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"China is the No 1 growth market in the world, and they have been clear about their intended leadership in bringing hybrid and electric vehicles to market," said Don Walker, Magna CEO.

"China is being pressured from both sides," an unidentified MIIT official told Xinhua. "Advanced economies such as the United States, Germany and Japan have all formulated policies supporting further development of their own manufacturing. At the same time, emerging economies such as India and Brazil are catching up with their own advantages."

"China has a huge growth market," Poole said. "Brexit is looming upon us and China has a growing economy - it's a world leader in some areas. What tech firm Alibaba did was just phenomenal."

"But the yuan is not heading for any major appreciation," Yang said, citing the regulators' policy stance of further improving the exchange rate regime and "keeping the renminbi exchange rate generally stable at an adaptive and equilibrium level".

"China has quickly vowed to retaliate and if such an escalation does materialize, it would have significant economic impact on China, the US and the rest of the world, at a sensitive time for the global economy," it said.