BEIJING - The International Monetary Fund (IMF) is closely following steps taken by China to promote the free use of its currency as the country undergoes a "challenging and necessary" economic transformation, a senior IMF official has said.

Quality growth

Commenting on the country's economic development over the past year, IMF first deputy managing director David Lipton said Chinese policymakers are pursuing a "quality-growth" strategy.

"They are not trying to achieve the fastest possible growth, but rather the fastest sustainable growth," he said in an exclusive interview with Xinhua during a visit to Beijing.

"That means allowing the economy to slow, if that's necessary, to work through some financial vulnerabilities that have built in areas like the property sector and excessive lending to State-owned enterprises."

"Growth in China is moderating -- a slowdown that is not a goal unto itself but a by-product of moving the economy away from the unsustainable growth pattern of the past decade."

The Chinese economy grew 7.4 percent in 2014, the weakest annual expansion in 24 years. The government further lowered this year's growth target to approximately 7 percent, stressing quality and innovation-driven growth.

On Tuesday, the IMF projected the Chinese economy would grow 6.8 percent this year, consistent with its April prediction in the flagship World Economic Outlook (WEO) report.

The world's second largest economy is transitioning to a new normal, aimed at "safer and higher-quality" growth, and other economic reforms are underway including a new budget law, deposit interest rate liberalization, the creation of a deposit insurance program and a whole agenda for capital account liberalization, Lipton said.

"These are all items put in the 'Third Plenum Blueprint' and they are all being put into motion. Those measures will further help promote high-quality growth," he said.

The Chinese labor market has remained resilient despite slower growth, which, in turn, has supported household consumption. Inflation is expected to end the year at around 1.5 percent, according to a statement issued after the IMF's 2015 Article IV Consultation with China.

The Article IV Consultation is an annual economic and financial check-up between the IMF and its member countries. A mission from the IMF visited China from May 14 to 27 to conduct discussions on the annual review of the Chinese economy, and Lipton joined the mission's final policy discussions.

If the Chinese economy slows a lot more, fiscal policy should be used to bolster growth and boost household income and spending, so China can simultaneously reduce financial vulnerabilities and tap the potential of the "untapped growth engine"-- household consumption, said Lipton, adding that rebalancing is the biggest challenge facing the Chinese economy.

The global economic recovery is "weak and uneven" and the economic slowdown is affecting developing countries in general as countries like China, to some extent, depend on advanced economies for exports, said Lipton, a former senior official at the White House.