Finding new drivers of economic growth that are less reliant on borrowing will be key to the success of China's reforms, according to Moody's.
China's old growth model is no longer sustainable as it has experienced rising debt-to-GDP ratios, falling capital productivity and persistent producer price deflation, said Moody's in a report.
"If this ratio is to return to more sustainable levels, China will need to discover new sources of economic growth that rely less on investment funded by borrowing," said Michael Taylor, Moody's managing director and chief credit officer for the Asia-Pacific.
In this context, he said, reform and rebalancing are essential, but they require a complex and potentially painful transformation, and putting the economy on a sustainable path will involve accepting significantly lower growth rates than in the past.
He cited the services sector and e-commerce, which require less capital, as new growth engines to help support economic rebalancing.
In addition, more policy support, such as more monetary policy loosening and fiscal stimulus, is needed for successful rebalancing, Moody's said.
