China Rebalancing
A Debate

Chang Li and David Daokui Li

Dr Cheng Li
Brookings Institutions

A Debate:

Two leading Chinese economists discuss the challenges of China’s economic rebalancing.

David Daokui Li
Tshinghua University
Investec Asset Management's Investment Institute

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Few words are more frequently mentioned in the context of China’s economic reform agenda than “rebalancing”. What will a rebalanced Chinese economy look like? Has the Chinese leadership come to grips with sources of resistance to change? What is the likely balance and sequencing of local government, banking, exchange-rate, environmental and judicial reform?

Two leading analysts of China’s economic and political leadership, David Daokui Li from Tsinghua University in Beijing and Chen Li from the Brookings Institution in Washington DC discuss these issues with Malan Rietveld, Director of the Investment Institute.

38% of GDP in 2007

46% of GDP in 2015

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David Daokui Li believes that some imbalances arising from the old engines of Chinese growth, such as over-capacity in basic industries and residential property, will likely correct without substantial government intervention. But Chen Li thinks that Beijing faces greater challenges in enacting financial reforms and rooting out corruption to enable its financial markets to mature. These changes should help the country’s financial services industry provide the growing middle class with a greater range of investment options through which to channel their savings.

While foreign investors view the internationalisation of the renminbi and easing of restrictions on cross-border capital flows as key to their involvement in China’s economic plan, David Daokui Li believes this is not a high priority for Beijing. Instead the government is focusing on the domestic side of the equation, particularly developing the local bond and equity markets to reduce the influence of the shadow banking sector and provide sustainable financing for domestic firms.

The government is focusing on the domestic side of the equation, particularly developing the local bond and equity.

According to Chen Li, the government is taking a cautious approach to implementing its roadmap for economic rebalancing as President Xi understands that liberalising China’s capital markets and bringing in foreign investment could have unforeseen implications that might push his agenda off course. Many of these reforms, he thinks, could have profound implications for China’s political, economic and social stability and will need to be carefully managed.

These changes should help the country’s financial services industry provide the growing middle class with a greater range of investment options through which to channel their savings.

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1.2

Enter The Dragon: Internationalising The Renminbi

Michael Power

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