China's policymakers should forge ahead with structural reforms to put the economy on a more sustainable footing, even as growth is likely to slow further to 6.3 percent in 2016, the International Monetary Fund (IMF) said on Tuesday (U.S. time).
The IMF expects China's growth to slow to 6.8 percent this year from 7.3 percent in 2014, and weaken further in 2016, maintaining its existing forecasts.
"Modest further policy support to ensure that growth does not fall sharply is likely to be needed, but further progress in implementing the authorities' structural reforms will be critical for private consumption to pick up some of the slack from slowing investment growth," IMF said in its World Economic Outlook.
The government has been steadily ratcheting up its policy support, including cutting interest rates and increasing fiscal spending, in a bid to put a floor under the economy, which is on track to grow at its weakest pace in 25 years.
The government is aiming for growth of around 7 percent in 2015, though some economists believe current levels could already be much weaker.
The Chinese central government faces a tough balancing act in preventing a sharp slowdown, reducing vulnerabilities from excess leverage and strengthening the role of market forces in the economy, the IMF said.
The credit and investment boom, fanned by the Chinese central government's massive stimulus package implemented during the height of global financial crisis, resulted in heavy debt and widespread factory overcapacity.
"There are risks of a stronger growth slowdown if the macroeconomic management of the end of the investment and credit boom of 2009-12 proves more challenging than expected," the multilateral agency said.
The IMF reaffirmed its calls for China to press ahead with market-based currency reforms, following the country's move to devalue the yuan in August.
"The recent change in China's exchange rate system provides the basis for a more market-determined exchange rate, but much depends on implementation," the IMF said.
