The Chinese economy, which is based on "Made in China," a name for large scale production for external trade, is at an inflection point. China is transforming from the economic position of meeting the basic needs of food, clothing and shelter to focusing on further development driven by consumption.

This transition is based on two facts. First, the Chinese economy has completed primitive accumulation. China once possessed the largest foreign reserve in the world. Secondly, absolute poverty in China has basically been eliminated. The poorest people in China have been covered by the government's basic living allowances.

China would like to see all of its citizens living well-off by 2020. The driving force behind this is beyond ridding poverty.

Therefore, we should ask ourselves: who should "Made in China" produce for? In my opinion, we should transform the external trade-oriented economy to a domestic demand-oriented economy. Domestic consumption should become the new driving force for sustainable development.

In the early days after the adoption of the reform and opening-up policy in 1978, China lacked both capital and technology, so China had to introduce capital, technology and management from developed countries. The Chinese economy became dependent on external trade, and the Chinese market was incomplete since the consumption sector was based mainly outside of the country.

Such export-oriented economies might be feasible for a small country with millions or tens of millions of denizens. However, depending on exports to realize sustainable development is too difficult for China, a large country with 1.3 billion denizens.

Social economic development in the U.S. has been stable for 200 years, mainly because of its large domestic market. Several European countries, such as France, Germany and Britain, have expressed interest in building a transnational integrated market mainly because their domestics markets are small.

The size of the Chinese market is attractive to foreign capital investors but not to "Made in China." According to a World Bank report in 2006, since the late 1990s, the proportion of consumption in the Chinese economy had been dropping constantly. The current consumption rate in China is not only lower than that of the U.S., but also than that of India. During the 2008 financial crisis, since the consumption of developed countries decreased, China was affected.

Domestic consumption is always decreasing because there are problems in the primary and secondary income distributions. The proportion of salary in the economy, which is the benchmark of residents' income, dropped from 53 percent in 2000 to 39 percent in 2009. This is much lower than the US level, 57%.

Public service and social security in China are also inefficient. The Chinese consume less because they are worried about being old, sick, unemployed and injured, not to mention having to pay for housing loans and children's education.

International experience shows that when a country is at the inflection point from ridding poverty to strengthening consumption, they have to pay close attention to the distribution of national income. In China, the government should support the consumption demands of the workers of "Made in China."

Therefore, China's social structure should be transformed, and the middle class should be expanded to let the general public enjoy the achievements of economic development.

The government should also pay closer attention to public service and social security so that ordinary people can consume without worries. Public service and social security are an important factor in promoting economic development.

The transition of Chinese economy is inevitable. "Made in China" should develop into the tertiary industry, especially the labor-intensive public service industry. This could provide better service for senior citizens and disabled people. Also, a new image of "Made in China" could be promoted internationally.

Tang Jun is a researcher of social policies with the Chinese Academy of Social Sciences.

(This post was originally published in Chinese and translated by Chen Chen.)