China should be on the alert for a potential economic crisis in 2013 despite signs of improvement recently, a report said.

The country has dropped from eighth to 12th place on the Composite Risk Index, indicating a higher risk of economic crisis according to the report by the World Economy Research Center of Beijing Technology and Business University on Sunday.

Risk may come from the deteriorating debt crisis in western economies, and from overproduction in China, which is facing a drop in external demand, it said.

The annual report analyzes and makes assessments for countries and the world economy in terms of their economic, trade, political and payment risks. The Composite Risk Index assesses the likelihood of a country getting into such risks.

Domestically, authorities should guard against a possible rise in unemployment and a higher debt ratio of local governments following falls in revenue, the report said.

Although GDP growth declined at a slower rate in the third quarter — to stand at 7.4 per cent — the report said China is standing at a crossroads on economic development, and the outlook for 2013 is not optimistic unless it takes a greener development path and focuses more on solving the wealth gap.

Among the 130 countries included in the report, half of the top 10 are developing nations, with the United Arab Emirates ranking first, in place of Sweden the previous year.

“One of the reasons why many developing countries ranked higher than developed countries is that they are not greatly affected by the world financial crisis and debt crisis,” said Professor Ji Zhu, director of the World Economy Research Center.

In the face of challenges from various risks, the report offers a three-step short-term solution to ease the situatution: a relief mechanism for the euro, the continuance of tight fiscal policies, and aiding debtor countries through international trade.

The long-term solution involves transformation of economic structure and growth patterns.

The International Monetary Fund predicts that the growth rate for the world economy in 2013 will be 3.6 percent. But the World Economy Research Center’s report said the rate would be around 2 percent.

“The prediction made by the IMF is too optimistic. We have entered the ‘post-developed’ era. It may be too early to reach the conclusion, but it is very likely that the debt crisis will develop into another round of economic crisis,” said Ji.