An intensifying trade war between the world's two largest economies is set to take a toll on China's economy, which already faces serious financial risks.

In an attempt to curtail corporate debt expansion and prevent a bursting of asset bubbles, Chinese President Xi Jinping's leadership has recently put more emphasis on structural reforms and monetary tightening than on economic growth.

(A Chinese-made industrial robot at an exhibition in Beijing in August 2017)

But if a trade dispute with the United States escalates, China's export-oriented economy may shrink at a faster pace than the country's government has expected, which would prompt its authorities to implement economic stimulus measures.

Monetary easing and public spending might allow more companies to borrow money and invest in fixed assets, raising the possibility of the Chinese financial system becoming dysfunctional and the broader economy taking a crushing blow.

China's economic expansion decelerated to 6.7 percent during the April-June period, its slowest pace since 2016, from 6.8 percent in the previous quarter, the latest data showed Monday.

After the release of the economic growth figure, Mao Shengyong, a spokesman for the National Bureau of Statistics, told reporters that China's economy has remained steady, but voiced concern over the outlook for exports -- a major driver of the nation's economy.

External demand is an "extremely important" factor, Mao said, adding, "We should be aware that external uncertainties are on the rise and economic restructuring at home is in a phase of tackling difficulties."

In China, many firms and local governments have faced default risks, as their debts have ballooned against a backdrop of excessive real estate investment and public works across the country.

China's expanding "shadow banking system," which involves widespread lending by nonfinancial institutions, has also accelerated the inflow of speculative money into the property market, increasing the threat of high inflation and an asset bubble burst.

Xi's leadership, in trying to grapple with the issues by strengthening financial regulations and credit risk management, has gradually triggered an economic slowdown.

Although investment in fixed assets, including spending on property construction and infrastructure, rose 6.0 percent during the six months through June, it was down from a 7.5 percent growth in the first quarter of this year.

A trade war between China and the United States is likely to be prolonged, "putting more downward pressure on the Chinese economy," said Kenji Yoshikawa, a senior economist at Mizuho Securities Co.

If China continues to shy away from taking economic pump-priming measures such as fiscal action and monetary easing to curb financial stability risks, the pace of China's economic slowdown may "speed up," Yoshikawa added.

Earlier this month, the People's Republic of China cut the amount of cash that some banks must hold as reserves, in an effort to make financial markets more accommodative, and the central bank might be urged to loosen its monetary grip further down the road.

Monetary easing, however, would overheat asset and real estate investment and boost the issuance of corporate debt with interest rates decreasing. If the number of bankruptcies rises, that would negatively affect the Chinese economy across the board.

In addition, should the central bank provide more liquidity to the market, the Chinese yuan would depreciate.

A weaker yuan usually bolsters exports by making Chinese companies' products cheaper abroad and driving up the value of overseas revenue in yuan terms, but it also pushes up import prices and causes inflation at home.

"China will be forced to struggle to decide and take appropriate economic and monetary policies ahead," said Yusuke Miura, a senior economist at the Mizuho Research Institute.

The U.S. administration led by President Donald Trump has started to impose higher tariffs on steel and aluminum imports from major trading partners, including China and the European Union.

Washington also said last week that it will impose 10 percent tariffs on an additional $200 billion in Chinese imports as early as September, in response to China's alleged intellectual property and technology theft.

The United States had already slapped additional 25 percent duties on $34 billion of Chinese imports earlier this month -- the first round of the new tariffs worth $50 billion. China immediately retaliated with duties on the same value of U.S. goods.

Trump has pledged to reduce the huge U.S. goods trade deficit with China, which totaled $375.23 billion last year, nearly half the U.S. trade deficit globally.