China seeks structural reforms to boost private investment and service sector

China is facing significant structural challenges in its transition toward high-quality economic development, specifically regarding private capital mobilization and service sector imbalances. Economic planners are seeking systemic reforms to bridge the gap in private investment, as private enterprises currently face higher borrowing costs and stricter credit controls than state-owned entities. Furthermore, private investors struggle to secure equitable access to essential production factors such as land, energy, technology, and data.

Economist Lu Ming has identified a critical imbalance between the manufacturing and service sectors as a primary drag on growth. While manufacturing faces saturated demand and inefficient competition, the service sector—including healthcare, education, and elder care—remains underdeveloped. This disparity is attributed to several factors, including a lower value-added tax rate for services compared to manufacturing, a lending system that favors collateral-heavy industries, and regulatory barriers to private investment in services.

As GDP growth slows, experts suggest that current growth is heavily concentrated in capital-intensive sectors like AI and electric vehicles, which provide limited employment gains compared to the broader service economy.