China also needs to implement changes to bring its current account surplus "in line with fundamentals" which would support the country's economic transition away from investment and savings, according to the IMF. These include greater exchange-rate flexibility by further widening the yuan's trading band and reducing currency intervention "so that the exchange rate can find the market-clearing level as soon as possible".

The IMF also urged the government to establish "a level playing field" for private and State-owned enterprises by opening up for competition the sectors that were hitherto reserved only for the SOEs. Such steps are necessary to make the market a more "decisive" force, it said.

The government had in March indicated that it was anticipating a GDP growth rate of 7.5 percent this year. However, the 7.4 percent year-on-year growth recorded in the first quarter has triggered concerns that China might miss the annual target for the first time in decades.

Although some experts have called for more decisive stimulus policies to ensure that the growth targets are met, Beijing has refrained from doing so. Lipton praised the government's approach and urged it to "carry through the reform goals listed in the Third Plenum" (of the 18th Central Committee of the Communist Party of China).

According to Lipton, the Chinese regulators have taken several praiseworthy steps, like slowing credit expansion, cooling down the property sector and reining in shadow banking.

"We think these are risk reduction actions that have been well taken. It would not make sense to reverse these policies for the sake of growth, as the risks may return again," he said.

"We believe that China should focus on having the fastest sustainable growth, rather than the fastest possible growth."

China accelerates as euro zone stumbles

China's manufacturing PMI rises to 50.3% in March