Consumer should be the main driving force

With President Xi Jinping's arrival to power, many international investors are excited about the prospect of economic rebalancing. They were impressed by Xi's open recognition that China's State-led stimulus plan of 2008 was like an adrenalin shock. It was necessary to rejuvenate the patient, but it had severe negative side effects: overcapacity in many sectors; an excessive real estate boom; environmental degradation; increased inequality; a worrying rise in local government and corporate debt, and an emerging shadow banking system.

Many commentators in the West say China's rebalancing should be measured by its capacity to move from an export and investment-led growth model to one based on consumption-led growth. The ultimate yardstick should not only be a reduction in the trade surplus (which has gone from 10 percent in 2007 to just over 2 percent in 2014) but to see China loosen its domestic finance grip so that the Chinese consumer can be the driving force of the economy.

Therefore, these are the reforms that the Chinese leadership should undertake: liberalize the financial sector; let the renminbi float; open the capital account and unleash market forces in every sector of the economy.