China’s economic and financial risks and the prospect of reforms: An interview with David Daokui Li

In this interview, David Daokui Li, a prominent economist and professor at Tsinghua University, discusses the critical economic and financial risks facing China and proposes reforms to address them. He categorizes the risks into short-term “firefighting” risks, such as those in the real estate sector, and long-term systemic risks, including local government debt and economic imbalances. The real estate market’s financial instability, exemplified by declining sales and developer challenges, requires immediate interdepartmental coordination to prevent systemic fallout. Meanwhile, local government debt, estimated at 70–90% of GDP, demands sustainable solutions like long-term bond issuance, leveraging China’s high savings rate, and state-owned assets. Li also highlights the imbalance between production and consumption, driven by policy biases, and advocates for tax reforms to redistribute value-added tax revenues to consumption regions, alongside revising local government performance metrics to prioritize income and consumption growth. He emphasizes the need for a comprehensive approach, including financial sector reforms, fiscal policy optimization, and systemic risk management, to ensure China’s economic stability and sustainable development. The interview underscores the urgency of coordinated, multi-faceted reforms to navigate both immediate and long-term challenges.