Domestically, China needs to allow greater exchange-rate flexibility to curb rapid credit growth and excessive investment, said David Burton, director of the IMF Asia and Pacific Department.
And China's inflexibility in its yuan currency constrains other countries in the region, he said in a text prepared for delivery at the Singapore Press Club.
"The still limited flexibility in China makes it more difficult for other countries to allow their exchange rates to strengthen. And this has been reflected in continued substantial reserve buildups in some cases," he said.
"This can be both expensive, and also create difficulties for monetary management," he added.
Burton said that China, like other Asian countries, continues to rely heavily on net exports as an engine of economic growth.
While investment has grown rapidly in China, savings, particularly in the corporate sector, have grown even faster, he noted, leading to inadequate consumption that is threatening China's economic expansion.
"The need in China, therefore, is to reduce reliance on rapid investment growth as well as net exports, and to encourage consumption," he said.
"Greater exchange rate flexibility is also needed to give monetary policy scope to reign in rapid credit growth and constrain excessive investment."
Burton said the reforms to strengthen social safety nets, reorient public spending toward social areas, and improve financial intermediation were "urgently needed to help strengthen consumption."
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