The World Trade Organization (WTO) on Wednesday confirmed China's economic reforms and achievements, but said the the country still faces some key challenges in its future development.

China's economic reforms, although gradual, have increased the market orientation of its economy, making it one of the fastest growing economy in the world, the WTO said in a trade policy review of China.

Thanks to the reform policies, China's GDP per capita increased from 148 U.S. dollars in 1978 to 1,700 dollars in 2005, and the proportion of population living under the poverty line (2 dollars per day) has also dropped dramatically, the report said.

The dramatic increase in GDP per capita and remarkable drop in people living in poverty demonstrate clearly the value of integrating more liberal trade and foreign investment policies into broader macroeconomic and structural reforms in order to promote economic development, it added.

The Geneva-based WTO reviews trade policies of its 149 members regularly in order to ensure transparency. This is the first time China's policy was reviewed since it joined the global trade organization in 2001.

According to the report, China's ongoing reforms received added impetus from its entry into the WTO in 2001. Its commitments as a WTO member have provided a catalyst for reform, paving the way for continuing strong growth in the foreseeable future.

Since 2001, China's real GDP growth has averaged almost 9 percent per year, driven mainly by exports and investment, especially as trade and investment reforms have increased China's integration into the world economy.

China's total trade in goods alone accounted for 6.7 percent of global trade in 2004. Much of the trade is conducted by foreign-invested companies based in China as a result of more liberal foreign direct investment policies.

The accumulation of capital, financed for the most part by domestic savings, has also been vital, accounting for much of the growth in GDP as well as in labor productivity, a key determinant of living standards.

Notwithstanding these remarkable achievements, China still faces a number of key challenges in its future development.

In particular, inequalities in income distribution have grown, especially between the urban and rural populations and between the coastal and inland regions, the report pointed out.

China also faces bottlenecks in land, water, and energy resources together with environmental problems resulting from rapid economic growth.

And there is a continued need for China to restructure the financial sector and capital markets, by making them more market-oriented, so as to address the misallocation of resources, including "overinvestment" in certain sectors.

China also needs to reappraise its current policy of giving priority to attracting investment in export-oriented, capital-intensive manufacturing, with a view to placing greater emphasis on removing impediments to the expansion of the services sector, which tends to be less capital-intensive.

It is also faced with the challenge of raising the quality of the labor force in order to move away from traditional low-skilled, labor-intensive industries, which are losing their external competitiveness, into higher value-added production.

The report noted that the Chinese government was attempting to tackle this and other problems mainly through structural reforms.

China's proposals for its 11th Five Year Plan, which were approved in October 2005, emphasized the importance of a more balanced approach to development and the need to continue with structural reforms, it said.

The proposals also paid attention to disparities in income distribution, energy efficiency and the environment, and the need to develop a "harmonious society."

As to China's goal to double its GDP per capita by 2010, the report said: "Given the pace of economic growth and reform in the past two decades, there is no reason to believe that the goal cannot be achieved."