IMF cuts China's growth forecast but urges focus on reforms

BEIJING (Reuters) - The International Monetary Fund (IMF) cut its 2015 economic growth forecast for China to about 7 percent, but urged authorities to avoid further stimulus measures and concentrate on curtailing financial risks instead.

In remarks that projected confidence about the health of the world's second-biggest economy, the IMF said Beijing must keep its word on implementing reforms that will correct imbalances, including a "moderately undervalued" yuan.

Specifically, the fund said conditions are right for China to take the next step in freeing its interest rates market, challenging the view among some senior Chinese officials that the country is not yet ready for such a move.

"We are not counselling stimulus at this point," IMF's First Deputy Managing Director David Lipton told reporters in Beijing, when asked if he thought China's government should do more to shore up flagging economic growth.

"We don't think there are sufficient signs that would warrant that."

Rather, he said the bigger threat to China is its persistent reliance on debt and investment in areas such as real estate to power its economy, weaknesses that are still growing today.

So unless China's economy is at risk of missing the government's growth target of about 7.5 percent this year by a substantial margin, Lipton said more stimulus is unwarranted.

"Vulnerabilities have risen to the point that containing them should be a priority," he said, noting that the IMF believes China can hit its economic growth target for 2014.

For next year, the fund lowered its economic growth projection from 7.3 percent to around 7 percent -- a level that Lipton said is realistic if China were to carry out extensive financial reforms, as it promised to.

Beijing has announced a series of modest stimulus measures in recent months after the economy got off to a weak start this year. Business surveys in the last week signal activity may be starting to steabilize but a slight pick-up in parts of the economy does not mean a solid, broader recovery is under way.

(Reporting by Koh Gui Qing; Editing by Shri Navaratnam & Kim Coghill)