Singapore prime minister Goh Chok Tong has warned of the growing economic threat of competition from China.

The prime minister said that "surgery" is needed to create new growth in the city state's trade-driven economy.

Our biggest challenge is from the rising dragon

Prime Minister Goh Chok Tong

"We have to remake our economy because the world has changed," said Mr Goh in a televised address to the nation at the end of National Day celebrations.

"Restructuring the economy is like surgery. It is better to avoid it, but we have to tolerate the pain and discomfort in order to recover and be fit again," he said.

Singapore's economy was once one of the region's best performers, enjoying 10.3% growth in 2000.

But last year it fell into its worst recession since the 1960s, hit by a slump in exports due to the world economic slowdown and the collapse of the hi-tech sector.

Advocate of change

Furthermore, China's entry into the World Trade Organisation has meant that Singapore is facing tough competition from regional rivals.

""Our biggest challenge is from the rising dragon," said Mr Goh, adding that China's economic expansion also offered opportunities for growth.

The prime minister urged the promotion of the Chinese language throughout the city, and said that Singapore's political stability could make it into a regional base for company headquarters and factories.

The country has already been changing its policies to inject new-life into its tired economy, including changing tax and wages policies and forging new trade pacts.

"We will create new strategies, we cannot be locked into old thinking and continue frozen in the model of yesteryear," said Mr Goh.

"If we do not make these changes to our economy now, our future will be bleaker," he warned.