These measures have not only stabilized financial market expectations, but also reduced financing costs and eased constraints for enterprises, thus helping fill the liquidity gap caused by the sudden drops of income and keeping businesses afloat.

Although interest rate levels have been significantly lower than pre-contagion levels, it is still far from time to exit. Since mid May, monetary policy moves have made the market suspect that policy is ripe for tightening. DR007 volatility increased significantly, and the rate gradually increased to around 2 percent, 0.5 percentage point higher than that in April.

The changes left the market searching for an interest rate anchor. Worsened market sentiment led to redemptions and sell-offs in the bond market, raising long-term interest rates.

In early June, bond yields nearly all returned to early March levels－the starting point of the current monetary policy easing round. If the DR007 stays at current levels and volatility, bond interest rates will likely continue to rise, which is likely to offset some of the loan prime rate cuts.

Rising bond interest rates have also restrained the issuance of corporate bonds to some extent. For instance, the daily issuance of medium-term notes in May was significantly lower than that in April and March. As inflation is now at a low level and the foundation of the economic recovery is not stable, it is too early to tighten monetary policy. Maintaining low and stable interbank market interest rates is still key to reducing total social financing costs.

China still has huge economic growth potential stimulated by reform, and new driving forces can be explored through pilot programs in some special areas. Promoting political, economic and social governance reforms in pilot areas is important. Further development in China is facing many uncertainties, and there are differing opinions of proper development strategies. Promoting reforms in pilot areas is still an effective way to avoid making costly errors.

The construction of the Hainan Free Trade Port is a significant step in China's reform and opening-up process, given its specific positioning and experimental functions. Moreover, different cities can set up reform pilot areas with different functions. Each pilot area can focus on one aspect of reform at the initial stage.

In cities with high housing prices, the authorities can pilot the reform of land policy, especially for residential plots and public transportation construction, to effectively improve the supply of new homes and the efficient use of existing residential units.

In cities with large population inflows, the authorities can focus on reform measures that help settle these people, especially low-income groups represented by migrant workers. This includes reforms in housing, public services, unemployment insurance and a series of policy guarantees.

The authorities can also pilot the reform of education, healthcare, sports, entertainment and other areas in some cities. These sectors have great development potential and will contribute more to consumption down the road. The current situation is not satisfactory, so the authorities must explore future development paths.

The writers are researchers with China Finance 40 Forum.