Indeed, Shanghai Pudong Development Bank (SPDB)'s decision to establish its branch in Singapore – the first for SPDB outside China – is testament to the bank’s confidence in deepening Shanghai-Singapore ties. 12 So how do we leverage the strengthening ties and the positive developmental trajectory to benefit Shanghai and Singapore as regional financial centres? Allow me to propose some suggestions, which I hope would lead to further discussion during the forum today. Amidst the current focus on developing China’s onshore capital markets to support capital market liberalization and RMB internationalization, Singapore and Shanghai financial institutions can work together in developing appropriate risk management and hedging tools. A wider suite of risk management tools would address the needs of a larger pool 13  of investors, which would in turn facilitate more investments into China’s capital markets. To support the Belt and Road Initiative, there is room for Shanghai and Singapore financial institutions to develop a comprehensive financial architecture to support the 14  wide range of financial needs related to the initiative. a. First, both can work together to encourage greater use of capital markets and direct financing channels. To incentivise the use of bond markets for financing purposes, MAS introduced the Asian Bond Grant Scheme in Nov 2016, for first-time Asian bond issuers. To make it more attractive to tap international bond markets, the scheme offsets up to 50% of issuance costs arising from engaging related legal, arrangement and credit rating services.

In light of Asia’s widening protection gap, governments would need to shift away from retaining risks, and transfer a larger proportion of risks to the insurance industry, in order to increase their national resilience against natural disasters. Instead of tapping on ex-post disaster risk financing options such as government budgets, public debt issuances and international donations, it is increasingly important for economies in the region to pursue ex-ante risk financing solutions to finance natural catastrophe losses. 6. Amongst the various risk financing solutions, insurance in particular, has been found to exert a positive effect in mitigating financial consequences of a natural catastrophe event. A study on the macroeconomic costs of natural catastrophes4 has shown that an increase in insurance penetration by 1 percentage point can lower the cost borne by taxpayers by approximately 22 percent. It has also been found that with adequate insurance coverage, economic activity returned to pre-catastrophe levels long before reconstruction was completed. 7. Specifically, insurance can lower the fiscal impact of natural catastrophes on governments in two ways5: (i)  Firstly, it has a preventative effect by providing price signals, which in turn create incentives for the insured to undertake physical risk prevention measures. This reduces their physical vulnerability to natural hazards, and can help to avoid more costly damages in a loss event. (ii)  Secondly, it has a loss mitigation effect by providing prompt financial relief to support immediate reconstruction efforts, which will help to moderate further indirect losses, such as from business interruption.