By looking at the growth performance of the principal service sectors in Asia, particularly in India and China, one can highlight expanding business and investment opportunities in that region, resulting from the dramatic economic transformations taking place in those nations.

The goods sector output (value-added in inflation-adjusted 1997 US$ basis) in Asia grew at an annual average rate of 6.2 % from 2003 to 2006, while the service sector lagged at 4.0%. Growth in service sector output in North America and Western Europe was lower, but closer to the growth in those regions’ good sector output of 3.6% and 2.1%, respectively. In contrast, the service sector in China grew at a steep 12.4%, while that in India rose at an aggressive 7.9%.

Asia-Pacific accounts for almost 26% (6.2 trillion 1997 US$) of the global service sector output of 23.9 trillion 19’97 US$. Japan, at present, accounts for 54% of Asia’s total service sector output, having fallen from 70% in the early 1990s. During the same period, service sector output in China has climbed from a mere 163 billion 19 97US$ in 1990 to above 850 billion 1997 US$ by 2006, with its share in Asian output rising from 4.5% to 13.3%.

Service sector share of GDP in China has risen from a measly 24% in 1980 to 35% by 2006,;still far short of even the Asian average. The opening-up of the economy in the recent past has led to dramatic changes in the business climate. Trade patterns and investment incentives have primarily aided goods sector activities, namely parts manufacturing and assembly, processing and packaging related to electronics, machinery and equipment parts, and imports of bulk items for value-added re-exports. Consequently, a larger share of the recent surge in activities has raised the output of the goods sectors, as well as the construction and utilities sectors.

As these production activities continue to raise domestic income levels, promote urbanization, and reduce rural-urban inequalities, the various services that are needed to support the growing business, trade, and consumption activities are expected to accelerate.

The case of India is somewhat different. Service sector output in India is much more modest in size growing from 110.8 billion in 1990 to 361 billion in 2006. India’s share in Asia’s service sector output now represents 4.5%, up from 3.1% in 1990. However, relative to its own GDP, the share has grown from 40% in 1980 to 55% by 2005, with significant acceleration in the recent years.

This aggressive growth reflects the surge in computing, communications, and business activities outsourced from the west, much of it ending up in India in view of their language, education, and infrastructure advantages relative to other low-cost countries. As in the case of China, the resulting income growth and rapid urbanization prompted by growing non-farm employment opportunities will induce an even stronger growth of the service sectors in the coming years.

The strong growth prospects for several of the service sectors, particularly real estate, trade, business-related services, and education are reflected in the growth of CapEx (Capital investments) in the last few years.

Contact: Raul Dary

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