China has been trying to cope with a slowing economy and volatile stock markets and has cut interest rates and relaxed bank lending restrictions. The country has also cracked down on short sellers.

"What is alarming is the imposition of rules and regulations which prevent investors from liquidating positions," Mobius, executive chairman of Templeton Emerging Markets Group, said.

"One example would be the "short swing" rule which has prevented the selling of Chinese securities when a certain holding size is reached," he told Reuters in an e-mail.

The $8.5 billion Templeton Asian Growth Fund that Mobius manages invested 23.8 percent of its assets in China at the end of July, below a 28.3 percent weight of the country's shares in its benchmark MSCI AC Asia ex-Japan Index.

China is also probing potential market manipulation following the plunge in its stock markets since mid-June.

Mobius said it was no surprise that Chinese authorities were summoning market participants to look into the reasons behind the steep fall in its share markets.

Mobius also said that China was pumping liquidity into its markets to prevent a downturn but a move to put pressure on companies to buy back their own shares was not a good idea.

"I believe the authorities in China are learning and this process is on-going regarding how to handle market behavior," Mobius said.

"They definitely want to transform China into a market economy and given that intention, I think they will not continue to try to impose drastic controls."