Of the 117 economies surveyed, China ranked 49th overall, according to the The Global Competitiveness Report 2005-2006, released Wednesday by the WEF. China ranked 46th in 2004, and 33rd in 2002.

Lopez-Claros, who is also the director of the organization's Global Competitiveness Program, said in an interview with Xinhua that one of the reasons for China's falling rank is that they have expanded the report's country coverage, and many of the new countries have come in at higher ranks than China.

"This automatically shifts China's rank down," he said.

Also, China's ranking in many of the indicators used to assess the quality of the macroeconomic environment moved down, he added.

In WEF competitiveness rankings, particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation.

"Inflation was not a problem in China in 2001, but, due to possible overheating in 2004, inflation picked up significantly and China's rank in this indicator moved from 5 in 2001, to 58 this year. A substantial shift," said Lopez-Claros.

The economist noted similar occurrences in the public finances sector. "China has been running deficits and its rank for this indicator has moved from 44 in 2001 to 58 in the most recent edition of our report."

As to the major problem of China's economy today and how to deal with it, Lopez-Claros said: "In summary: China needs to build up the institutional underpinnings of its economy."

"It needs to improve the quality of its educational system and the delivery of improved public health services to the population. Education is key for developing the future innovation potential of the country and the challenges here are huge. There is also a large technology gap with respect to the more developed industrial economies; so the process of modernization will have to continue," he said.

"Over time, I would hope that we can also see greater transparency in the public sector, a more concerted approach to put in place a social safety net to protect vulnerable groups in the population, as is done in countries that have had market economies for much longer periods of time than China," he added.

(Xinhua News Agency September 29, 2005)