China Top Industries
In recent decades, China’s economic ascent has solidified its status as a major global economic power. As the world’s second-largest economy, China has been widely recognized for its manufacturing capabilities and its significant role in global trade. Over time, China’s economic landscape has undergone a notable shift from an investment driven growth model to one centred around consumers and services. Moreover, China aims to establish itself as a leader in digital and innovative technologies.
As China undergoes these transformative changes, foreign investors seeking business opportunities in the country must be agile and responsive. A comprehensive understanding of the key industries and sectors propelling China’s economic growth is critical for those considering foreign investment and market entry. This involves staying attuned to changing industry trends, government policies and market regulations. In this article, we will delve into the main sectors driving China’s economic growth, with a particular focus on the relevant considerations leading into the new year.
Key Chinese Industries to Watch For in 2024
China’s largest economic sector is its services sector, accounting for 52.8% of the country’s GDP in 2022. China’s services sector encompasses numerous sub-industries such as professional services, healthcare, entertainment, information services and the arts.
Since 2015, the services sector has constituted more than half of China’s GDP. Two purchasing manager’s indices are used to provide an accurate gauge of China’s service sector performance, with a figure above 50 indicating expansionary growth. Based on the PMI Index for the services industry in October, a 50.1 % figure, indicated that expansion was maintained. (For further details on China’s latest economic performance in Q3, please refer to our quarterly results article.)
In the first three quarters of 2023, retail sales of consumer goods saw a robust year-on-year growth of 6.8%, with total retail sales of consumer goods experiencing a 5.5% year-on-year increase in September. As per capita wealth levels rise and China’s economy shifts towards a more consumption-driven model, the services sector is poised to remain a key driver of the country’s economic landscape.
Industrial and Manufacturing Sector
China’s industrial and manufacturing sector, comprising 39.9% of the country’s GDP in 2022, is the second largest among major industries. Despite having experienced a gradual decline in industrial output levels in recent years, the industrial sector, which has historically made a substantial contribution to the domestic economy, continues to be a vital sector.
Widely recognized as “the world’s factory,” China has traditionally dominated global manufacturing, benefiting from factors such as low labour costs, a skilled workforce, and reliable infrastructure. However, the manufacturing landscape has undergone changes, with regions now emphasizing value-oriented production and a shift away from labour-intensive manufacturing towards inland areas.
Notably, companies now choose to manufacture in China to meet the demands of the growing domestic market, moving away from viewing the country solely as a low-cost option for export production. Moreover, the government is actively promoting industry development through the extension of tax incentives and supportive policies.
Despite its considerable success, China’s manufacturing sector faces challenges, particularly rising labour costs.
To address these challenges, the Chinese government has launched the “Made in China 2025” program, a comprehensive initiative aiming to transform the country into a global high-tech manufacturing powerhouse.
Furthermore, the government has implemented various policies and initiatives, including financial support and tax incentives for high-tech manufacturers, promotion of new technologies and industrial clusters, and strengthening intellectual property protections, to achieve these goals. In the future, China’s industrial and manufacturing industry will remain a driving force in the nation’s economic development.
Download our China Tax Guide for more information on the preferential tax policies aimed at supporting manufacturing companies and other small-scale enterprises
The Technology Sector
China’s technology sector plays a dual role in contributing to both the country’s services, and manufacturing industries, making it a particular area of significance. The commitment to high-quality development and the rapid modernization of China’s technological initiatives is evident in the establishment of high-tech industrial zones and increased investment in technology research.
The swift growth of the digital economy, coupled with state encouragement of the private sector, positions China as a global leader in technological advancements. As China aims to rapidly advance innovation in next-gen technologies like Artificial Intelligence (AI), the technology sector is anticipated to witness substantial overall growth. This growth is expected to manifest in increased total output, employment opportunities, and added value to the industry.
Recognizing the pivotal role of the digital economy in driving GDP growth, the Chinese government has implemented initiatives to accelerate its expansion. The 14th Five-Year Plan on Digital Economy Development, one of the latest initiatives, outlines well-thought-out objectives in crucial areas. Designed to bolster China’s global economic leadership, the plan prioritizes blockchain, 6G internet, sensors, integrated circuits, and semiconductor technology. These areas are crucial for shaping digital infrastructure and securing China’s position as one of the world’s largest digital economies.
Alongside professional services and manufacturing, agriculture is the third main pillar of China’s economy, with 7.3% total GDP contribution in 2022.
With a rich history deeply rooted in farming and agriculture, China has consistently played a crucial role as a producer, consumer, and exporter of agricultural products. Emphasizing rural development and ensuring food security for its population, the government positions the agricultural sector as a key growth industry in 2024.
In recent years, China’s agricultural sector has strategically shifted towards promoting green development. This includes establishing over 102 bases for organic products and standardizing more than 748 production bases for organic food materials, aligning with the broader goals of sustainable and environmentally friendly practices.
China’s Negative List and Encouraged Catalogue of Industries for Foreign Investment
The Negative List serves as a guideline, regulating industry sectors where foreign investment is either prohibited or subject to potential restrictions. On March 25, 2022, China updated its Negative List, reducing measures that restrict foreign investment in the country. These additional relaxations are attributed to China’s enduring commitment to reform and open up the foreign investment environment.
Notably, China has been progressively shortening its negative list, removing restrictions for foreign investors entering the manufacturing industry. Furthermore, the Catalogue of Industries for Encouraged Foreign Investment is comprised over 1,400 items that detail the types of investments and industries benefiting from the country’s improved investment policies. Key sectors for foreign investment include high-tech manufacturing, e-commerce, new energy vehicles, and healthcare.
Other Investment Opportunities
Apart from China’s primary industries fuelling economic growth, here are additional noteworthy sectors that will continue to be integral to the country’s development in the coming year.
China’s e-commerce industry is the world’s largest and is responsible for facilitating nearly half of all purchases made online. Total online retail transactions is forecasted to surpass USD 3 trillion by 2024. Home to some of the world’s largest online marketplaces and e-commerce platforms including Taobao and JD, the Chinese e-commerce market remains at the forefront of global retail sales. In 2022, over a quarter of all retail sales in China were conducted online, and the penetration rate for online shopping for Chinese consumers had surpassed 80 percent. Understanding how the e-commerce industry works is immensely valuable for foreign investors looking to enter the Chinese market.
New Energy Vehicles
China leads the world in the new energy vehicle (NEV) sector, a crucial component of the global automotive industry. The substantial growth of 5.26 million vehicles in 2022 reflects widespread adoption and acceptance of NEVs in the country. Additionally, a notable year-on-year increase of 40.34 percent in new NEV enterprises has contributed to sectoral development.
The Chinese government actively supports the growth of the NEV sector through initiatives outlined in its New Energy Vehicle Industry Development Plan spanning from 2021 to 2035. This comprehensive plan aims to create a favourable environment for the industry’s expansion.
Foreign enterprises operating in this sector stand to benefit from China’s well-established supply chain systems, government incentives, and a thriving environment for innovative technologies.
The healthcare industry in China has experienced remarkable growth, driven by factors such as shifting demographics, technological advancements, and rising income levels. The government has actively addressed the increasing demand for healthcare services, emphasizing higher quality care for its citizens. This commitment is evident through substantial investments in healthcare infrastructure and the establishment of a comprehensive insurance system.
A significant RMB 2.25 trillion has been allocated by the government for healthcare development, with a targeted industry size increase of 50% by 2030. This strategic investment reflects the nation’s dedication to enhancing its healthcare capabilities.
The economic outlook for China’s healthcare industry presents abundant opportunities for foreign investors, particularly in response to the evolving healthcare demands in the country.
It is crucial for foreign investors to seize opportunities in China’s leading industries in the upcoming year, given the sustained growth in the nation’s key sectors. The large consumer demand and other crucial metrics underscore significant potential for investors looking to capitalize on lucrative opportunities.
In the face of challenges presented by saturated markets and geopolitical uncertainties, foreign investors need to remain attuned to industry trends and information. The ability to adapt and make informed decisions in this dynamic environment is important for navigating potential risks and seizing emerging opportunities. Aligning their investment strategies with the growth trajectories of China’s dominant industries allows investors to position themselves advantageously in a competitive landscape.
Drawing on more than a decade of experience supporting foreign enterprises in China, MSA serves as a valuable resource for companies seeking to navigate the complexities of the Chinese business landscape. Our commitment is to ensure that your business stays in compliance with both local and national administrative regulations. Get in touch with us immediately to learn more about our services.
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