CHINA'S economy can't depend too much on the real estate industry to grow, said a report by the Chinese Academy of Social Sciences after some of its economists visited the United States to study the impact of the subprime mortgage crisis.

"China's economic growth has depended too much on the real estate industry. It is especially ill-advised that the earnings from selling land has become a major source of income for the government," said the report published yesterday. "It distorts the role of the government and reduces the overall competitiveness of the economy because the land, as an economic element, is not renewable."

The report noted that China can learn a lot of lessons from the US subprime mortgage crisis and the most urgent task is to modify the development of its property market.

The report also suggested that a better evaluation of a borrower's creditworthiness and how to reduce risks for banks when they lend to real estate developers should be among topics to be considered seriously.

It suggested that China should support the development of the rental market to support poor households who can't afford a loan if they buy a home. Also, property developers should be encouraged to look to the capital market to secure financing by issuing shares or bonds.

China's real estate industry has been in the doldrums in recent months because of plummeting sales. It is widely believed that high prices of homes have created a bubble that may pose threat to the domestic economy.

Meanwhile, the report cautioned that China should be very careful when developing its derivatives market as it bids to build a diversified financial sector offering a wide variety of products.

"It is not to say we don't need to develop derivatives, but we should take full notice of its double-edged nature. It is of great importance to enhance the risk control system and strengthen supervision," the report said.