Zhu Min, vice chairman of the China Center for International Economic Exchanges and former deputy managing director of the International Monetary Fund (IMF), speaks at a panel discussion themed on "Real Economy: the Way Forward" during the Boao Forum for Asia (BFA) Annual Conference 2024 in Boao, south China's Hainan Province, March 28, 2024. (Xinhua/Tang Rufeng)

China, the world's second-largest economy and a manufacturing giant, has the potential and is well on its track to become a major player in the service sector, a former senior official of the International Monetary Fund (IMF) told Xinhua.

The future prospect for China's manufacturing, which accounts for over 30 percent of the global total, lies in digitalization and technicalization, and this is where industrial services can step in, said Zhu Min, former deputy managing director of the IMF.

"There is so much to be done," Zhu said, highlighting areas with great potential, such as software development, as the country seeks to make its manufacturing industry smarter.

China's technological progress in mobile networks and artificial intelligence, as well as its institutional and market strengths, can all contribute to the development of the service sector and be a strong boost for service consumption, according to Zhu.

China's economy is increasingly driven by consumption and services after China's per capita GDP surpassed 12,000 U.S. dollars. This shift, characterized by a growing service sector and a declining manufacturing share, reflects a global trend, Zhu noted.

On the consumer front, there is much room for service consumption expansion, he said, adding that consumer spending on goods was mainly driven by real estate in the past, but now the demand for services like education, entertainment, tourism, and culture is on the rise as China moves towards the high-income stage.

According to a tone-setting meeting on priorities for the second half of 2024 in late July, service consumption will be a major driver in the expansion and upgrading of consumption.

Official data show that in the first six months of this year, China's retail sales of services increased 7.5 percent from a year ago, 4.3 percentage points higher than that of goods, while service consumption accounted for 45.6 percent of the country's per capita consumer spending.

"China's next round of reform priorities, including increasing national income levels with reasonable distribution policies, continuing the urbanization process, as well as improving social insurance, education and medical systems, promise greater demand for service consumption," Zhu said.

A recent State Council guideline has set out 20 key tasks for developing service consumption, including tapping the potential of services like hospitality, domestic services, elderly care and tourism, fostering new types of consumption and consumption scenarios, relaxing market access, and providing more policy support for service consumption.

However, if the share of the service sector grows but the productivity of this sector stagnates, the average GDP growth is destined to slow down, Zhu said, noting that the key challenge for sustaining China's growth is to enhance labor productivity in the service sector while expanding service consumption.

He believes that when China builds itself into a service powerhouse with a world-class and competitive service industry, not just a manufacturing giant, the Chinese economy will sustain steady growth into the future.

Looking forward, Zhu said the greatest risks faced by the Chinese economy for the rest of 2024 would come from external uncertainties, in particular fluctuations in the global financial markets and geopolitical changes.

"The recent U.S. stock market fluctuations were only early corrections," he said, noting that the market's stability hinges on the Federal Reserve's interest rate decisions and the strength of the U.S. economy.

Externally, he said, the global economy is likely to experience low growth over the next five years, while geopolitical tensions and an aging workforce are expected to further reduce efficiency and productivity.

"The above factors could all weigh on China's foreign trade," Zhu said, warning that maintaining trade growth would be one of the key challenges for the country in the second half of this year.