The manufacturing industry has lost its crown as China's economic driver to the booming service sector

China's economy grew at a rate of 7.4 percent in 2014 amidst painstaking efforts to carry out structural reform, eliminate outdated production capacity and promote innovation.

"China has surmounted tremendous pressures and challenges to realize its goal of maintaining a growth rate around 7.5 percent," said Ma Jiantang, Commissioner of the National Bureau of Statistics (NBS), noting that the growth rate was hard-won against the nation's massive economic aggregate output of 63.6 trillion yuan ($10.4 trillion).

Although the economy has shifted into low gear compared with the double-digit growth of previous years, Chinese have benefited from the low prices and efficient job creation, Ma added. According to statistics from the NBS and the Ministry of Human Resources and Social Security, China's consumer price index (CPI) rose 2 percent in 2014, and 13.2 million urban jobs were created, far exceeding the target of 10 million.

"The economic environment will remain complicated in 2015," Ma observed. "Externally, some developed economies are experiencing a recovery. Domestically, uncertainties and contradictions are interwoven. However, there are still many favorable conditions for China to maintain medium-to-high growth in 2015."

Industrialization, informatization, urbanization and agricultural modernization have laid a solid foundation for the steady growth of China's economy in 2015. As millions of people surge into urban areas, the efficiency of resources allocation will improve, hopefully creating greater market demand, the commissioner said.

Opening up and reform will continue to stimulate entrepreneurial enthusiasm, the main engine of stable growth. Reducing government intervention and facilitating market access will mobilize the 900-million workforce of labor and scientific and technical personnel to innovate and start businesses, Ma pointed out.

Quality, not quantity

As growth slows down, the focus is on elevating its quality and efficiency.

The value of annual labor productivity reached 72,313 yuan ($11,647) per capita, up 7 percent from the previous year. Energy consumption per unit of gross domestic product (GDP) was reduced by 4.8 percent, according to Ma.

"As economic structural reform advances and the growth model and resources allocation continuously improve, the slowdown seems inevitable," said Yu Yongding, an expert with the Chinese Academy of Social Sciences.

Yu offered an example. More than 20 percent of China's total steel production capacity lies idle. In Hebei Province alone, there are more than 300 steel mills. Shutting them down would lead to a GDP growth decline. But it doesn't mean the green GDP would drop.

Yu's view echoes that of Liu Kegu, former Deputy Governor of China Development Bank. Liu said in the past China fixed its eyes excessively on growth speed rather than its quality and people's livelihood. "Part of the investment to jack up GDP growth should have gone toward eliminating pollution, improving people's living standards, securing employment, or promoting health care and education," Liu said.

China's economic growth has gradually broken its excessive dependence on real estate investment, said Qu Hongbin, chief economist of HSBC for the Greater China region. The construction area of newly built homes dropped down 10.7 percent in 2014 and land purchases made by real estate developers fell by 14 percent from the previous year, according to statistics from the NBS.

Switch in growth engine

The expansion of the service industry indicates it is replacing the manufacturing industry to become the main engine of China's economic growth, said Ma.

The added value of the service industry accounted for 48.2 percent of the GDP in 2014, up 1.3 percentage points. It was also 5.6 percentage points higher than the manufacturing industry's. Moreover, the added value of the service industry grew 8.1 percent, faster than the 7.3-percent growth registered by the manufacturing industry and the primary industry's 4.1-percent growth, according to NBS statistics.

Qu said since the service industry creates jobs best, such an adjustment in the industrial structure will stabilize employment and facilitate economic reforms.

While traditional industries, heavy chemical and bulk raw material industries struggled with difficulties in 2014, emerging industries like mobile Internet gained momentum, indicating China's economy is aggressively edging up along the value chain, said Ma.

"The service industry as well as Internet-related emerging industries and hi-tech industries are growing. High energy-consuming industries are also growing, just at a slower pace," Ma added.

According to NBS statistics, the hi-tech manufacturing industry expanded 12.3 percent in 2014, 4 percentage points faster than the growth of industrial enterprises' value-added output. The equipment manufacturing industry grew 10.5 percent, 2.2 percentage points faster than the growth of industrial enterprises' value-added output. Online retail sales increased by 49.7 percent, and the volume of express delivery increased by a whopping 51.9 percent.

While the development of hi-tech industries outpaced that of traditional industries, exports of hi-tech products such as high-speed rails also shot up last year, said Li Kang, chief economist of Xiangcai Securities.

Ma said to sustain the structural adjustment, enterprises need to constantly improve their product structure and renovate technologies. The market should be further freed up to play a decisive role in allocating resources and the government should adopt structural and industrial policies as well as macro-control policies. "The inexhaustible impetus of stable growth consists of entrepreneurial innovation," Ma commented.