China's top financial regulatory body warned it may take measures to prevent unexpected major shocks in all financial sectors, as escalating Sino-U.S. trade tensions may affect market sentiment, according to a statement released on the State Council's website on Monday.
A meeting of the Financial Stability Development Committee was chaired by Vice-Premier Liu He on Friday. It called for policy adjustments based on "new changes" to the external environment, as well as the domestic economic and financial situation.
"But the magnitude of adjustment should be well managed," said the statement, which indicated that the "prudent and neutral" general monetary policy tone has not yet been changed.
"Any black swan event should be avoided, to defuse financial risks and ensure the stable development of the stock, bond and exchange rate markets," it said.
Opening-up in the financial sector should take further steps, highlighted the meeting, and new policies may need to be studied to accelerate its progress.
This is an indication that top-level financial regulators are strengthening guidance on market expectations, to avoid irrational panic among investors, especially when uncertainties are rising amid trade tensions, said experts.
Central bank governor Yi Gang held a seminar on Aug 31 with financial experts and scholars, which discussed measures to stabilize investor sentiment.
How to precisely forecast and analyze the economic and financial situation has become one of the key tasks of the nation's financial regulators, according to a statement on the People's Bank of China website.
"People hate uncertainties … there may be an impact on the confidence of Chinese business, and some of them may lose confidence in equity investments in the stock market," Zhou Xiaochuan, the former central bank governor, told CNBC on Friday, answering questions about the impact of Sino-U.S. trade tension on the Chinese economy.
Some extreme conditions have been considered and solutions are being prepared by policymakers, Zhou said in the interview, after he attended the earlier seminar.
The U.S. intended to slap 10 to 25 percent tariffs on another $200 billion Chinese goods this week, following the first batch of 25 percent tariffs on $50 billion worth of Chinese imports.
And U.S. President Donald Trump threatened to impose tariffs on an additional $267 billion of goods from China last Friday.
On Monday, both onshore and offshore shares declined, with the Shanghai Composite Index falling 1.21 percent to 2669.48 at the close, reaching the year's lowest level.
In Hong Kong, the Hang Seng Index dropped 1.6 percent, with some analysts saying it is close to entering a bear market.
On the same day, the renminbi daily trading reference rate dropped to its weakest level against the U.S. dollar since Aug 28, to 6.8389, while the dollar traded higher as investors continued to monitor the escalating trade tensions.
Hussein Sayed, chief market strategist at FXTM, a global foreign exchange trading platform, said that market expectations of two more rate hikes by the U.S. Federal Reserves this year have been boosted by recent economic data, which may lead to further divergence in monetary policies and emerging economies' central banks may have to watch out for policy decisions that may lead to currency turmoil.
"I think a rate hike is imminent, but it's the magnitude of the rate hike that matters now," he said.
In light of the downward pressures on growth, China's policymakers have already eased their macro policy stance somewhat and have indicated a readiness to ease further, if needed.
"But we do not envisage a major shift toward significant stimulus in the second half, unless the external environment worsens more substantially," said Louis Kuijs, head of Asia Economics of Oxford Economics.
