Two engines to beat mid-income trap

China's economic potential depended on its huge domestic market, the hard work of its about 900 million workers, as well as proactive and good governance, Li said. And the "double engines" would propel growth in the next 10 to 20 years to help China escape the middle-income trap.

The first growth engine is a more liberalized market in which people would be encouraged to do business creatively, with China's high savings rate of 50 percent providing ample financial resources for endogenous growth.

To give free market the much needed thrust, the government has to launch major reforms, principal among which is reducing the approval and verification process for enterprises and thus making it easier for them to do business. This would also reduce the scope for corruption. The government reforms would thus be the second engine driving growth.

Li said the government's function too would be changed to meet the demand of society, with the launching of more public services in areas such as urban infrastructure, waste treatment facilities, public health and education. Of course, the central and local governments have to find more efficient ways to provide these services.

For instance, instead of being fully financed by the government, public facilities and services could invite private capital to improve efficiency. A German company contributed 70 percent of the about 300 million yuan ($48 million) needed to build a wastewater treatment plant in central-western China last year. By inviting private and foreign capital to build public facilities, China could accelerate its urbanization process.

In short, a huge domestic market, a large population, high savings, a hardworking and creative workforce of about 900 million and a proactive government mean China has the ability to maintain a middle-high level of growth and create a new economic structure of middle-high quality, which will help it beat the middle-income trap.

Hopefully, the message Li gave at Davos will help the rest of the world understand China better as a leading but developing economic power.

The author is professor of economics at Nottingham University/Chongqing University.