Financial policies should sustain economic recovery and contain risks to financial stability in the second half of this year, to avoid sharp regulatory tightening, economists said on Wednesday.

Since the so-called retaliatory rebound in consumption and robust exports are expected to cool down a bit in the second half, China's economic growth is likely to moderate after a rapid first-half recovery. This would require financial regulators to avoid sudden policy tightening or abrupt measures, they said.

In the third and fourth quarters of this year, the pace of fiscal policy spending should be accelerated, and the total social financing and credit supply should also maintain a certain growth pace, rather than simply withdrawing stimulus policies issued earlier to cushion COVID-19 shocks, said Liu Yuanchun, vice-president of the Renmin University of China in Beijing.

Liu referred to what he called an uneven economic recovery in China, which is likely to be affected by "grey rhino risks" related to a vulnerable external environment and regional financial risks at home.

Beijing may become increasingly concerned about the growth slowdown in the second half, as the growth of consumer demand may slow after the first-half rally stimulated by the May Day holiday consumption and some festivals. The growth of exports, in the meantime, may also see a slowdown as external demand will drop, said Lu Ting, chief economist in China for Nomura Securities.

The Financial Stability and Development Committee held a meeting on Tuesday, where it stressed strengthening research capacity and increasing "policy reserves" related to key issues, including financial regulation, risk prevention, inclusive finance, green finance and digital finance.

The FSDC meeting called for improvement in the financial regulatory system, deepening reforms of financial institutions and optimizing organizational structures of financial institutions.

It also urged improvements to the way financial infrastructure is built, according to a statement issued after the meeting.

The high-level meeting called upon policy banks to promote reforms to better serve the real economy. It highlighted strengthening policy banks' capital constraints, enhancing risk management, and improving the incentive mechanism.

Policy banks have provided quick and effective financing resources to businesses hurt by the COVID-19 pandemic, in addition to the country's monetary and fiscal actions such as interest rate cuts, tax reductions and subsidies, said analysts.

For instance, the China Development Bank, one of the three policy banks in China, disbursed 31.5 billion yuan ($4.87 billion) of emergency loans and set up special facilities to issue another 468.1 billion yuan in loans toward working capital to help more than 1,100 businesses resume operations.

These loans amounted to $71 billion, or 3 percent of the bank's total assets at the beginning of 2020, according to a research note from Moody's Investors Service.

Support from the government will underpin policy banks' capital, which is a buffer to absorb credit losses if the lenders cannot afford that through their own earnings, said Nicholas Zhu, an analyst with Moody's.

"Special facilities and regulatory tools will also continue to enable the policy banks to obtain low-cost funding," Zhu said. "To increase low-rate loans for companies that qualify for government pandemic support measures, the policy banks need to attract additional long-term and low-cost funding."