China's economic outlook is uncertain with corporate debt and an opaque financial sector contributing to looming vulnerabilities, an International Monetary Fund Official said Tuesday.

David Lipton, First Deputy Managing Director at the IMF, said the near-term growth outlook in the world's second largest economy had become more buoyant because of recent policy support but warned of potential pitfalls ahead.

"The medium-term outlook is more uncertain due to rapidly rising credit, structural excess capacity, and the increasingly large, opaque, and interconnected financial sector."

Speaking in Beijing, where he had been meeting senior banking and government officials among others, Lipton said China needed to accelerate the pace of economic reforms as it had fewer options for dealing with future crises.

Corporate debt, state-owned company reform and lack of communication between financial regulators were all cited as vulnerabilities.

He suggested China establish a special group to restructure its hulking state-owned enterprises, which have long suffered from inefficiencies.

Beijing has long vowed to reform the companies, which control critical sectors of the economy ranging from coal production to telecommunications, but institutional resistance has stymied those efforts.

Lipton also singled out corporate borrowing as a major concern.

"Corporate debt, though still manageable, is high and rising fast," Lipton said. "Addressing the corporate debt problem is imperative to avoid serious problems down the road."

Lending obligations in the country have increased dramatically following several rounds of credit loosening intended to stimulate waning growth.

One state-owned company, the China Railway Corporation, owes more than $600 billion in debt, it revealed in May.

Aside from financial concerns, the IMF proposed China institute a carbon tax to clean up the country's heavily polluted skies. If implemented, the IMF predicted the measure could prevent four to five million premature deaths by 2030.

His comments come as China struggles with a tough transition away from dependence on debt-fuelled investment and export industries in an attempt to find a "new normal" of economic growth powered by domestic consumption.

In April, the IMF raised its 2016 growth forecast for China by 0.2 percentage points to 6.5 percent, citing announced stimulus plans. It also increased its estimate for 2017 by the same amount, to 6.2 percent.

The figures still represent a significant drop from the 6.9 percent expansion seen in 2015 -- the slowest in a quarter of a century.

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