By Leika Kihara

TOKYO (Reuters), – China needs to address financial risk in a coordinated manner and temporarily switch its fiscal policy away from this year’s contractionary approach. This was stated by the International Monetary Fund in a Friday statement.

According to the IMF, China’s recovery has been well advanced but momentum is slowing and it is not balanced. This statement was made by staff from the 2021 Article IV consultation.

IMF blamed China’s sudden withdrawal of policy support and the impact on consumption by COVID-19 infections, recent power outages, as well as a slowdown for real estate investment.

The report stated, “Fiscal Policy, which was substantially contractionary in this year’s fiscal policy should temporarily change to a neutral and concentrate on strengthening social security and encouraging green investment rather than traditional infrastructure spending.”

In addition to a comprehensive bank restructuring strategy to support China’s banking sector, the IMF called for efforts to increase market access and to reform state-owned enterprises.

The IMF stated that the IMF recommended that ongoing efforts to reduce corporate leverage be supported by market-based insolvency resolution and frameworks.

IMF warns that Beijing’s increased regulation of technology sector has led to policy uncertainty.

China’s problems in the property sector have shaken financial markets, casting doubt on China’s growth prospects.

However, China’s economy is expected to grow by 8.0% in this year and 5.6% next. The IMF statement also stated that downside risks were “accumulating”