It seems more evident than ever that the Chinese economy is at a critical crossroads, with costs soaring and other economic indicators pointing to a slowdown in growth. This highlights the urgent need for the country to shift to a new and more effective economic growth pattern.

To change this situation, the country should try to extricate itself from its excessive dependence on external demand and turn to domestic demand, especially consumer demand, to develop a new economic growth model based on balanced development that relies on consumption, investment and export.

According to the target set at the 18th National Congress of the Communist Party of China last year, the country will double its per-capita income by 2020, giving consumers 64 trillion yuan ($10.2 trillion) in purchasing power. If the Chinese economy continues to expand at 7 percent per year over the next few years while the United States' grows by 2 percent, and exchange rates between the Renminbi and U.S. dollar maintain a 3-percent annual increase, China's consumption level will be more than half that of the United States by 2015, and 80 percent of it by 2020.

Growing demand will generate considerable trade volume. Data shows that China was the world's second-largest importer in 2010, and the country's trade surplus has declined from 10 percent of its GDP in 2007 to 2.8 percent in 2010. According to estimates by the State Information Center, China's imports will increase by an average of 27 percent annually from 2011 to 2015, 5 percentage points faster than exports. And the value of the country's imports will exceed $10 trillion in the next five years, providing more investment opportunities and an enormous market for foreign companies.

But it has been proven that sustainable growth does not rely solely on consumption. "Made in China" products offer strong support to China's market. China produces more manufactured products than any other country in the world, with its manufacturing share rising to 19.8 percent of the world's total. But at the same time, the nation's share of global R&D is less than 3 percent. Overall, industrial innovation capabilities in China are significantly lower than in some other countries.

 On the other hand, consistently high returns on capital at a lower cost won't indicate a competitive advantage for China in the following decade. The gap in labor costs between the United States and China is narrowing, as wages for Chinese workers in the manufacturing industries increase. Currently, multinationals have slowed down the rate at which they move labor-intensive industries to China, while emerging developing countries, including Vietnam, India, Mexico and those in Eastern Europe, are developing a comparative advantage in labor-intensive industries by offering lower costs, which makes them the new bases of industrial transfer for developed countries.

The huge potential for domestic demand in China may become a new engine for economic growth, but it is necessary to guide the country's economic growth in a more balanced direction by increasing input into science and technology and strengthening technical upgrades to steer escalating domestic demand. China's market, along with "made in China" products, will be the country's new comparative advantage. It will be key to maintaining China's sustainable growth over the next decade. CA

(The author is a researcher with the State Information Center.)