it is not necessary at all to set up hurdles between functional supervision, market entry and development of financial products. with economic development, whichever department is responsible for approval of establishment of institutions, business innovation shall not be impeded. there shall, not necessarily, be contradictions between functional supervision and business development. supervisory departments are adapting to the changing situation, transforming conception and strengthening coordination. besides, to maintain the stable and balanced development of the macro economy, the reports of the third plenary session of the 16th congress of the cpc have stated clearly that the pbc, the ministry of finance and the three supervisory commissions shall further strengthen coordination. the tendency has been reflected in relevant legislations. vi. the inherent advantages of foreign - funded banks have provided great potential for their development in china, and their development shall correspond with the demands of the macro financial situation. since reform and opening, more and more foreign - funded banks have entered the chinese market, playing significant roles in improvement of the chinese financial system and development of the financial market. in the course of economic transition, foreign - funded financial institutions have exhibited some advantages in corporate governance, risk control, risk management, credit culture, decision - making procedure, incentive structure and assets management, producing great potential for their development, and particularly for promoting development of the financial market and financial product innovation. development of foreign - funded banks shall take into consideration the needs of the chinese macro financial situation as well. in the course of economic transition, different industries and regions will have different stages and potential of development. foreign - funded banks might as well attach greater attention to development of some relatively weak financial markets, weak financial products or weak links and to the transformation of the economic structure, by supporting the development of northeastern old industrial bases and western region of china. they shall compete with the chinese counterparts on one hand and complement them on the other. it is hoped that foreign - funded financial institutions in china will do more to meet the needs of the chinese macro financial situation. they shall not only share the profits out of the rapid and stable growth of the chinese economy during the booming period but also weather possible busts and even crises for long - term operation and benefits. the above is also a topic for discussion and deliberation during the meetings of the bank for international settlements in february, 2004.

to the situation and transform their conception. meanwhile, financial products will inevitably change accordingly. first, with the transitional period coming to an end for china ’ s accession to the wto, the national treatment in place and the gradual easing of market entry, financial institutions shall face even bigger international competition. the commitments china made when joining the wto and the requirements of the chinese economy itself call for the accelerated development of the financial market. secondly, with the gradual opening of the market and the progress of the economic globalization, the ratio of foreign trade to gdp in china has reached 60 % in 2003. more and more enterprises are involved in international businesses. objectively, the chinese financial institutions are required to provide corporate customers with a series of financial services such as arbitrage, risk control and fx cash management. the expansion of market demand opens windows of opportunity for the development of the financial market and financial products. third, with the deepening of the opening up, china will improve the formation mechanism of renminbi exchange rate, phase out inappropriate measures of foreign exchange control and realize in the end the renminbi convertibility under the capital account. all the above calls for further development of the financial market and further diversification of financial products. the development and the diversification have been defined as developing the financial market system in an all - direction and multi - level manner. iv. as a developing country and a transitional economy, china shall, despite setbacks in the past, attach great importance to innovation of financial products without refraining from it simply for fear of running risks. in the process, efforts shall be made to deal well with the interaction between accumulation of experience and improvement of regulations and to standardize innovation of financial products by means of the positive and negative lists. in the preliminary period of the opening of the chinese economy in the 1980s and mid - 1990s, there were turns and twists for the innovation of financial products and in turn the annulment of some products and closure of problematic financial institutions due to lack of talents, outmoded technology, deficient management and supervisory inadequacies. the innovation of financial products like those in other sectors, have to undergo the process of learning, personnel training, growth of institutions, maturing of the market and progress of supervision. risks would rise if some conditions are not ripe. besides, the closure of the problem financial institutions has also exposed some weaknesses in the chinese legal system, for example, there are still considerable problems in terms of closure as