"Reining in total social financing growth is a priority and will require further tightening of prudential oversight as well as, critically, improved investor accountability for their investment decisions," Lipton said.

He predicted that the policies may slow activity in the short-term, but would do so in a way that supports the transition to a more sustainable growth path.

"It is important to gradually reduce the deficit over the medium-term to ensure a robust and sustainable debt profile," Lipton said, adding that continuing tax reform and a comprehensive re-ordering of local government finances, realigning resources with spending needs and revamping the framework for local government investment and borrowing will be key elements of these efforts.

Lipton acknowledged that the measures represent a challenging reform agenda that will require strong determination and administrative capacity to implement.

But the country' s success will benefit both China and the rest of the world, reflecting the growing importance of China and its integration with the global economy, Lipton said.

An IMF team visited China from May 15 to 29 to conduct the annual Article IV review of the Chinese economy. The team held discussions with senior officials from the government, the central bank, financial regulators, private sector representatives and academics to exchange views on the economy and the challenges ahead.