David Daokui Li: China Banks Should Look for Investment Projects from Enterprises to Lower Financing Costs

Prof David Daokui Li considers that banks in China should look for investment projects from enterprises to further lower financing costs.

David Daokui Li

Video (in Chinese) here…

Li Daokui, member of the 12th CPPCC National Committee, China’s top political advisory body, made a speech on Monday afternoon, pointing out that shortage of money is not the reason for high financing cost of enterprises.

“Now, the main investors of these infrastructure projects are governments at various levels as well as relevant investment platforms. Guaranteed by governments, these infrastructure projects are much easier to get loans from banks. For banks, it is a stable source of profit. However, these projects usually take long-term loans and the banks keep on helping these projects with financing in a way of providing new loans. It causes a direct consequence that banks have limited money to loan enterprises. That is why enterprises, especially small and medium-sized enterprises facing a lack of loans,” Li said.

Li, also head of Tsinghua University’s Center for China in the World Economy, stressed that reform on finical system is necessary to solve this issue, adding that commercial banks should quit the field of long-term infrastructure construction financing and local governments can raise capital through other methods including issuing bonds, which can also improve the transparency of local finances and lower the financing cost.

“I think it will definitely affect banks in the short term, but in the medium- and long-term, banks have to find new ways for their short- and medium-term investment. In fact, there are a lot of promising investment projects in the Chinese economy, so the banks have to focus on servicing enterprises and looking for investment projects with high return from the enterprises,” he said.

David Daokui Li

David Daokui Li 李稻葵 is one of China’s most influential economists and most eminent professors. He is a former member of the Monetary Policy Committee of the People’s Bank of China. He is the Director of the Center for China in the World Economy (CCWE), Mansfield Freeman Professor of the Department of Finance of the School of Economics and Management, and Director of the Scholars Programme at Tsinghua University, Beijing.

Li is frequently quoted in the Wall Street Journal, Bloomberg, New York Times, Financial Times, China Daily, and more. He is a renowned expert on the Economics of Transition, Economic Development, Corporate Finance, International Economics and the Chinese Economy. In 2006, Li was chosen by Wall Street Wire as one of the top 10 most influential economists in China. In 2010, he was voted as the only economist among the 10 CCTV Men of the Year of the Chinese Economy.

Li received his Ph.D. degree in Economics from Harvard University in 1992. His current research interests are China’s macroeconomy, economic development models, international comparisons of economic growth, and China’s need to pursue a development pattern fitting with its large economic status.

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