Despite a slowing economy, IMF Resident Representative Murtaza Syed believes China's pragmatic response to both the eurozone debt crisis and U.S. economic instability has saved capacity for creating a countervailing fiscal response for 2012 and beyond. China's economic growth is predicted to fall from 9.2 percent in 2011 to 8.25 percent in 2012. Chinese exports have demonstrated remarkable resilience in absorbing the negative effects of a global economic cool-down. However, they will continue to decline as demand from Europe, China's largest trading partner, abates in the face of European fiscal austerity measures.

Speaking to foreign journalists at the Royal Norwegian Embassy in Beijing, Syed said: "Although the Chinese economy is slowing, by no means do we (the IMF) expect a hard landing... Exports contribute negatively to growth. This is due to the European crisis."

China's robust financial reserves and tradition of maintaining a budget surplus has left it with an enviable monetary reality: no other country can match its capacity to buy debt.

Germany, Europe's recent paymaster, has signaled that it is unwilling to risk more of its taxpayers' euros to bail out debt-laden Greece. The board of the IMF is scheduled to decide upon the size of an enhanced bailout deal in March, and speculation continues to grow as to where additional funding will come from. This focuses more attention on China as it faces mounting pressure to assume a more active role in financing future attempts at regaining investor confidence along the northern Mediterranean.

In response to criticism that China wasn't acting fast enough, Syed said: "China wants to help through the IMF. It doesn't want to be the only country to step up... I caution against thinking that nothing is happening and that everybody is relaxed."

On the domestic front, China faces numerous challenges, including a surplus of credit released during the global financial crisis and the continuation of high levels of investment. The IMF believes that the slowdown in the real estate and export sectors creates balance sheet risks. Excess credit may also highlight bad debt in the form of loans to local government financing vehicles. Syed also warned of the likelihood of excess capacity and low productivity due to continued levels of high investment. He said: "High levels of investment rather than raising levels of consumption may lead to overcapacity, among other problems. We think it is unsustainable." In truth, a consumption-led economic model would help raise the low cost of capital in China.

Syed concluded by suggesting a handful of policies that China should adopt: modest fiscal support coupled with monetary fine-tuning; durable solutions to food price inflation and property bubbles; and regulations and supervision geared towards proactively identifying and managing risk.