China could overtake the United States to become the leading producer of manufactured goods in the next five to seven years, but the country needs to improve its social safety net to boost living standards, says a report from a major global economic organization.

Organization For Economic Cooperation and Development

"China's economy is weathering the global crisis remarkably well, not least thanks to its prompt and vigorous macroeconomic policy action," said the Organization For Economic Cooperation and Development in its "Economic Survey of China" report released yesterday.

"The country's economic expansion is projected to sustain over the medium run, and China's share in the world economy is set to grow further," the report said. "Structural reform has continued on a broad front in recent years, and will enable China to eclipse the US as the world's biggest producer of manufactured goods by as early as 2015."

But the report stressed that China's public spending should be stepped up to support much-needed social reforms in areas such as education, welfare assistance, pensions and health.

"The Chinese government's swift and vigorous action to support its economy has contained the impact of the global recession. But China should further foster social cohesion by stepping up social spending in the country," said Pier Carlo Padoan, OECD chief economist and its deputy secretary general.

The report said China can afford more public spending from its fiscal income. The gross government debt in China amounted to 21 percent of GDP in 2008. The stimulus measures are expected to increase the debt ratio by only 3 percent of GDP in 2010.

To compare, gross public debt in OECD countries is projected to almost reach their total GDP this year and even exceed it in 2011.

OECD, made up of 30 member nations that exchange economic information, identified the following areas where action is needed, long-range, for improving Chinese people's living standards:

-Unify the fragmented system of welfare assistance, pension and health care. Responsibility for social protection should ultimately be transferred from cities to the national level;

-Relax the registration system and restrictions on migrant workers' access to social services, which create obstacles to labor mobility;

-Pursue health care reforms. Hospitals should be run more efficiently and different insurance systems eventually merged.

On economic matters, the organization urged that China:

-Alleviate international imbalances by keeping saving at a lower level and making the exchange rate more flexible;

-Open more banks and financial institutions, and supervise them more firmly;

-Cut red tape to boost competition and productivity, loosen traditional ties between state-owned enterprises and central authorities, allow private companies to operate in the network industries, and lower barriers to foreign direct investment in services.

China is not a member of the OECD, but works in partnership with the organization on a number of projects.