OECD calls for moves on interest rates, market opening and taxation

China needs to implement major reforms to ensure a fourth decade of rapid growth, converging living standards and a greener economy, said a survey by the Organization for Economic Cooperation and Development.

The necessary reforms include deregulating interest rates, opening markets dominated by State-owned enterprises to competition, increasing the supply of building land, treating migrants to cities in an even-handed fashion, taxing carbon and deregulating energy prices.

"Full implementation of these reforms will foster socially inclusive urbanization, a key to a continued rise in domestic demand," said Angel Gurria, secretary-general of the OECD, at a news conference on Friday in Beijing.

Gurria reiterated his estimate - first made late last year - that China's GDP will grow 8.5 percent this year and 8.9 percent in 2014. The growth target set by the Chinese government for 2013 is 7.5 percent.

Richard Herd, a senior economist at the OECD, said the optimistic estimate was supported by the country's accommodative monetary policies, a larger fiscal deficit, and the fact that investment in infrastructure and railways has picked up.

"Therefore we'll begin to see more spending, moderately," Herd said.

"Against that, although it's difficult to see in just the first two months, economic climate indicators are sending positive signs," he said.

Gurria said the gradual pick-up in activity provides a strong background for the reforms China needs to put in place to continue on the road to prosperity.

"We are encouraged by the new leadership's policy vision and welcome its emphasis on initiatives to make growth not only strong, but also inclusive and sustainable over the years ahead," Gurria said.

But he also warned on the risks ahead, such as the off-budget liabilities of local governments' financing platforms.

"More transparency is needed for the off-balance debt," he said, adding that the debt of SOEs should also be included in the government's figures.

Regarding additional reforms in the financial sector, Gurria said that China should continue moving toward market-determined interest rates and align the regulation of bond markets for long maturities with market practices for shorter ones.

"Quotas for inward investment in equities and long-dated bonds should progressively increase," he said, adding that offshore renminbi deposits should be more widely used on the Chinese mainland.

In addition, he said: "Rules for opening new sectors to private investment, including foreign investment, should be clarified."

Commenting on the urbanization efforts - expected to be the main driver of growth over the next decade - Gurria called for a substantial rise in the annual quotas for new building land, to reduce pressure on property prices.