fiscal deficits ; rigid exchange rate system and imbalances of payments contain significant risks ; bank clients and bank - enterprise relationship also hold significant risk ; some existing governance problems may require further state financial rescue if not addressed timely ; the lack of autonomy and scientific techniques in pricing loans may give rise to significant financial risk ; the inadequate innovation mechanism may lead to rigidity that constrain competition ; and, a balance needs to be struck between maintaining financial stability and preventing moral hazards. many of the above relate to the legal problems in our financial ecological environment. for instance, looking at the bank - enterprise relationship, the chinese enterprises have high financial leverages with low self - owned capital and relying mainly on bank lending. can banks completely rely on external information or have to resort to internal information to some degree? when default happens, would the legal arrangements be helpful to protect creditor rights and minimize the losses? risks in the economy make the forming of npls unavoidable, yet in the process of disposing of npls, how much control do banks have as the creditors? as for the bank - enterprise relationship should it be control - oriented or be at - arms - length? answers to the above relate closely to legal conditions or “ established practices ” and concern accounting standard, external auditing, disclosure, law enforcement, and accessibility of market information. in bank - enterprise relationship, in addition to normal checks and balances, the more important thing is whether the banks have a deterrence of last resort against the borrowing enterprises. as a creditor, the bank would wish the borrowing enterprise to fix its problems as soon as possible. even so, it is inevitable that some enterprises go default. in the later case, it is a key issue whether the legal arrangements and claims can be ensured effectively and efficiently in line with the insolvency law. maintaining financial stability and preventing moral hazards are also closely related to the legal environment. without an explicit legal framework for closing and liquidating financial institutions, we may take measures without legal basis and cannot guarantee being “ fair and square ” in addressing financial stability issues. this may have social stability consequences as the laws do not define clearly the rights and responsibilities of the investors and depositors and that the market participants have no expectation of risks and could not make informed decisions. whether the market participants can and how they should discipline financial markets and financial institutions also demand clarifications on the base of law. ii. issues currently under debate today, i would

to 13. 5 trillion. in the first half of 2009, bill financing, i. e., financing based on commercial drafts, recorded 12. 8 trillion yuan, which amounts to 57. 7 percent of the stock exchange turnover, or 162 percent of the turnover on the interbank borrowing market during the same period. despite the rapid development and growing importance, commercial drafts face a number of problems. these include irregularities in draft acceptance and discount, dishonor by nonpayments, fake drafts, and unregulated innovation. other aspects of the weaknesses include the decentralized markets and inadequate use of information technology. these problems could lead to financial risks, threaten fund security, and hamper the development of the draft market. electronic drafts provide an effective solution to these problems. with the legal foundation and technological support in place, the pbc decided in january 2008to introduce electronic drafts and set up an electronic draft system the system was completed after over one year ’ s preparation. the new system has three major functions. it is designed to receive and process data of electronic drafts and provide relevant payment and clearing services. it serves as a platform where paper drafts are registered. moreover, the system provides quotations for interbank discount, a service that will be offered later. the development of electronic drafts needs institutional support. to ensure the secure, stable, and efficient performance of the system, as we started the new system, we also released 9 regulations in an effort to regulate the behaviors of participants. the launch of electronic drafts and the new system is of great significance. it helps to reduce, or even eliminate operational risks, lower trading costs, improve trading efficiency, and foster the development of a single national draft market. it will encourage the development of commercial acceptance drafts. with the introduction of electronic drafts, short - term interest rates will better reflect the supply and demand in the market. the new system will provide statistics of higher quality to support policy making. electronic drafts will provide a convenient and low - cost financing channel for enterprises, particularly small - and medium - sized enterprises. it will also shape the way financial institutions manage their draft businesses. electronic drafts and the new system have brought a number of changes. with the latest technology integrated in the new system, the traditional manual mode of draft business will be replaced by an advanced one that is based on computer networks. moreover, finance companies can directly access the draft market through the new system, and the maximum period for draft payment is extended from 6 months