Rebalancing China's economic growth towards domestic consumption is likely the best way to close a yawning inequality gap that has been opened by the country's investment- and export-led boom, according to the findings of new research. Three decades of booming growth have lifted more than 500 million mainlanders out of poverty, but the cost has been a striking rise in the divide between rich and poor that contradicts the experience of many other developing Asian economies, says a new working paper published by the International Monetary Fund (IMF). "All told, China's growth has been highly pro-poor, but less inclusive than in most other developing regions, including Latin America and a number of its Asian peers. This underscores the benefits to China of pursuing a more inclusive growth model," the report said. The paper, written by the former senior and current deputy resident representatives of the fund in China, does not represent the official view of the IMF, but analysts regard such working papers as influential guides to the fund's thinking. The mainland's official estimate of inequality - captured by the so-called Gini index - sat at around 47 in 2012. It was at 29 in 1981 as economic reform was in its early stages. A measure of 100 represents maximum inequality. A reading above 40 indicates a substantial risk of social unrest. The report contrasts China's experience in poverty and inequality reduction with its Asian peers and urges a series of policy shifts by Beijing. "Apart from arresting the rising tide of inequality in China, many of these policies have the potential to rationalise savings and boost household incomes, reducing the bias towards capital and large corporates, and unleashing consumption," the report said. The IMF in official papers has repeatedly warned of the risks it sees stemming from China's reliance on investment-led, export-fuelled growth. It broadly believes that excess capacity in China's industry could create a damaging spillover effect in the rest of the world if Beijing does not deal with the imbalances that three decades of booming growth have built up. The paper recommends eight policy shifts. It argues for more progressive taxes; boosting public spending on health and education; a doubling of spending on social safety nets from 5.7 per cent of gross domestic product (GDP) to bring it in line with comparable economies; social security reform; boosting wages and the household share of GDP; reforms to boost competition; a sharpening of monetary policy; and broad financial-sector liberalisation. "Many of these reforms are the same ones that would help rebalance its economy towards consumption and household incomes," the report said.