Over the past two decades, the world has witnessed a remarkable period of economic and human development: more than 2 billion people have gained access to improved drinking water; life expectancy has increased by approximately five years; more children are going to school, with 90 percent enrolled in primary education; and per capita income levels have doubled across developing countries.

China has experienced an even more profound transformation during this period. The country has sustained an annual GDP growth of around 10 percent. Five hundred million people have been lifted out of extreme poverty. People's lives have visibly improved and there are more opportunities for them.

Yet, many challenges remain. With the world's expanding population, rapid economic growth and booming middle class, the pressure on natural resources is mounting. The truth is the world is on an unsustainable path.

China is part of this problem but it also must be part of solution. China faces real challenges when it comes to the environment and natural resources. Demand for water is rapidly outpacing supply, with food, energy and domestic use intensifying for this scarce resource. The need for affordable and clean energy is on the rise. China's rapidly expanding urban population is having a significant impact on transportation, energy and water infrastructure.

Despite the widely held view that economic growth and environmental protection are often in conflict, the opposite is true. The cost of China's environmental degradation and resource depletion is equal to approximately 9 percent of its gross national income, according to a recent World Bank study. Economic development strategies need to take into account equity and sustainability, and to protect the ecosystems on which all life depends.

China's incoming leadership appears to recognize these shifting dynamics. Even as they look to maintain the country's economic strength, China's new leaders have declared that "ecological progress" is a priority. Achieving these two goals is neither incongruous nor out of reach. In fact, this vision is achievable and, if done right, can set an example for others to follow.

China can make progress by encouraging a more rapid transition to clean energy. The country is still confronted with serious energy issues, including heavy coal use, which affects people's health and is the main driver of greenhouse gas emissions.

For example, China can pursue responsible development of shale gas, which is a lower-carbon fuel alternative compared with coal. It can also accelerate the development and deployment of carbon capture use and storage, which can play an important role in reining in carbon dioxide emissions from coal-fired power plants.

China has already demonstrated that it is serious about renewable energy. In 2012, the country led the world in renewable energy investment, reaching a record $68 billion, according to Bloomberg New Energy Finance. China has adopted strong renewable energy targets in its 12th Five-Year Plan (2011-2015), and is planning to raise its solar production target to 35 gigawatts by 2015. China has more than 60 GW of installed wind power capacity today and is targeting 100 GW by 2015.

By shifting to cleaner energy, China can also reinforce its leadership position on climate change - both at home and abroad.

Meanwhile, China is experiencing increasing water scarcity driven by its expanding middle class, and rising energy and food consumption. Based on its current trajectory, China's water demand will outstrip supply by 200 billion cubic meters in 2030.

Addressing China's water scarcity should not be about increasing supply; it must prioritize efforts to reduce demand. A significant amount of water is lost due to leakage, especially in cities. Limiting municipal water leakage will benefit businesses and consumers alike. According to the management consulting firm McKinsey, new water programs and reforms could bring annual savings of $22 billion in China.

Similarly, China faces significant losses due to food waste. According to the Worldwatch Institute, food worth more than $32 billion is thrown away in the country each year. Increasing efficiency and making sure food reaches those who need it can improve people's health, save money, and reduce water use.

Creating sustainable and livable cities is another area where China's leaders should focus. More than 350 million people are expected to move into Chinese cities in the next 20 years. Getting the urban transition right will be critical. Evidence shows that compact cities, with limited sprawl, use resources more efficiently. City design should prioritize locating amenities near people's homes and ensuring low-carbon transportation options are easily accessible.

Over 100 million passenger vehicles are already on the road today, and the number is expected to surpass 200 million by the end of the decade. The expanding urban population is placing new pressure on energy and water resources, while contributing to air pollution and waste.

Improving transportation systems will not only help save time and money, it will also bring health benefits and enhance safety. Unfortunately, approximately 70,000 people die and another 300,000 are injured annually in road accidents in China. Reliable and efficient public transit options can cut down on traffic deaths while improving livability.

Certainly, these challenges are not unique to China, but with its large population and rapid modernization, people are watching closely to see how China responds to them.

In the coming years, China has the opportunity to present a compelling new vision for economic growth and sustainable development. By embracing a truly "ecological civilization," China will benefit its people and offer a model for others to follow.

The author is managing director of the World Resources Institute.