Fed taper comes at 'delicate moment' for China

Positive aspect

Much of the tension in the interbank market can be attributed to small banks' excessive borrowing from large banks, as the former have a weak household deposit base.

"Liquidity in China actually is not the problem. The problem is lack of efficiency in the money markets," he said.

Huang said now is also an opportune time for China to reduce its monetary expansion, which dates back to the aftermath of the 2008 global financial crisis.

Bank of America Merrill Lynch's Ting Lu said in a note to clients on Sept 2: "China will surely be affected by the coming QE tapering, but we believe the QE tapering will have little material impact on China's growth, currency valuation and financial stability."

He added that "with the rising uncertainty over emerging markets due to the coming QE tapering, the Chinese government most likely will put a special emphasis on financial and economic stability".

In Hong Kong, Acting Chief Executive of the Hong Kong Monetary Authority Eddie Yue said Thursday that the Fed's decision to begin tapering monetary stimulus starting next month will cause short-term volatility in the market.

In a statement to the media, Yue said that local banks had been advised to monitor interest rates closely and not lend out too much.

Although the decision to reduce the stimulus of QE reflects a brighter view of the US economy, which is expected to have a positive impact on the global economy, Yue warned that market volatility may occur as the pace and scale of the Fed's measures are not clear.

Hong Kong Financial Secretary John Tsang said volatility will continue for some time. He advised investors and companies to be careful about volatility and take a long-term view in terms of investment.

"We haven't seen any outflow of liquidity as yet, so we have to monitor the situation closely," Tsang said.

Xinhua contributed to this story.

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