China has huge potential to boost its domestic consumption, because of shortages and deficiencies in many industries such as health care, education, environment protection, energy and low-rent housing, Li said. Demand in these industries remains strong because they are far from meeting people's needs, he added.

He Liping, a professor of economics at Beijing Normal University, also believes that judging from the recent government policies, the key to stimulating domestic demand is boosting domestic consumption. The government should regard boosting consumption as its main task and avoid relying only on investment to drive domestic demand, he said.

From last September to December, China's central bank lowered interest rates five times for deposits and loans, especially loans for consumption to stimulate consumption and expand domestic demand. The Ministry of Finance (MOF) also stimulated consumption by cutting taxes. He said one of the key points of China's present proactive fiscal policy is to advance taxation reform and create tax-reduction policies to reduce the corporate tax burden and promote corporate investment and individual consumption.

Liu Zuo, Director of the Taxation Science Research Institute under the State Administration of Taxation, said the value-added tax reform carried out as of January 1, 2009, will alleviate the corporate tax burden by 120 billion yuan ($17.54 billion) in the short term. The government also plans to readjust its policies regarding individual income tax, tax refunds and tariffs. In particular, it could include the readjustment of individual income tax on its agenda by way of raising the taxation threshold.

China will also continue to carry out measures it launched in the second half of 2008 to increase spending by individuals. These include exempting deposit interest tax, reducing the stamp tax on stock transactions, canceling the stamp tax on stock purchases, and reducing taxes and other charges on home purchases and sales. At the same time, the MOF is also considering canceling some items of administrative charges and perfecting the tax refund system.

For a long time, China's individual income growth has been lower than the country's economic growth and fiscal revenue growth, Liu said. Raising individual income will be the target of the tax cuts in 2009 to stimulate consumption, he said.

"The key to expanding domestic demand is to boost spending demand, which needs effective measures via new tax-cut plans to reverse the tendency where more and more wealth goes to the state, Liu said.

While exercising tax reductions, the government will speed up its reform of resource and fuel taxes and consider the collection of an environment protection tax. It will also expand the consumption tax to non-renewable energies such as coal and petroleum and gradually increase tax rates, Liu said.

So far, the government's recent measures have not made people any easier about spending money, especially since the Chinese are used to saving money to cover any costs that the inadequate social security system does not pay for. But He said the country is improving its social security system to stimulate consumption.

"Since Premier Wen Jiabao has pointed out that the health care reform should be advanced as soon as possible and 70 billion yuan ($10.24 billion) has been set aside for it in the central budget, the prospect of health care reform in 2009 has increased public expectations," He said.

The most urgent problem of health care reform is medical insurance, He said. The improvement of the health care insurance system would greatly boost individual spending capabilities. The burden of health expenses has become a big worry for people who are reluctant to spend money, He added.

Chen Bulei, a research fellow at the Institute of Labor Relations at Renmin University of China, said among various kinds of social insurance, the improvement of medical insurance holds the greatest potential for increasing individual consumption. A conservative estimate shows that a sound social insurance system that covers everyone can boost consumption more than five times.

But there are many obstacles to expanding domestic demand. He Liping said the country's current deflationary period will be a disadvantage for the government in trying to boost domestic demand. Deflation will reduce corporate profitability and employees' incomes, thereby affecting their purchasing power. Figures released by the National Bureau of Statistics show that the consumer price index (CPI) rose 2.4 percent last November over the same month a year ago. It was the seventh consecutive month that year-on-year CPI growth had dropped, recording the lowest growth rate in the past 22 months.

Other factors such as inefficient effective demand, the lower purchasing power of farmers and traditional ideas about consumption will also have an effect on the implementation of the government's policies to boost domestic demand, He said.

"The government will launch more policies to expand domestic demand," He said.