China should further step up social spending to push forward reforms such as health care, welfare and education to sustain its economic growth, the Organization for Economic Co-operation and Development (OECD) said in a report on Tuesday.

Although China's reforms have increasingly focused on the need for social cohesion in recent years, said the report, more efforts are still needed in various areas to improve people's living standards over a longer term.

The fragmented system of welfare assistance, pension and health care should be unified, it said, stressing reforms on health care should be continued so as to ensure that provision at local levels is improved and eventually the different insurance systems are unified, it said.

It also said China's registration system and restrictions on migrant workers' access to social services create obstacles to labor mobility, therefore should be relaxed.

OECD groups 30 nations, mostly wealthy European countries, along with Canada, the United States, Japan, Australia, New Zealand, the Republic of Korea, Mexico and Turkey.

The report, the second of its kind since 2005, said China is now leading the world economy out of recession with the help of the massive stimulus package.

"The Chinese government's swift and vigorous action to support its economy has contained the impact of the global recession," said Pier Carlo Padoan, chief economist and deputy secretary general of the OECD.

China may overtake the United States to become the leading producer of manufactured goods in the next five to seven years, the report said.

However, Zhang Zhigang, chief economist of the Center for International Economic Exchanges, said that to well study China one should not be confined to consider the country's aggregated economic volume but take into account the per capital economic volume, as China is a very populous nation of 1.3 billion people.

"It is true that China is capable of putting man in space, but on the other hand, in much of its underdeveloped inland areas, oxen are still used to plough the farm", said Zhang at a ceremony to launch the survey.

While stressing the rapid expansion of the Chinese economy, the report also touched upon some of the weak points China faces, including the country's over-reliance on foreign-sourced technology embodied in foreign direct investment.

The contribution added-value made to research and development was only one-tenth of that in the United States in 2005, according to the 232-page survey.

As for financial and monetary issues, it said China will "eventually require a flexible exchange rate regime with open capital markets".

Greater flexibility of the yuan exchange rate could not be achieved in a short period of time and it requires a step-by-step approach with supporting reforms in the financial areas, said Padoan in an interview with Xinhua.