The World Bank will recommend reforms to China's domestic financial system as part of broader proposals to help wean the country from a dependence on exports to sustain economic growth, World Bank President Robert Zoellick said on Saturday.

Those changes could have the benefit of increasing confidence among Chinese authorities that the nation's economy will not be destabilized by foreign exchange reforms, Zoellick said. U.S. and other international authorities have long urged China to let its yuan currency, also called the renminbi, to float more freely on foreign exchange markets.

China's policy on the exchange rate will depend in significant part on whether Chinese officials believe the structure of the economy can adjust to the price signals of changed exchange rates, Zoellick said.

The Chinese ... recognize that this reform agenda, including a stronger and more flexible financial sector would move hand in hand with the internationalization of the renminbi, he said.

China's government realizes that the export-led growth model that has been so successful for the past 30 years will not work in decades ahead, the World Bank chief said at the annual meetings of the Allied Social Science Associations.

The World Bank, in a series of recommendations due to be released in February, will suggest changes including fewer but stronger fiscal institutions that are more transparent and more accountable, Zoellick told the economists' conference. The bank's proposals are part of a year-and-a-half collaborative project with the Chinese government.

While Beijing has allowed its yuan currency to float in recent years, critics say Beijing has not permitted it to appreciate enough. The U.S. Treasury last month avoided formally naming China a currency manipulator under law but chided Beijing for not moving quickly enough on reforms.

Some U.S. politicians argue China has gained an unfair edge in global markets by keeping the yuan artificially low to boost exports. Pressure has mounted in Congress for President Barack Obama to take stronger action against China, but the administration has preferred a diplomatic approach.

The bank will recommend China moves away from controls on savings and interest rates that have subsidized state-owned enterprises. It will also urge a move toward market interest rates, deeper capital markets and more financial instruments, all the while accompanied by high standards for disclosure.

Authorities also will be asked to limit the influence of China's powerful state-owned enterprises, Zoellick said.

China needs to restrict the roles of the state-owned enterprises, break up monopolies, diversify ownership, and lower entry barrier to private firms, he said.

China is also trying to strengthen its social safety net, Zoellick added.

The value of the yuan has risen 4 percent against the dollar this year and 7.7 percent since China dropped a firm peg against the greenback in June 2010.

At the heart of the friction between the two countries is a U.S. trade deficit with China that swelled in 2010 to a record $273.1 billion from about $226.9 billion in 2009. The cumulative Jan-Oct deficit with China is on track to top that this year, running at around $245.5 billion.

(Editing by Andrea Ricci)

Barack obama China