Reforms will benefit the country: Nobelist

Pissarides said that China is losing the demographic dividend, and relaxing the one-child policy is quite positive for that.

"The more young people, the better chance we will have a dynamic labor market."

Increasing labor costs are another concern for manufacturers in China. Statistics from the CASS show that the average monthly wage of migrant workers rose 11.8 percent in 2012.

The increase was 21.2 percent in 2011.

Pissarides added that China's manufacturing industry has responded positively to rising wages by emphasizing technology.

He said that the financial sector in China should provide duppoty for this manufacturing shift.

GDP expanded 7.8 percent in the third quarter, a slight increase from 7.5 percent in the second quarter.

Pissarides said he doesn't make GDP forecasts, but he believes that China's economic growth is still substantial.

He said that the main challenges for China are the environment, housing and sustainable cities amid urbanization.

"It involves creating a carbon-free environment, as we have seen the extreme pollution in some Chinese cities, and avoiding housing bubbles.

"The decentralization issue for many big cities where there is too large a population is also urgent."

Pissarides said he remains optimistic about the nation's short-term prospects. But he warned that in the long term, the aging population and social needs, such as healthcare and pensions, pose potential problems.