A fine balance

Tomas Sedlacek, the leading Czech economist and author of the best-selling book, Economics of Good and Evil, also warns of the dangers of going down the consumption road.

"I actually believe it is fine that GDP is boosted by investment (in infrastructure) and by exports rather than driven by consumption as in China," he says.

He says if China went on a spending spree like the West before the financial crisis it could end up in a similar mess with less consumption than now.

"Consumption must not be fueled by credit. Historically, with previous global crises, there was nothing to eat such as after a bad harvest. It was a crisis of insufficient supply. Now in the Western world there is a crisis of demand. There are enough cars and razor blades but we don't have sufficient consumers."

China's consumption has not always been low. In the 1950s and 1960s, it averaged around 60 percent of GDP, hitting a peak of 71 percent in 1962.

Following reform and opening-up in the late 1970s, the government embarked on a program of unprecedented investment to modernize the economy, resulting in the current economic structure.

There is some evidence of that structure already changing. Domestic consumption was a bigger driver of economic growth than investment in the first quarter, contributing 55.8 percent of the 7.7 percent total, compared to 29.8 percent from capital formation and 14.2 percent from exports.

Kwok at HSBC says the government now faces the same risks trying to alter the economic structure again toward more consumption as did the early reform administrations.

"If too slow, structural adjustment fails to occur. If too fast, then new imbalances could be created in other aspects of the economy."

Hans Hendrischke, professor of Chinese business and management at the University of Sydney Business School, says there is a problem with the consumption debate when it ceases to become one between economists and then involves the press and other commentators.

"This is what you have when you have a debate that starts off in strictly economic terms and then becomes translated into those who say we must have more consumption because we are against all these investment people.

"In reality, it is actually quite complex and the two alternatives - consumption and investment - are not actually mutually exclusive."

One significant contention of many economists is whether China's consumption is actually weak at all.

Zhu at CEIBS points out that between 1990 and 2010, China's consumption grew by 8.6 percent a year (adjusted for inflation), nearly three times the global average of 3 percent.

"In the US, consumption growth was less than 2 percent during this period and in Europe 2 percent. Nobody actually needs consumption. It is an outcome of economic growth and not a reason for it. A family cannot get rich by consuming."

It also seems something of a paradox to talk about a lack of consumption when everyone sees nothing but conspicuous consumption by the Chinese, going around the world buying Gucci handbags, vintage wines and art.

"For some it is something of a puzzle but it is because of the pure size of the Chinese economy and its consumer market," says Chang at Barclays.

"It may only be a small percentage going to places like London and Milan but it is enough to make this big difference."

A number of economists also believe the official figures on consumption in China may actually underestimate spending.

These figures are based on household surveys, where a sample of the population complete questionnaires on their consumption patterns.

Zhu at CEIBS says they are weighted to the poorest sections of society who are keen to pick up the small payment involved from completing the survey. He estimates that actual consumption in China could be between 60 and 65 percent, not far from Western levels.

"Poor people appreciate the (financial) compensation for filling in the survey. As for rich people they might be concerned that some of their income is not so legitimate," he says.

The government has so far attempted to boost consumption by focusing on education and welfare, particularly a universal pension system, which have been the traditional barriers to consumption, forcing people to save.

It has also increased the minimum wage across the country. Future reforms across the banking system are also likely to make consumer credit more widely available.

The government would also like to see migrant workers settle in new cities with their families as part of the country's urbanization program. They are then likely to spend more, rather than remitting back nearly all their wages.

Kuijs at Royal Bank of Scotland believes the government has put in place many of the right measures that will boost consumption.

"Since 2005 the Chinese government under the previous administration - which is sometimes criticized for the pace of its reforms - has done an impressive job in putting in place many of the measures necessary."