The Effects of the Shift to the Service Economy on Inter-Industry Linkages in China

he service industries of China have grown continuously with the development of the Chinese economy as a whole since the adoption of the reform and opening up policies of 1978. The share of service industries of the GDP increased by more than double, from 24.6 percent in 1978 to 52.2 percent in 2018, and exceeded the share of manufacturing industries in 2012. The share of the service industries of total employment also increased from 12.2 percent to 46.3 percent during the same period. However, despite the rise of service industries’ share of the GDP and total employment, the comparison with advanced countries or the other BRICS countries shows that the service orientation of the Chinese economy still remains at a low level. The shift to the service economy brings out various qualitative and structural changes within industries via changes in the interrelationship between services and other sectors - especially manufacturing - in addition to increasing the service industries’ share of value-added or total employment. This paper analyzes how the shift to the service economy in China accelerated in the 2000s and brought structural changes to Chinese industries via the change of inter-industry linkages. It also calculates the aggregate linkage measure which shows the effects of shifting to the service economy on the strength of the production inducement effect of the whole industry, and examine the role of imported intermediate inputs in enhancing the level of aggregate linkages. The paper also analyzes the relationship between the degree of the shift to the service economy and the level of aggregate linkages by carrying out a cross-country comparison.