A thorough restructuring of the world economy is unavoidable in the post-crisis era as it is expected to encounter rising insufficiency in external demand.

China has become the world's third largest economy by tying its high-paced growth to exports and investment for three decades. But now it is undergoing a crucial transformation - from a manufacturing powerhouse to a consumer society. Also, having experienced material abundance during the 30 years of reform and opening up, more and more Chinese have begun shifting from private products and a material-dominated lifestyle to pursing public products and all-round personal development.

Such profound changes make it necessary for China to push forward a series of sweeping political, economic and social reforms to better adapt to the changed conditions at home and abroad. And for that, it has to change its economic growth model in order to take the road to the much-needed sustainable development.

The central government has stated clearly in the 11th Five-Year Plan (2006-10) that future policies would be aimed mainly at expanding domestic - especially consumer - demand, adjusting the economic structure and promoting the transformation of its economic growth model. Strengthening the country's innovative capability and improving people's living conditions are also among the top priorities of the plan.

But even as the last year of the plan period approaches, the country's investment to GDP ratio remains high, while the consumption to GDP ratio is still declining. Worse, the country's dependence on foreign trade for its growth has been increasing and its energy consumption per unit of GDP has not been substantially lowered.

This has happened because the government-dominated economic growth model has not weakened under the changed conditions either at home or abroad - instead it has strengthened because of the global economic downturn.

The country's GDP-dominated development model has remained unchanged, as is indicated by the ever-growing enthusiasm among local governments to increase investment and launch heavy chemical and industrial projects with an eye on boosting the local economies.

At this critical juncture, China should launch a series of reforms to promote and expedite the long-overdue transformation of its economic development model. And it should first implement some essential measures to develop itself into a consumption-driven economy.

Owing to a variety of factors, the country's consumption ratio in GDP growth fell to 48.9 per cent last year, a record low since the reform and opening up began, and more than 20 percentage points lower than in some other major developing countries at a similar stage of economic development. For example, in Brazil and Russia, the ratio was 75.7 and 77.7 percent.

Since consumer demand is expected to rise in the coming years the government should carry out some corresponding institutional reform to expedite the process.

In a consumption-dominated era, the government should reform its long-controversial income distribution system to allow people to enjoy a more equitable share of its revenue. It should reform its weak social security system, too, to raise people's confidence to consume more.

Simultaneously, concrete steps should be taken to set up a consumption-spurring public financial system and push for a change in the country's investment structure - from production-dominated to consumption-dominated.

Rapid urbanization will remain an irreversible trend in the next five years, helping the country to become a consuming power. To this end, China should try to change its decades-old urban-rural dual structure and reform its administrative management systems to accelerate urbanization and create an economic and social structure favorable to consumption.

But the shortage of public products China faces today has seriously restrained its development into a consuming power. After decades of economic and social development, the country's investment to build its diversified interests' coordination system has lagged the rising demand, and the employment the government offers has failed to meet the demand of the job market.

Since building of civil society and rapid growth of social organizations are an irreversible trend, the government should carry out some reform to set up a balanced urban-rural services system. It will help lessen social contradictions among diversified interest groups and promote economic and social developments in a harmonious manner.

Besides, necessary reform has to be undertaken to brace for an era of low-carbon global economy. Low-carbon economy is a new economic development model that will promote a country's economic and social reform and serve as the main driving force of its structural adjustment and institutional innovation.

To well prepare for a low-carbon era, the government should try to reform its pricing system on resources and energy, and resolve its environmental property rights issues.

Furthermore, it should take every possible step to expedite the transformation of its functions and try to set up a long-awaited accountability system and an effective public power supervisory system.

The author is president of the China Institute for Reform and Development. This article first appeared in China Reform magazine.

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