"China is still growing. There is still huge demand for construction because the manufacturing industry is taking off and there are large numbers of people migrating from rural to urban areas. But the government has to grow with more market discipline."

It needs to open up more to private enterprises in the service sector, especially the financial sector, to create a more vibrant economy and reduce dependence on manufacturing and real estate industries.

"China needs a more diversified economy and that's why in Western countries the financial services are bigger than many other segments. Services such as those within the culture industry, entertainment industry and financial industry have to be more prominent in China's economy."

The banking system in particular needs to involve more private and foreign companies, Kothari believes. China's State banks don't manage risks well enough - partly because they know there is government backup.

"Because the government can make cash available and banks know the government will make money available, there are many non-performing loans in the State banks. It is almost like they default, but they are not penalized. We cannot rely on government supervision to improve the banking system."

Private financial service providers will be more careful before lending because it's their own money. If there is default, they will be persistent in collecting money, he says.

"And the government, instead of pumping money into the real estate industry, can make investments in other segments that might be more fruitful."

Kothari says the Chinese government has to be decisive in believing this is the right thing to do for the long-term good of the country.

When talking about opening up the financial sector, derivatives cannot be avoided, Kothari maintains, disagreeing with some economists who claim they are "weapons of mass destruction".

"It's easy credit, not the derivatives, that causes the financial crisis," he says. "The housing problems in the US were concentrated in California, Nevada, Arizona and Florida, where easy credit is biggest."