Domestic demand holds key to China's growth (2)

The transition has sparked heated debate in China, and Zhu said on Tuesday that how people talk about it is important.

The lesson learned from the world economy is that consumption shouldn't be supported or stimulated by government spending, or by issuing debt or credit, according to Zhu, a former vice-governor of the People's Bank of China.

"I think this is a very risky issue," he said.

The government poured 4 trillion yuan ($643 billion) into its stimulus plan about four years ago, helping revive China's economy amid the global slowdown. In recent years, China has surpassed Germany and Japan to rise from fourth to second on the list of the world's biggest economies.

An IMF paper released in November estimated that China has over-invested by 10 percent to 20 percent of GDP.

Since the beginning of 2013, investment has continued apace, as seen in the sums of money that continue to pour into China's reinvigorated real estate market.

Zhu said he believes there are several things the central government could do to boost domestic consumption.

"Number one, you should give people more opportunities to work and then to earn more money, so they will be able to consume more," he said. "I think this is the most important thing and will be the driving force for China's growth strategy in the next few years."

Zhu suggested that China further open its service sector to allow more competition while crafting supportive tax and fiscal policies, particularly for small and medium-size enterprises. These measures, he said, would go a long way toward raising individual incomes.