China has the potential to sustain strong growth in the medium term, the International Monetary Fund (IMF) said in a report released Tuesday, increasing its prediction for China's economic growth in 2017 to 6.7 percent, the third raise in the past 12 months.
The IMF said the continued strong growth of the world's second largest economy has offered critical support to global demand.
The robust growth is carrying on the momentum from supportive policies established last year, strengthening external demand and progress in domestic reforms, the report said, while also acknowledging China's transition towards "a more sustainable growth path" and its reforms' advancement across a wider domain.
The Chinese government has introduced measures aimed at restructuring and reducing overcapacity, as the country looks to re-balance its economy toward a service and consumption-oriented model.
The progress of policies has so far offered favorable conditions for the country to focus more on quality and sustainable growth, the report said.
Inflation has been well-anchored at 1.4 percent, and 7.35 million new jobs were added in the first half of 2017.
Also in the same period, growth in the service industry continued to surpass that of the manufacturing industry, accounting for 54.1 percent of GDP.
China's current account surplus fell to 1.7 percent of GDP in 2016, driven by a sharp recovery in goods imports and continued strength in tourism outflows, and it is predicted to further fall to 1.4 percent of GDP this year, indicating that stronger domestic demand is helping further reduce China's external imbalances.
However, the report also pointed out China's rising debt levels could lead to rising risks. China's total non-financial sector debt is expected to continue to rise strongly, leading to concerns over a possible sharp growth decline in the medium term, the report said.
The IMF suggested China to intensify its deleveraging efforts, acknowledging that China has started to take important deleveraging measures which are leading to slowing credit growth and a narrowing credit gap.
Guarding against systemic risk is the eternal theme of financial work, and the government should take stronger initiative to monitor, warn against and deal with risks in a timely manner, said Chinese President Xi Jinping while addressing the National Financial Work Conference in July in Beijing.
Xi's emphasis on preventing systemic risk shows the government is well aware of the necessity of carrying out financial reforms.
