban areas now having many shopping malls, retail shops, restaurant chains and hotels. Public administration has still remained a main component of the service sector, while tourism has become a significant factor in employment and as a source of foreign exchange. The potential for growing services in China through franchising is huge.

9.1 Tourism

China's tourism industry is one of the fastest-growing industries in the national economy and is also one of the industries with a very distinct global competitive edge. The total revenue of China's tourism industry reached USD 67.3 billion in 2002, accounting for 5.44% of the GDP. It dropped, largely due to SARS, to USD 59 billion in 2003. Nevertheless, for areas rich in tourism resources, tourism has become the main source of tax revenue and the key industry for economic development.

The total number of inbound tourists was 91.66 million in 2003, and that of tourists staying overnight was 32.7 million, about 10 times of the number in 1980. International tourism receipts were USD 17.4 billion in 2003. China's ranking for both the overnight tourist arrivals and tourism receipts were among the world's top five in 2003. However, there is unlikely to be a big increase in the inbound tourism market.

China's domestic tourism market makes up more than 90% of the country's tourism traffic, and contributes more than 70% of total tourism revenue. In 2002, domestic tourists reached 878 million and tourism revenue was USD 46.9 billion. The five-days-per-week and long vacation schemes have increased leisure time for the Chinese people and spurred market demand in domestic tourism and led to its prosperity.

A large middle class population with strong consumption power is emerging in China, especially in major cities. China's outbound tourists reached 20.22 million in 2003, overtaking Japan for the first time. Currently there are 65 countries/areas open to Chinese tour groups. Putting aside the threat of SARS and other unexpected events, based on the current economic growth situation and the social development of China, China's outbound tourism is poised to achieve a new growth peak.

Driven by the flourishing tourism industry, China's tourist hotel sector is expanding rapidly. At the end of 2003, China had a total of 10,093 tourist hotels and more than 820,000 rooms. 773 of these tourist hotels were foreign-funded. The number of foreign-funded (inclusive of Hong Kong, Macau and Taiwan investments) four - and five-star tourist hotels made up 26% and 30.02% of the national total, respectively.

In 2003, there were a total of 11,522 travel agencies in China, among which, 1,349 were international ones and 10,203 were domestic ones. While overall tourism market concentration rose, there was a drop in the market position of the traditional three key travel agencies. As competition heightened, China's tourism industry on the whole, had begun to start earning low profits, even while it was expanding its scale of operations.

Currently, there are approximately 15,000 natural, cultural and man-made places of attraction that are above county level. Presently, Hong Kong investors are the main participants in the establishment of tourist attractions in China. In 2001, Sichuan became the first province to propose renting out the operation rights of 10 scenic areas to foreign investors.

According to the plan by China National Tourism Administration, the number of inbound tourists, foreign exchange earnings from tourism and the domestic market size are targeted to have an annual growth of 4%, 8% and 8%, respectively, in the next five to ten years. It is also forecast by the WTO that China's tourism industry will take up to 8.6% of world market share to become the world's top tourism industry by 2020.

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