China Faces ‘Mini Crisis’ on Debt Defaults, Ex-PBOC Adviser Says

China is headed for a “mini crisis” in its local-government debt market as economic reforms lead to the first defaults, according to a former adviser to the People’s Bank of China.

“It will be a partial, controllable and mini crisis,” Li Daokui told reporters on the sideline of the Credit Suisse Asian Investment Conference in Hong Kong today. “There’s tremendous room for the central government to fix the problems in local government debt. Defaults must be allowed to restructure the debt, which will definitely happen as part of the reform measures in the second half of this year.” Li is a former member of the PBOC’s monetary policy committee and is director of Center for China in the World Economy at Tsinghua University.