The future of China's economic development, and how to sustain it, is central to discussions at the World Economic Forum's annual Summer Davos meeting after China, as the world's fastest-growing major economy, said to lead the world out of the financial crisis.

With the help of massive fiscal stimulus and record bank lending, China posted a rather strong 9.1 percent growth last year, even as other major economies, like the United States, European Union and Japan, went into recession.

However, China is still poor country, according to Vice Commerce Minister Yi Xiaozhun. "It is not rich and still faces many development bottlenecks," he said.

Though China, which has overtaken Japan as the second largest economy and is the holder of the world's largest foreign exchange reserves, its per capita income ranks just 98th in the world, ahead of El Salvador and behind Albania.

Major problems China still faces include unreasonable economic structure, weak capabilities for scientific and technological innovation, rising resources and environmental constraints, uneven urban-rural and regional development and lack of coordination between economic and social development, according to Chinese Premier Wen Jiabao who addressed the opening ceremony of the Summer Davos Monday.

As the pro-growth policies are phasing out this year, attention is shifting to whether China can achieve sustainable growth to continue to power the recovery and become a real strong country.

CONSUMPTION

China needs to rebalance its economy to rely more on consumption, rather than on investment and exports, said experts at the three-day meeting, which runs through Wednesday.

Official data showed investment contributed to 92.3 percent of gross domestic product last year and 59.1 percent in the first half of this year. But in United States, consumer spending accounts for 70 percent of GDP.

Nestle Chairman Peter Brabeck-Letmathe said if China wishes to have sustainable growth, it must find new growth drivers other than exports and investment.

According to the Trade and Development Report 2010 released by the UN Conference on Trade and Development Friday, the global recovery is still fragile and growth in most countries might slow down again next year if countries fail to find new growth engines.

High bank savings due to high housing prices, education and medical costs, and a lack of universal social welfare, are widely regarded as the hurdles to consumer spending growth in China.

The fall in the share of China's household disposable income in GDP is "very undesirable", said Martin Wolf, associate editor and chief economic commentator with Financial Times.

China needs to shift income to households using proper interest rates and higher wages, he said.

Tong Jiadong, vice president of Tianjin-based Nankai University, recommended that the government adjust income distribution, improve social welfare and keep inflation in check to spur consumer spending.

"We will pursue balanced growth of domestic and external demand and establish a long-term mechanism to expand domestic demand, consumer demand in particular," Premier Wen said.

PRIVATE INVESTMENT

Government investment can get quick results, but its impact cannot last long, said Cheng Siwei, former vice chairman of the Standing Committee of China's National People's Congress.

The Chinese government unveiled new rules in May to boost private investment since the 593 billion U.S. dollar economic stimulus is scheduled to last only through the end of the year.

But private businesses still report more difficulty in getting bank loans and unfair treatment in entering fields monopolized by the centrally-administered state-owned enterprises.

The government should open more sectors to private investors and expand their fund-raising channels, said Deng Feng, co-founder of Northern Light Venture Capital.

GREEN GROWTH

China should also boost energy efficiency and develop clean energy for sustainable growth, said Cheng, who is also chairman of the International Finance Forum.

Duke Energy Chairman Jim Rogers shared Cheng's viewpoint. He said more attention should be paid to improving energy efficiency when the world is facing rising resource and energy problems.

The Chinese government faces a tricky dilemma to balance economic recovery which is, so far, still heavily dependent upon polluting industrial expansion, and to meet the energy austerity target, which is essential for the country's sustainable development, along with the Chinese government's solemn promise to the world.

Despite its efforts, China faces a grim forecast for meeting its energy efficiency goals. China seeks to cut energy consumption per unit of economic output by 20 percent by the end of 2010 from its 2006 level. The government reported in July that energy use had been reduced by 15.69 percent by the end of 2009.

However, this trend was reversed during the first quarter of this year as energy use per unit of GDP rose by 3.2 percent year on year. Also, the National Bureau of Statistics (NBS) reported on Tuesday that the figure for the first half of this year was 0.9 percent higher year on year.

Cheng, a renowned economist, cited his research results as saying that pollution cost China 34.5 percent of its GDP in 2005.

He also said the country is expected to reduce the proportion of fossil fuel in the total energy mix from the current 91 percent to 85 percent in 2020.

Participants suggested pushing forward the pricing reform of resources and imposing taxes to promote expansion of green industries and curb high-polluting and energy-consuming industries.

"We are suggesting imposing a carbon tax on thermal power plants and using the revenue to subsidize solar and wind energy development," Cheng said.

INNOVATION

Innovation would also be a key engine for its future growth, said Zhu Min, a special advisor of the International Monetary Fund (IMF), who regarded people as China's most important resource.

"The very key of China's economic growth is to increase the value created by its people," said Zhu while participating in a TV debate during the Summuer Davos, who was also a former deputy governor of China's central bank.

Only by encouraging innovation could the Chinese create high value from their production, otherwise the country would remain stuck at the lower-end of the value chain, he warned.

According to Martin Wolf of Financial Times, innovation is the essential factor that will allow China to become a rich country, rather than a middle-income country.

Innovation helps a country to avoid the "middle income trap", which refers to a situation in which developing countries find it difficult to continue growing because its labor force is almost fully employed, said Wolf.

Innovation includes new products, brands, firms, supporting financial systems and it would bring a time when many Chinese firms would become "accepted as world leaders in industry," he said.

"I believe it's possible...and innovation is the key," he said.

David Michael, a senior partner and managing director with the Boston Consulting Group in China, said in order to make people innovative, the government should create an environment to attract innovators and to finance and reward people with innovation.

It would be the start-ups that would deliver this innovation, like Apple and Intel, and China needs to "create an environment for that to happen", he said.