Economic liberalisation has slowed in China, the OECD said in a major report Friday, urging the country's Communist rulers to step up efforts to level the playing field for state-owned and private firms.
A long-standing commitment to looser control has boosted productivity and efficiency in the economy, the Organisation for Economic Cooperation and Development said in its Economic Survey of China, which also tipped growth this year of 8.5 percent.
But progress on opening up has stalled since 2008, the advanced economies' policy forum said, as Beijing relied on big-ticket government projects to ward off the impact of the global financial crisis.
China's leaders have repeatedly pledged to refocus the economy towards domestic consumer demand, rather than relying on exports and infrastructure investments.
But the OECD report said: "Economic liberalisation has lost momentum in the past four years. The reduction in the size of the state-owned sector came to an end in 2008."
China ranked 91st for ease of doing business in the World Bank's latest survey of 185 economies, ahead of some emerging markets but far behind most OECD countries, the report said.
Chinese authorities should avoid creating new "national champions" in industries it has promised to actively promote as strategic emerging sectors over the next few years and remove policy impediments to investment, it added.
"Undue industrial policy activism would stifle competition and work against other government objectives, including promoting the role of private enterprise," said the report.
The government also needed to renew action to privatise state-owned enterprises (SOEs) in rail, postal services, publishing and other sectors, while its ownership of SOEs' listed arms should be made more transparent, it added.
OECD Secretary-General Angel Gurria warned the competitive edges Chinese SOEs enjoy may become a "looming" bone of contention between China and the West as they expand overseas.
"If you have a country where those companies are not taxed, don't pay dividends, are not subject to controls or whatever and they go out and do competition with countries that do, then there is not a level playing field," he told a news conference.
"New reforms are needed to increase the competitive pressure on those firms."
China, which has the world's biggest foreign exchange reserves at $3.31 trillion, is keen to promote overseas investment and acquire foreign resources and technologies as part of the efforts to reform its growth model.
The world's second-largest economy expanded 7.8 percent in 2012, its worst performance for 13 years, in the face of weakness at home and in key overseas markets.
The OECD expects economic growth to pick up to 8.5 percent this year -- higher than the government's target of 7.5 percent announced earlier this month -- before accelerating further to 8.9 percent in 2014.
The Chinese economy has now overtaken the euro area in purchasing power parity terms, the report said, and repeated its projection that the country was on course to become the world's largest economy around 2016 on the same basis.