China's services sector gains momentum as a 'second engine'

Editor's note: Li Rui, a special commentator for CGTN, is an assistant professor at the School of Economics, Fudan University. The article reflects the author's opinions and not necessarily the views of CGTN.

While high-tech manufacturing, whose value added jumped 14.3% in the first three quarters of 2026, is the main engine of China's economy, the services sector is its second engine, and is now carrying more of the load.

Data released by the National Bureau of Statistics on October 19 show that China's GDP grew 4.5% year on year in the third quarter, up from 4.3% in the second quarter. Services value added rose 5.2%, outpacing the secondary sector by 1.8%, and services accounted for 58.7% of GDP in the first three quarters of the year.

What stands out is how steady this engine has been. Services grew 5.2% in the first quarter, 5.1% in the second and 5.2% in the third, only slightly below the 5.4% recorded a year earlier. Momentum also built toward the end of the quarter: The Index of Services Production rose 4.8% in September, 0.7% faster than in August. What is powering this engine? Three trends stand out.

First, consumers are spending more on experiences. Retail sales of services rose 5.0% in the first three quarters with tourism and cultural, sports and leisure services growing fast. The film market has proved resilient: The summer box office climbed 4.45% to nearly 12.5 billion Chinese yuan ($1.87 billion), admissions rose 5.86% to 340 million and screenings hit a record 38.51 million, even as average ticket prices fell to their lowest summer level since 2022. The momentum has carried over into the fourth quarter. During the National Day holiday, domestic trips reached 826 million and travel spending was 738.4 billion yuan, up 6.3% and 4.3% respectively on a daily-average basis.

Second, visa-free policies are turning inbound tourism into a new growth point. From January to August, foreign tourists made 23.72 million visa-free entries into China, up 26.8% year on year and accounting for 77.6% of all entries by foreign nationals. Inbound tourist trips during the National Day holiday rose 6.5% on a daily-average basis. When foreign visitors pay for hotels, meals, trains and souvenirs in China, their spending counts as service exports. Travel service exports grew 15.3% in the first eight months.

Third, China's services are going global, and more than half of the services it sells abroad are "brain work" rather than "brawn work." In the first eight months, service exports grew 14.8%, almost four times as fast as imports, narrowing the services trade deficit by 145.1 billion yuan ($21.6 billion). Knowledge-intensive services, such as R&D, software, finance and intellectual property, made up 53.7% of service exports, while exports of personal, cultural and recreational services, which include films and TV dramas, surged 66%. China now offers the world not only goods and labor, but also code, content and creativity.

Why does this matter? The most direct answer is jobs. As incomes rise, labor typically shifts from farms to factories and then into services, a pattern economists call the Petty-Clark law. The more advanced manufacturing becomes, the fewer workers it needs per unit of output; China's production of industrial robots rose 29.1% in the first three quarters. Services, by contrast, are built around people, so on average they generate more jobs for every unit of growth.

The evidence bears this out. Between 2018 and 2023, according to the fifth national economic census, employment at firms in leasing and business services jumped 72.5%, in IT and software 51.4%, and in hotels and restaurants 26.5%, to a combined 62.59 million. In 2025, employment in food delivery, housekeeping and courier services grew by 6%, 4% and 3%, respectively, far faster than employment in the secondary sector, making them an important channel for absorbing labor nationwide. Today, more than 84 million people work in new forms of employment, from delivery riders to ride-hailing drivers, making up over a fifth of the nation's employees.

Looking ahead, as factories grow smarter, their capacity to absorb workers will narrow further. Information technology, business services, culture and tourism, and logistics will be the main destinations for new jobseekers, and they are already growing fast. In September, the production index rose 9.8% for IT services, 9.5% for leasing and business services, 5.4% for transport, storage and postal services and 5.3% for accommodation and catering, all above the services average. Combining fast growth with high job intensity, these sectors are becoming China's main reservoir of employment.

With services now delivering about two-thirds of its growth, China's economy is increasingly flying on two engines. Keeping the services engine well-tuned, by further opening up services, removing barriers to services consumption and strengthening protections for platform workers, will be key to easing employment pressure in the years ahead.

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