China's industries remain the most competitive in the global market, but they face daunting challenges due to global economic downturn and domestic costs inflation, said the Annual Report on Industrial Competitiveness of China, recently released by CASS.

Of all the 12 monitored sectors, the textile and garment industry is China's most competitive industry, and the eastern region remains the most competitive area, though its strength is weakening.

"Flagging world economy will mount pressures on China's exports," said the report. "Worse still, protectionism is exacerbating, putting Chinese exporters in a quandary position."

"A more structural problem is that the country's hi-tech industries still have a long way to go to catch up with Western competitors," it said.

"The service sector has been growing rapidly, but it would be difficult for it to expand global market shares," it added.

Zhang Qizi, a senior researcher at the Institute of Industrial Economics of CASS, said those structural flaws would present challenges for China as it tries to avoid the middle-income trap.

The middle-income trap is a concept that the strategies taken by a country to grow from low income to middle income are not enough to make them enter into the high-income group.

"The key is for the nation to launch strategic transformation and reduce reliance on labor and resource-intensive industries," Zhang said.