Asia has been a source of hope for a world economic recovery, but policymakers in the region face thorny challenges, the International Monetary Fund said on Tuesday.
What happens in Asia in the coming two years will be important for the world economy, said Murtaza Syed, the IMF's resident representative in Beijing.
"It's a tricky time for Asia. On the one hand, it faces the risks of the world economy weakening. At the same time, if things stabilize, part of the area will face overheating pressures," said Syed.
If global financial conditions stabilize, there could be more capital flowing back into Asia, as was the case in 2010, he told a news briefing.
Growth for the Asia-Pacific region is projected at 6 percent in 2012, broadly unchanged from last year, before rising to about 6.5 percent in 2013, the IMF has said.
Policymakers in Asia face tricky challenges and need to calibrate the actions needed to support stable, non-inflationary growth, he added.
"Much of Asia, with the exception of Japan, perhaps India, is in a much more comfortable zone," he said, compared with the troubled European and US economies, which have high public debts and structural imbalances.
The agency expects a soft landing in China, with its economy to grow 8.2 percent this year and 8.8 percent next year as the global economy picks up.
China's economy maintained remarkably strong growth in the past three to four years, partly at the cost of high investment, he said.
China was over-investing and under-consuming in 2007, but things got worse in 2011, Syed said.
"Our fear is that if China continues to invest so heavily as a share of its GDP, it's just creating the potential for vulnerabilities," Syed said.
Investment accounted for 40 to 42 percent of GDP before the financial crisis, but that figure is now close to 50 percent and savings have decreased.
"No other economy has invested so much as a share of GDP as China is investing today," Syed said.
He warned that situation could lead to non-performing loans, overcapacity and fiscal problems.
Investment in factories and infrastructure may remain above 45 percent of GDP through 2017, he said.
China saw a marked decline in its current-account surplus, which was equivalent to 10 percent of GDP in 2007 but only 3 percent in 2011.