International Monetary Fund (IMF) head Christine Lagarde has said that China must stop its economy being too dependent on exports and investment.
She also said the yuan could become a global reserve currency if China implemented market-oriented changes.
Ms Lagarde is on a visit to China and India that began over the weekend.
Speaking to politicians and business leaders in Beijing she said there were signs the global economy was stabilising.
Ms Lagarde stressed that at the highest levels, China leadership appears to be willing to make the changes needed to ensure that the world's second-largest economy remains a main driver of global growth.
However, she said that as well as financial reforms, authorities needed to boost household incomes and make sure that the benefits of growth were reaching more people.
She backed, in principle, China's hope of turning its currency into a global reserve currency. "The global economy may be on the path to recovery, but with not a great deal of room for manoeuvre, and certainly no room for policy mistakesâ€ Christine Lagarde Director, IMF. However, she said that would only happen if certain conditions were met.