A United Nations comparison of the quality of life in 175 countries has praised health and education in China but warned of challenges ahead.
The UN Development Programme report says the most difficult issue confronting the nation is the rural-urban divide.
'Two different societies with two different institutional set-ups have existed under the same national roof,' it says.
The report says the divide is crumbling as city dwellers and rural labourers begin competing for jobs.
China ranked 108 on a list of 175 countries when health, education, environment, lifespan and other factors were compared.
Beijing was urged to extend the social welfare system to the countryside and increase spending on health and education.
The report says education spending should be boosted to four per cent of Gross Domestic Product and says charities are no substitute for public spending on education in poor areas.