Service shines despite slowing FDI inflows

China's service industry is gaining more foreign investors' attention as their new business growth engine amid a slowdown in foreign direct investment in the world's second-largest economy.

In a report on China's economic globalization released recently by accounting firm KPMG, the financial service industry was the biggest recipient of foreign direct investment in China in the first half of the year.

The signing ceremony at the China Beijing International Fair for Trade in Services in May. The country aims to invest in, develop, and promote its service outsourcing business to further tap into international markets to boost the industry's share of foreign trade. [Photo/China Daily]

Investment value in the financial service industry reached $2.9 billion for disclosed deals, accounting for 28 percent of 126 foreign investors' transactions in China in the first six months, according to the report.

"China's use of foreign direct investment has been upgraded, and in some service sectors, FDI has kept stable growth," said Ministry of Commerce spokesman Shen Danyang.

As the largest deal among foreign companies' acquisitions in the Chinese market in the first half of the year, Singapore sovereign wealth fund Temasek TEM UL bought $2.3 billion worth of Industrial and Commercial Bank of China's Hong Kong-listed shares from Goldman Sachs.

As a result of the deal, Temasek had a 1.3 percent stake in the ICBC, the world's largest bank by market capitalization.

Temasek already had stakes in China Construction Bank and Bank of China before investing in ICBC.

Industry analysts said foreign investors have seen the business potential of China's banking industry, especially those State-owned banks, which are pivotal to China's economic growth.

Data from the ministry shows that foreign investment in the service industry surpassed that in manufacturing in terms of value.

The ministry said that, in the first seven months of this year, the capital inflow to the service industry was $30.79 billion and $30.13 billion to the manufacturing industry.

In the first half of the year, foreign investment in finance increased 73.3 percent, while it rose by 62.6 percent in IT services and by 17.8 percent in technical services. Average FDI growth for other service sectors was around 6.6 percent, compared with a decline of 3 percent in China's overall FDI.

Commerce Minister Chen Deming said that the world economy has entered the age of the service economy.

"China's 12th Five-Year Plan (2011-15) gives strategic priority to boosting the service industry for industrial restructuring and upgrading. With the repercussions of the international economic crisis still around, the development of the service industry and trade has become a crucial driving force for global economic rebalancing and sustainable growth," Chen said.

Over the next five years, China will increase the service industry's share of the country's GDP from 43 percent to 47 percent, according to the ministry.

Accounting for 70 percent of the world economic aggregate, the service sector now makes up nearly 80 percent of the world's major advanced economies.