China's high savings rate and heavy investment have become intertwined. High company savings gave rise to heavy investment. But unfortunately, household consumption failed to keep up. Since the domestic market cannot absorb all the products, a large number must be exported, which eventually leads to the country's over-dependence on exports.

The high savings rate now hangs over the Chinese economy like the Sword of Damocles creating a constant state of fear and anxiety. If no action is taken, the savings rate will continue to increase while its consumption rate decreases.

The only response to the approaching malaise is a complete change of the current economic mode.

China should take steps to adjust its resource allocation through structural reform, curbing the blind expansion of the heavy chemical industry and other capital-intensive industries. The private sector and small and medium-sized enterprises (SMEs) should be encouraged to shift to advanced manufacturing and modern service industries through tax breaks and breaking the financial industry monopoly. Engaged in labor-intensive sectors, such as business process outsourcing, logistics and retail outlets, SMEs usually recruit a larger labor force. In a general sense, SMEs play an enormous role in creating job opportunities and increasing household incomes.

Substantially increasing household incomes could help the development of a relatively better-off group of people, which could produce booming housing and durable goods markets. Perfecting the social security system and urbanization process will make this economic boom more sustainable.

Reforming the current financial sector needs to take precedence in our laundry list of societal and financial improvements. As we all know, China's financial system is mainly composed of four major state-owned banks as well as stock markets. And it is easy for large enterprises and the rich to raise money from banks and stock markets, while the SMEs, which employ 80 percent of the total labor force, have limited access to funding through financial institutions and the stock markets.

What is more important is financial institutions reduced their interest rates purposely, taking deposits with low interest rates from the poor and providing cheap loans to the rich. That is to say, these banks are subsidizing the rich by exploiting the poor. According to statistics from Shanghai-based China Europe International Business School researcher Huang Shaoqing, by cheap deposit interests, the Chinese companies, especially the large state-owned enterprises, paid 3 percentage points of loan interests less to household depositors—almost 785 billion yuan ($115.4 billion).

As an appropriate response, China should open its financial industry to private capital. Of course, we should also promote the marketization of interest rate. But if deposit and loan interests are to be decided by the market, the gap can be narrowed, providing good news for household depositors.