China's stunning achievement of bringing over 660 million people out of poverty since 1981 is unprecedented. While income disparities are rising for China as a whole, this extraordinary record on poverty reduction underscores the increasingly inclusive dimension of the Chinese development miracle.

Still, more needs to be done in boosting overall per capita incomes as well in reducing poverty for the remaining 20-30 percent of the population that still qualifies as remaining below the poverty line. This can only be achieved by altering the economic structure of the country as a whole.

Three major reform initiatives are needed to transform the pro-consumption strategy of the 12th Five-Year Plan into reality. First, China must provide a comprehensive set of regulations aimed at opening up its embryonic services sector. 

Services provide the infrastructure for consumer demand, especially in neglected distribution industries such as wholesale and retail trade, domestic transportation, and supply-chain logistics.

Services require 35 percent more jobs per unit of Chinese output than manufacturing and construction, allowing China to absorb surplus rural labor while growing more slowly. They also consume fewer natural resources and energy, offering a more environmentally sustainable development trajectory.

Moreover, China must address the financial insecurity of its people that has arisen from a porous social safety net. While considerable progress has been made in setting up national healthcare and retirement systems, these programs suffer from a serious lack of funding, which caps their benefits. As a result, insecure families increase their saving - a major headwind to consumer-led growth.

As the world's largest surplus saver, with total savings likely to amount to 50 percent of the GDP in 2012, China has the wherewithal to provide a significant injection of public funds into its retirement and healthcare systems.

China deserves a new round of SOE reforms. The first wave of SOE reforms in the late 1990s sparked improved efficiency in the Chinese economy. However, there has been discernible backtracking on this front, especially in the aftermath of the crisis of 2008-09, when State-directed banks funneled a massive fiscal stimulus into investments by SOEs.

Premier Wen Jiabao has warned of the risks of this reversal, especially those posed by an increasingly concentrated banking system.

New enterprise reforms are the only antidote. They must address dividend policy, which currently skews returns toward capital rather than labor. They must push for the public listing of remaining shares in State-owned enterprises. They must also stress market-based innovation strategies that would level the playing field between State-supported and private sectors.

All in all, after two decades of powerful reforms, momentum has slowed in the past 10 years. The legacy of former leader Deng Xiaoping faded in the rush to hyper-growth. Yet without reforms and opening-up, the Chinese miracle simply wouldn't have occurred. A similar push is vital if China is to move to the next stage in its remarkable development journey.

While the Chinese economy has demonstrated impressive resilience in the past several years, I do not think the global crisis has enhanced China's role in the world.

To the contrary, I believe it has unmasked China's long worrisome excess dependence on exports and external demand from the US and Europe.

If anything, that underscores the imperatives of Chinese rebalancing - shifting the structure of its growth model away from external demand toward internal demand, especially private consumption.

The global crisis should serve as a wake-up call for China, sending a clear message to the new leadership that the time for rebalancing is now at hand.

The longer China delays this process, the greater the risk of periodic slowdowns such as those of 2008-09 and 2012, both of which coincided with major global shocks that China could not avoid.

By weaning itself from the vicissitudes of global demand and relying more on the internal consumption of its 1.3 billion people, China will be much better suited to sustain its powerful record on economic development in the years ahead.

The author is a professor with Yale University and former chairman of Morgan Stanley Asia. opinion@globaltimes.com.cn