Industries & Sectors of the Chinese Economy: Classification Overview

Industry Sectors China: Sector Classification

The China primary sector involves cultivation and acquiring raw materials. Common examples are oil extraction, farming and fishing. The China secondary sector relates to the manufacturing and assembly process. Raw materials are transformed into components and assembled in the China secondary sector. Finally, there is the China tertiary sector which relates to commercial services like insurance, sales and teaching. These Chinese primary, secondary, and tertiary industries sectors support the production and distribution of goods.

Primary Sector in China

China has the world’s largest primary sector (currently estimated at $1.8 trillion). China’s primary sector represents 9% of China’s total GDP and also produces 20% of the world’s food. Efficiency in this industry is low however, with almost 30% of the Chinese workforce being employed in this sector. Ideally, mechanization and modernization will improve this to a point where the industry sectors in China are  in line with its contribution to the GDP.

Through joining the World Trade Organization (WTO) in 2001, many tariffs that were placed on China’s agricultural exports were reduced or eliminated completely. This change in China’s primary industry opened up international markets to China’s primary sector, allowing for an increase in exports.

Secondary Sector in China

In the Western world, China is most famous for its secondary sector (40.5% of GDP and 30% of labor force). The availability of Chinese imports particularly in the electronic market has seen strong growth in the country’s economy. China has been able to capitalize on globalization, which has simplified the procurement and logistics of goods destined for international trade.

Substantial demand for exports, coupled with China’s government decreasing regulations, make it relatively easy for foreign investment in China’s secondary sector.

 

 Industry sectors China: Aerial view secondary industry factory
A common view on the often huge plants of the secondary industry in China.

 

Tertiary Sector in China

Many Western countries rely heavily on services. China is increasingly growing in this way as it evolves from an export-oriented economy into a consumption-driven economy. With more Chinese individuals having higher purchasing power, products that were once destined for the export market are now distributed locally.

By shifting to a consumption-driven economy, China’s independence on the service sector will grow. In contrast to the export-driven growth, profits can be directly reinvested in the country.

The growing middle class is driving growth in the service industry sector in China. Although this industry sector in China sector is much smaller than those of first-world countries it still makes up 50.5% of the country’s GDP and employs 40% of the Chinese workforce.

 

Industry Sectors China: Industry Classifications

The 3 industry sectors in China mentioned above are an extremely broad overview of different branches of economic activity. They cover every possible activity, but within each industry sector in China, they can be further broken down and several methods used for industry classification exist. Since a very narrow distinction leads to very long tables, the basic explanations about different industry classifications of the industry sectors in China can be found below. Just enter the one that you are interested in with prefix China into Google and you will find even more information. Together with the “Incoterms” these classification concepts are relatively frequently used jargon in trade.

 

Industry sectors China: Industry classification
All industries can be broken down further in several different ways.

 

Standard Industrial Classification (SIC)

The SIC relates specifically to classifying  rather than products, and gives each industry a four-digit code. The first two digits identify the broad industry, the third digit shows the industry category, and the fourth one identifies the specific industry sector in China.

For example, “25-2-1” (written 2521) shows the broad group as furniture and fixtures. The third digit relates to office furniture and the final one completes the code to mean wood office furniture. To access a full list, click here.

Originally developed by the United States, it is currently used in many countries across the globe including China. The purpose of the SIC is to allow for easy comparing of metrics across different industry sectors in China.

This method is slightly outdated as it fails to get updated quick enough to meet the emerging trend of the rise of service companies and only really accurately reflects manufacturing companies. For China, it is still applicable as it is a heavy manufacturing country.

North American Industry Classification System (NAICS)

Developed as a collaborative effort between Mexico, Canada and the US in 1997 this classification supplanted SIC in the United States, except for a few industries that still use SIC. This classification is also designed to be compatible with the United Nation’s ISIC system.

This system, also used to classify industry sectors in China, uses a 5 or 6 digit code to differentiate between China’s primary, secondary and tertiary industries. Digit one and two signifies the general business sector, with the third signifying the subsector. The 4th digit designates the industry group, while digit 5 designates the NAICS industries. The last digit designates national industries. More information can be found here.

International Standard Industrial Classification of All Economic Activities (ISIC)

ISIC was created by the United Nations with its purpose to classify data according to economic activity in the areas of production, GDP, employment, and other statistical areas. It consists of a 4-digit code with the first 2 digits relating to the division, the 3rd digit identifying the group and the final digit identifying the class.

If the code is 1393, it would represent the following hierarchy:

Manufacturing >manufacture of textiles> manufacture of carpets and rugs

A full list of ISIC classifications can be found here.

Global Industry Classification Standard (GICS)

GICS was created for use by the global financial community, categorizes all major publicly listed companies based on 10 sectors, 24 industry groups, 67 industries and 156 sub-industries. A full code is 8 digits in length with the first two digits being sector, the next digits being industry group, then next 2 being industry and the final 2 digits being sub-industry.

For example, the code 25301010 means the sector is consumer discretionary, the industry group is consumer services, the industry is hotels, restaurants & leisure, and finally, the sub-industry is casinos and gaming. A full list can be found here.

Statistical Classification of Economic Activities in the European Community (NACE)

This classification is the industry standard in Europe. Created from the 4th revision of ISIC, this classification is maintained by Eurostat. As with the product classification CPA, this classification also makes use of a 6 alphanumerical coding system. It consists out of sections (identified by an alphabetical character), divisions (identified by the second numerical group), groups (identified by the third numerical group) and classes (identified by the fourth numerical group). A full list of all the relevant categories is available here.

About the author

Jan has an intimate knowledge of strategic planning and operations management he acquired in the German military and in academia. Having graduated from Peking University, he possesses an acute knowledge of the Chinese economy. Jan routinely consults on short and medium term company strategy and is currently working on the company’s 3 year plan.

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