In the first six months of the year, Shanghai's service sector grew 9.6 percent, contributing 61.7 percent of the city's GDP. [Photo / Provided to China Daily]

City's economic transformation seen as source of its success

The continued expansion of the service sector and renewed attraction of foreign investment helped Shanghai's economic performance in the first half of the year to beat the national average.

The city's gross domestic product from January to June grew 7.7 percent year-on-year, exceeding the national average by 0.1 of a percentage point, the municipal government announced on Tuesday.

The better-than-anticipated economic output suggested the business hub's attempts toward a more value-added economy have started to pay dividends, experts said. The reading also marked the first economic rebound since last year, when Shanghai's growth eased to 7.5 percent, missing the national target.

Looking further ahead, economists predict an increasing share of growth impetus will come from the free trade zone, which, they said, will help to redefine Shanghai's position as a services center of international stature.

In the first six months of the year, the service sector, which encompasses property, finance, telecommunications and tourism, outpaced that of the agricultural and industrial sectors to grow at 9.6 percent, claiming 61.7 percent of the city's GDP.

The figure showed a continued expansion by 1.3 percentage points from the same time last year, reflecting the increasing pace of its transformation into a service-oriented economy, said Yan Jun, chief economist at Shanghai Municipal Statistics Bureau.

The surge was led by fixed-asset investment from the service sector, such as commercial rents, which advanced by 16.7 percent year-on-year, taking up the lion's share of overall input.

The sector also gained the most traction in foreign direct investment, where $10 billion worth of contracted foreign capital was garnered, up 10.1 percent. The amount was equal to 88 percent of all investment drawn in during the period.

The financial sector also posted robust annual growth of 14.7 percent. For instance, transaction volumes of shares traded at the Shanghai Stock Exchange grew by 14.3 percent year-on-year

But overall economic growth was snagged by a deeper slowdown in trade and manufacturing, at a time when global economic uncertainty lingers.

Trade volumes shrank 3.7 percent, with a drop in exports by 4.3 percent and imports by 3.2 percent.

A 1.9 percent ebb in the producer price index, a key gauge indicating the health of the manufacturing sector, pointed to a contraction in demand.

A pickup in the pace of growth indicates the transformation toward a service-oriented economy has borne fruit, said Sun Lijian, professor of economics at Fudan University in Shanghai.

"We are starting to see new areas of growth that may offset the loss from the restructuring process, which is characterized by the shift from a manufacturing-based, export-led economy, to one driven by domestic consumption and the development of services," he said.

Yan believes the forthcoming free trade zone will further beef up growth and catapult Shanghai to the forefront of global trade and financial hubs.

"Instead of simply policy incentives, the zone is an 'institutional arrangement' for Shanghai to carry out various trade and financial experiments," he said.

"I think Shanghai has been one of the slowest growing cities in China for a while. The free trade zone will definitely boost its growth in the long run," said Michael McDonough, a senior economist at Bloomberg LP.

But he also predicted the next six months will see the government accelerate investment projects, among other efforts to defend the GDP growth target it has set.