A higher urbanization rate is required for a more developed service industry and, of course, for more household spending. I believe China will witness a rapid growth in the urban population in the coming years as urban-rural integration evolves. Starting from this year, former farmers who have become migrant workers are allowed to settle down in small- and medium-sized towns and cities as legal residents - I believe within three years, the bigger cities will start to do the same. That would put an estimated 200 million migrant workers on a much sounder social footing, making them more likely to spend.

China should also reform its rigid administrative division system to be better suited to new economic and social developments. Take Yiwu, China's famous small commodity trades center, for example. Under administrative governance, it is a county-level city under the jurisdiction of the city of Jinhua, Zhejiang province, but it is more known nationally and internationally than Jinhua in generating profits. If Yiwu could be upgraded into a prefecture-level city, more of its people would be recognized as urban residents.

The growing number of city clusters in central and western China in the coming five years as well as the speedy construction of infrastructure, such as railways and highways, will also help boost urbanization.

The new development model also requires the government to shift focus from specific development projects or making investments to providing services.

With the rise in China's social conflicts, the need for innovation through reforms should be imminently addressed.

To fix the lopsided domestic growth pattern, the country should narrow the widening income gap between the top and bottom rungs of society. For a very long time, China's workers have been underpaid under the current distribution of income. With this unfairness, our economic development cannot be sustained. The poor should be entitled to a bigger share of the income pie so that they can become a force to drive up domestic consumption.

Furthermore, China should allow farmers to capitalize on their land-use rights, which will also help boost lagging rural incomes. Farmers should be conditionally allowed to receive shares in an investment project by contributing their land or using their land to receive bank loans.

In addition, more of the State-owned assets should be used in the public sector, but not simply for a few large national corporations. China should also force its State-owned companies to disburse retained earnings through dividends and encourage them to take in more private investment. This will be a difficult task, but we must do it.

Social security should receive a greater share of public finance. According to my preliminary calculations, China may need 15-20 trillion yuan ($2.2-2.9 trillion) in building a sound social security network in the coming 10 years. The government of Guangdong province has already taken the initiative and is planning to invest 2.4 trillion yuan in social security in the next decade. The investment is huge and the determination is strong. And the investment will soon reap dividends and help improve the quality of the workforce, a necessary and efficient step to upgrade the production chain.

The author is a senior political advisor to the Central Government and President of China Institute for Reform and Development.