China is home to 20 of the 30 cities in the world with the worst air pollution, and that risks getting worse as more and more Chinese buy cars, Dollar noted.

"If China does not control emissions the whole world will suffer for that," he said. Many of the country's waterways are clogged with industrial and household waste, the official added.

China's leaders do recognise the problem, he said, describing tough new targets to reduce gas emissions and improve water quality.

After the environment, inequality and "social exclusion" are "the next biggest problem" for China's long-term development, Dollar said.

The country's average gross domestic product per head is 1,740 dollars. But in cities like Shanghai, that rises to 8,000 dollars.

Cities inland have suffered from corruption, red tape and antiquated industries. On the land, meanwhile, there remain 800 million farmers trying to eke out a living in often desperate poverty.

Finding more even patterns of development is the "critical next phase for growth" in China, along with moving away from its export model of expansion to one more reliant on domestic growth, Dollar said.

In its newly adopted partnership strategy, the World Bank plans to offer its cash and expertise in five key areas:

-- Integrating China into the world economy, through encouraging Beijing to play a deeper role in bodies such as the International Monetary Fund and the World Trade Organisation.

-- Reducing poverty and inequality, by expanding basic social services, particularly in rural areas.

-- Managing scarce resources and environmental challenges. Key to this will be raising the price of petrol, which Dollar said is as cheap in China as it is in Saudi Arabia, thanks to heavy government subsidies.

-- Deepening financial markets, by increasing access to services for small and medium-sized companies.

-- Improving government and market institutions, through public-sector reforms to make bureaucracy more efficient.

Dollar, however, said China was right to resist US calls to rapidly throw open its currency to market forces. Premature reform would be destabilising, he said.