China has continued to amaze the world with its stunning growth performance, but the Global Competitiveness Report released two days ago by the World Economic Forum has brought the country back down to earth with a bang. China's global competitiveness ranking has continued to fall, from 33 in 2002 to 44 in 2003, 46 in 2004 and 49 this year.

China has suffered a drop in all three pillars in the past year - the quality of the macroeconomic environment, the state of the country's public institutions and the level of technological readiness.

On the macroeconomic environment side, China had a slightly deteriorating score. The authorities have been trying to rein in the growth of credit, and the strength of demand has resulted in an acceleration of inflation in 2004.

The poor quality of public institutions has also been pointed out as a key problem damaging China's global competitiveness. Efforts to tackle low government efficiency and widespread corruption must be stepped up. If this is not seriously addressed, China will not be able to improve its global competitiveness and sustainable growth will not be ensured.

The poor quality of public institutions also highlights that the efficiency of the banking system and the social security network needs to be reviewed in order to face the challenges posed by the increasingly elderly population. We need to improve our healthcare and education systems - to invest in human capital that is vital for sustainable development.

It comes as no surprise that poor technological readiness has dragged down China's ranking in global competitiveness.

China has performed pretty well by investing US$ 60 billion in research and development in 2003, following the United States and Japan, but funding for basic science and education has been lacking. The pursuit of quick profits has diverted cash away from basic science research, which does not promise immediate returns.

Our education system is still exam-oriented and does not encourage creativity, thereby hampering the capability of our workforce. China's vast rural population is still waiting for much-needed attention in terms of education.

Our neighbor India is a good example for us to follow. Although still rated just behind China, India has moved up five places this year. This is largely due to a quick improvement in technological readiness.

Chinese newspaper editorials chose to distance themselves by questioning the authority of the Global Competitiveness Report, which is based on hard data and a survey of 11,000 business leaders worldwide, but this is not a sensible approach.

We cannot afford to ignore the report because global businesses take it seriously and take it into consideration when making their investment decisions.

Instead we should be grateful for the survey, which gives us a warning, rather than flattery, as many people would have liked. It should be taken as good guidance by the government, which can bear it in mind when drawing up future policies and carrying out institutional reforms.

It is those who cannot see their own problems and believe there is no room for improvement that would continue to put China in the doldrums again next year when the Global Competitiveness Report for 2006-07 is published.

(China Daily September 30, 2005)