Younger spenders
The Barclays economist also said younger Chinese already show a higher propensity to consume than their parents and this trend will raise consumption levels over time.
"When I take the high-speed train from Shanghai to Beijing, I often see younger people in first class. The younger generations, born in the 1980s and 1990s, want the best things now."
Zhu at CEIBS argued that it is important for China to get the balance right and have a level of consumption appropriate to its stage of development to avoid the problems faced by other developing countries such as Brazil.
"Brazil has a consumption-to-GDP ratio of around 80 percent, similar to a European country, but the problem is that it is not sustainable, and they are becoming indebted."
He said that the experiences of Singapore proves that to have fast consumption growth a country does not have to have a high consumption-to-GDP ratio, since Singapore's stands at around 50 percent.
"Singapore's annual consumption is growing faster than that of Japan, where consumption is 80 percent of GDP, and that's because it has a higher growth rate than Japan which therefore drives consumption," he said.
Kuijs at Royal Bank of Scotland does not believe that Singapore is a good role model for China, since the city-state is not really comparable with the world's second-largest economy.
"Singapore is a bit like London in that it has a lot of foreign company headquarters and a big professional population that is very rich. It is not an example China can really follow."
Junheng Li, founder of the New York-based equity analyst J.L. Warren Capital, and author of the recently published Tiger Woman on Wall Street - Winning Strategy from Shanghai to New York, said it is not that China has to stop investing and start consuming but about achieving greater balance.
"Investment versus consumption-led growth should not be treated as a binary, all-or-nothing thing, but as a matter of proportion.
"At this moment, domestic consumption is certainly too low but there are issues too about the quality of investment. Much of it is wasted, with too much directed to State-owned enterprises and not enough to the true private sector. The Chinese economy has become increasingly inefficient."
Michael Spence, a Nobel prize winner and now professor of economics at the Leonard N. Stern School of Business at New York University, is one who believes Lin is wrong to downplay the importance of domestic consumption.
"The supply-side shifts are important and necessary, but, for China, not sufficient. The demand- and income-side restructuring is also a key component," he says.
He agreed that there should not be major credit expansion to fuel consumption, but higher domestic consumption is a fundamental part of the rebalancing of the economy.
"The demand side is also critical. Without it, the non-tradable sectors (such as professional services and other activities associated with a developed economy) will be slow to develop and that will get in the way of growth."
Kwok at HSBC, however, said the government has a major challenge on its hands to boost domestic consumption, and it will take time.
"It has already started to adopt policies to reflate consumption as a key driver of economic growth. That said, not only will the delivery of any meaningful result likely take at least another five to 10 years - and need at least another Five-Year Plan - but the process has to unfold gradually," she said.
"The criteria that have to be ticked along this process are not ones that can be completed overnight."
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