THE International Monetary Fund yesterday said China's economy is on course to grow 7.75 percent in 2013 - higher than the government's own 7.5 percent target and actual growth of 7.6 percent in the first half of the year.

Prospects for the world's second-largest economy were "clouded by mounting domestic vulnerabilities in the financial, fiscal and real estate sectors," the IMF said in a statement.

But it still expected it to grow at "around 7.75 percent this year, notwithstanding a moderate slowdown during the first half, with resilient domestic demand offsetting lingering weakness in the external environment."

The optimism comes after private economists expressed alarm following slowing growth in the past two quarters, with some doubting the government can achieve its target.

The National Bureau of Statistics announced on Monday that China's gross domestic product grew 7.5 percent year-on-year in the April-June period.

That represented a deceleration from the first quarter's 7.7 percent, which in turn was worse than 7.9 percent in the final three months of 2012.

China's economy, a key engine of global growth, grew 7.8 percent last year, its worst performance since 1999.

The IMF's latest assessment of 7.75 percent growth is unchanged from late May when it downgraded its outlook from the previous 8.0 percent. The institution also sees Chinese growth barely changing in 2014, at 7.7 percent.

The Fund's statement comes at the conclusion of regular "Article IV consultations" between the IMF and Beijing.

The IMF "welcomed China's continued strong economic growth with subdued inflation" but urged it to "contain risks to financial stability by reining in credit growth and non-traditional forms of lending."

A cash crunch roiled Chinese financial markets late last month before the People's Bank of China, which had asked banks to strengthen liquidity management, moved to calm nerves with an offer of support.

The turmoil, though brief, highlighted mounting concerns over excessive lending by banks and other problems in China's financial system, including opaque non-bank forms of lending.

The IMF also warned of continuing "external risks" for China in the form of "potential spillovers from developments in the eurozone and major advanced economies."

The Fund also welcomed China's goal of retooling its economic model to one based more on consumption.

Such a "reform strategy ... charts a path toward mitigating risks, rebalancing growth, and addressing income disparities," the IMF said.