The International Monetary Fund (IMF) believes that the Chinese economy is entering a slower but better growth mode but said more reforms and less government interventions is the way forward.

In a report released on Friday, the IMF said China is transition to a new normal, with slower yet safer and more sustainable growth. Growth this year is forecast to slow further from last year's 7.4 percent to 6.8 percent on the back of slower investment, especially in real estate.

Markus Rodlauer, deputy director of IMA Asia & Pacific Department and Mission Chief for China, said the IMF is keeping its 6.8 percent forecast despite strong growth in the first half of the year.

He said there is an upside risk for the forecast because global economy is expected to recover in the second half. But he said there are also some elements that might slow down growth, citing a strong contribution from the stock market in the first half of the year and now a market now in correction.

"Overall, we are confident that the growth is on target towards around 7 percent," he said upon the release of IMF report on its annual Article IV Consultation with China. The IMF consults annually with each member government. Through these contacts, known as "Article IV Consultations," the IMF attempts to assess each country's economic health and to forestall future financial problems.

Unlike the noise among US politicians, Rodlauer believes the Chinese currency is no longer undervalued, saying that the new system introduced in theory could allow the yuan, also known as RMB, to move as much as 10 percent a week and get close to a rate that markets might set on their own.

Rodlauer said recent developments in China's stock market are important events. "But they are not a game-changer. They are not huge, and they are not really a watershed," he said.

He said the reason it is important is the important lesson to be learned. As an emerging economy with rapid financial development, China is seeing new instrument and experience that will not be fully appreciated by the regulators.

He said the government needs to find an exit from its intervention that it has applied as soon as possible. "They have succeeded in stabilizing the market, but this is not the end of the story," he said.

"Now China needs to return to normal market function, China needs to withdraw government intervention as soon as possible while maintaining financial stability,"

According to Rodlauer, China needs to strengthen its regulatory system to fill the regulatory gaps. "So that we can respond to a crisis in a well-coordinated way and can also communicate the government response with a clear framework and with a clear roadmap for action to the public," he said.

Steve Barnett, division chief of IMF's Asia & Pacific Development, praised China's remarkable success in the past decades, with its economy growing around 10 percent annually and lifting 600 million people out of poverty.

"So it's truly a remarkable track record," he said.

He explained that this does not happen by accident. "The success reflects the government ability and willingness to implement key reforms at the right times," he said.

Barnett said China's success in the coming years also depends on the government ability to implement reform.

The good news is that China has a comprehensive reform agenda that covers everything from economy, to social areas and to the environment, according to Barnett.

The IMF report has proposed China to continue reforms in the financial sector and State-owned enterprises in order to level the playing field between the SOEs and private sector and fuel future growth.

chenweihua@chinadailyusa.com