CHINA - China's service sector will drive office market growth outside the country's gateway cities in urban areas that have seen "exponential improvement" over the past decade, according to a report by Hong Kong-based private equity firm Moonbridge Capital.

The report claims service-sector growth, reflecting that in other Asian economies, will stimulate the expansion and upgrading of China's office stock with an increase of 9m office jobs by the end of the decade.

China's service industries increased from 13% of the total workforce in 1980 to 24% in 2010.

Moonbridge's analysts reckon they will account for 47% of the workforce by 2025.

Their estimates for service-sector growth are based on forecasts for a doubling of per capita income over the next decade - a forecast they describe as "attainable".

In a report that contains significant numbers of predicates, its authors base their productivity forecasts on greater concentration from "formless large agglomerations of people into functional urban areas" capable of attracting human capital, infrastructure upgrades and more foreign direct investment. 

Markets targeted as potential growth centres include Chengdu, based on strong economic fundamentals and limited supply, and Tianjin because of its strong potential demand base.

However, the report acknowledged the 'transformation' would not happen over a couple of quarters.

"It is sensible, based on development in other countries, to expect this level of recalibration in the economy to take 25 years," they said.

They likewise acknowledged that the increase in demand for office would "neither be linear nor neatly apportioned into even annual distributions".

Moreover, the report warned that weak European export markets and domestic political turbulence during the leadership transition were potential threats to Chinese efforts to stimulate domestic growth. 
However, its authors pointed to rising wages as an indicator of future domestic consumption and with it reduced dependence on exports to troubled European markets.

"Rather than focusing on near-term dynamics, it's critical to maintain sight of the potential for medium-term structural transformation in the economy," said the report.

"Our core conviction remains that China is on the wealth growth path demonstrated by Japan and South Korea."