The International Monetary Fund said that China must manage financial risks in a "clear and coordinated manner" and temporarily change its fiscal policy to a neutral position from this year's contractionary approach.

"China's recovery is well advanced, but it is imbalanced, and momentum is slowing, even as downside risks mount," the IMF said.

China's quick withdrawal of policy support, the impact to consumption from COVID-19 outbreaks, recent power outages, and a slowdown in real estate investment, according to the IMF, are all contributing to the slowdown.

"Fiscal policy should temporarily change to a neutral approach and focus on strengthening social protection and supporting green investment above traditional infrastructure spending," it stated.

IMF should not be politicized | Column

To strengthen China's banking system, the IMF recommended a "comprehensive bank restructuring approach," as well as initiatives to open markets and reform state-owned companies.

The IMF said that ongoing efforts to address high corporate leverage should be accompanied by the establishment of "market-based insolvency and resolution mechanisms."

Beijing's tighter regulation of technological sectors, according to the IMF, has raised policy uncertainty.

Financial markets have been shaken by China's property sector difficulties, casting doubt on the country's economic outlook. China's economy is expected to grow 8.0% this year and 5.6% next year, while downside risks to the predictions are "accumulating," the IMF said.