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China’s concentrated pockets of growth

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The reality is a bit more differentiated.Photograph by Getty Images/fStop

China’s slow shift from a smokestack industrial economy to one driven by a Western-like services sector is creating concentrated regional pockets of winner and losers in the country.

Over half of China’s GDP growth, 6.9% in the third quarter, for example, came from just seven provinces.

The specific province data will be released in a month, but in the meantime HSBC economists John Zhu and Qu Hongbin have highlighted just how concentrated growth has become in China. In the first half of the year, 31% of real GDP growth came from Guangdong, Jiangsu and Shandong provinces, the economists said today, noting that the three provinces comprise only 21% of China’s population.

What’s happening in those areas is what could happen across the country over the next decade. After a massive government stimulus in 2008 that disproportionately helped big state-owned firms, laborers are capturing more of the regions’ total income, an effect of their jobs transitioning to higher-skilled industries. They are using their newfound wealth to buy more stuff.

Chinese workers are back to earning a bigger share of total GDP.

But China still has a long way to go. Services accounted for just over 50% of GDP in the first three quarters of 2015: “that is still below the average for upper-middle income economies (57%) and high income economies (74%), according to World Bank classification and data,” the HSBC economists write.

Quarterly growth may have officially fallen to a six-year low, according to the GDP release this week, but services, and the concentrated growth they bring, are helping some areas in China thrive.