Wanted: A New Miracle

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Migrant construction workers like these Beijing commuters are becoming casualties of China's economic slowdown

Ian Teh / Panos

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This is unremarkable, of course. It's what advertising agencies do. What is remarkable is how few Chinese companies like Rayken exist. China's service industry is shockingly underdeveloped for an economy that will likely be the world's largest by 2050. In a country of 1.3 billion people, only about 5 million work in health care, just 2 million in jobs related to the environment and conservation, and only 4 million in banking and insurance.

This needs to change--and it has started to. Beijing plans to increase the service sector's overall contribution to the economy by three percentage points by 2010--to 43% of GDP--and by 10 points a decade from now. Earlier this year, the government ordered state-owned banks to step up lending to service-sector companies. Beijing has also begun to break down barriers that have prevented foreign companies from investing in highly regulated areas of the economy. Health care, which should generate an enormous number of jobs as China's population ages rapidly, is one example. Taiwanese companies have already invested in 14 hospitals across the country--and see that as only the beginning. Says Michael Tseng, an executive at Taiwan's BenQ Corp., which runs a hospital in Nanjing: "China was the world's factory, but manufacturing is yesterday's story now."

How quickly a new story can be written may depend largely upon the Chinese becoming a whole lot better at consuming more and saving less. But while the authoritarian government continues to pull the strings in many parts of society, Beijing cannot simply order citizens to buy Gucci for the good of the country and the world. The Chinese save much of what they earn because the government has yet to provide the web of social services available in other countries. China's national social-security system and government health-insurance schemes are drastically underfunded; moreover, they don't cover the millions of migrant workers who helped power the country to high growth but are now being laid off.

The lack of safety nets demands frugality, as does Chinese cultural tradition that all but dictates that working children care for their parents as they age. Even ad-agency chief Huang takes care of her parents. This requires the Chinese to accumulate very large nest eggs, particularly because China's long-standing one-child policy means there is often just one offspring caring for two parents.

The government is committed to freeing up discretionary spending. Earlier this year, Beijing vowed to double the size of the national social-security fund, to $147 billion by 2010, and to steadily increase it thereafter. "This," says CASS economist Wang, "is like turning around an ocean liner. But at least we've started to turn."

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