China should adopt a moderately loose monetary policy to offset the negative impact of the prolonged trade war with the US and cushion against the non-performing loans of the domestic banking system, an industry report suggested over the weekend.

The report, titled 2019 Semi-Annual Report of China's Systematic Financial Risk, was issued by the Tsinghua University National Institute of Financial Research at the Tsinghua PBCSF Global Finance Forum 2019 Saturday. 

It is the first half-year report on China's financial stability since the report was first issued in 2014.

In the first half of 2019, China' systematic risk on the macro level has dropped significantly compared to 2018, the report said. 

Zhou Hao, Unigroup Chair Professor and Associate Dean of Tsinghua PBCSF, attributed the phenomenon to a slew of economic stabilizing policies, such as those containing shadow banking, those addressing systematic risks in the property sector as well as those that alleviate financing difficulties for private firms, the report said. 

However, "as a result of lagging macroeconomic cyclical effects and policy burdens from stimulating private firms financing," micro-level indictors, such as banks' non-performing loans (NPL), have soared and remained at a high level, Zhou, who was also involved in writing the report, said at the forum.

Data compiled by the report showed that in the first quarter of 2019, the growth rate of the amount of NPL accelerated to above 4 percent. 

On Friday, China's financial regulators moved to take control of Inner Mongolia-based Baoshang Bank due to its running into serious credit risks. It was the first city commercial bank being taken over by regulators in almost 20 years.

As overly aggressive deleveraging could pose risks to the economy. Zhou said China's monetary policy must be moderately loose to maintain adequate liquidity to hedge against uncertainties from the trade war and give the country's banking sector a certain period to reduce NPL. 

"The supply-side structural reform should proceed cautiously and prudentially, and we should continue strengthening economic fundamentals to prolong the growth momentum," said Zhou.