The downside risks of the Chinese economy are likely to remain in the coming months - amid deteriorating global growth and the domestic overcooling of the real estate market - which should prompt the government to coordinate its recovery macroeconomic policies with other countries, an IMF economist said.

"Beijing has enough fiscal space to contend with the risks, and the biggest challenge is to rebalance the economic growth because depending only on investment is not sustainable in the medium term," Il Houng Lee, senior resident representative of the International Monetary Fund in China, said on Thursday.

Ongoing policy fine-tuning can be adapted to China's current economic growth situation, which is expected to support the rebound starting from the third quarter, meaning that the government may put off launching a new stimulus package, according to Lee.

"It's likely that the authorities may accelerate the rate of lending and that the dropping inflation may lead to further interest rate cuts."

The IMF released a report on Wednesday, saying that the world's second-largest economy may see a "soft landing" this year, with a forecasted GDP growth of 8 percent.

According to the preliminary manufacturing purchasing managers' index, conducted by HSBC, operational conditions in the sector may have recovered in July, with the figure increasing to 49.5 from June's 48.2.

However, the external environment, amid the deepening eurozone debt crisis, is uncertain, which may slow the rebound of China's economy, Lee said.

"The problems of the European banks' assets quality should be solved soon to encourage market confidence," Lee said.

Major economies should also take steps to support each other to limit the potential downside risks, he added.

And because the central government has said many times recently that the property control measures are "not likely to ease", the real estate market may suffer a fast cooling in the future, while the banks' liability ratio may see "worse-than-expected deterioration", the IMF economist said.

The tracker of China's biggest listed companies slumped to the lowest point since March 2009. The Shanghai Composite Index decreased to 2126 points at Thursday's close.

A gauge of property stocks in the Shanghai Composite Index dropped 1.6 percent to its lowest close since April 11, with the share prices of the country's biggest listed property developer China Vanke Co declining 2.1 percent and Poly Real Estate Group Co's shares dropping 3.9 percent.

And investors' confidence may not bounce back soon as the central government pledged to prevent a rebound of housing prices by keeping the tight policies, economists said.

Meanwhile, the State Council approved an investment guideline on Wednesday to support economic growth in the country's central regions, including Hunan, Hubei and Henan provinces. However, it didn't mention the exact amount of investment or specific projects.

Changsha, capital city of Hunan province, will inject 829 billion yuan ($131 billion) into 195 large projects and 155 medium-sized projects, to boost GDP growth. The investment will be mainly in infrastructure construction, including airport and urban transit projects.

"This investment opens the door for local governments' stimulus packages," said Zhang Zhiwei, chief economist at Nomura Securities Co Ltd.

"More local governments may follow suit to stimulate their regions," Zhang said.

"But we need to wait for data on new loans and investment over the next several months to find out how big this stimulus is in reality," he added.

Huang Yiping, an economist with Barclays Capital, wrote in a recent research note that "further policy measures may be required to stabilize economic growth at 7.5 to 8.5 percent".

Even so, the support from the central government's fiscal transfers is still uncertain. Also, the availability of funding could be a constraint to the policy effectiveness considering the continued bank caution on lending, Huang said.

chenjia1@chinadaily.com.cn