to meet the needs of socialist market economy development. the development of the social credit registration system and credit reference agencies is still in its infant stage, credit information of firms and individuals are not effectively collected and accurately assessed and financial institutions cannot make accurate business decisions based on credit information provided by the clients. effective penalty mechanism for credit slippage has not been established and all relevant parties in the society are yet to clarify and build consensus on the basic concept, function and development orientation of the social credit system. rules and regulations concerned with credit registration are rather lagging behind, in particular, there is no clear distinction between reasonable credit information collection and protection of individual privacy and commercial secrets. in such an environment, financial innovation will be inevitably suppressed. 4. an excellent environment of intermediary services. intermediaries will affect financial innovation in the sense whether they could timely and accurately expose the value and risks of financial products to the investors. with the socialist market economy gradually improved, markets will increasingly strengthen its basic role in resource allocation. accordingly, financial innovation will be gradually transferred from relying on administrative approval to market discipline based on standard information disclosure and credit rating, which set higher requirements on intermediary services, such as on payment and settlement, credit rating, accounting and legal advice etc. frankly speaking, compared with international standards, china still has a long way to go not only in improving its accounting, auditing and rating standards, but also in providing the related intermediary service and fostering code of conducts and business integrity. strengthening infrastructure and improving intermediary services, particularly integrity of the intermediaries, become an urgent task to improve financial ecological environment. i listed the above basic conditions for financial innovation from the perspective of financial ecological environment. to cultivate those conditions, we need to further push changes in mindset, institutions and operating mechanisms. therefore, we should further improve financial ecological environment associated with institution building, law enforcement, credit system and intermediary services so as to create a favorable platform for financial innovation. first, establishing a market - driven financial innovation system. basically speaking, financial innovation originates from the intrinsic needs of economic and financial market development. governments at different levels and financial regulatory authorities could only play positive roles by improving legal system and relevant mechanisms and maintaining market orders. take the corporate bond as an example. corporate bond is a matured financial product in market economies and a direct financing tool that market players bear relevant risks themselves ; therefore, we can adopt more market - oriented strategy and

su ning : improve financial ecological environment, promote financial innovation, boost financial development speech by mr su ning, deputy governor of the peoplea€™s bank of china, at the first china financial forum, shanghai, 3 november 2005. * * * honorable guests, it is my pleasure to attend the financial ecological environment forum co - sponsored by the china society for finance and banking and the financial news. based on their local practices, several mayors and governors have just elaborated on the significance of improving financial ecological environment in terms of promoting harmonious financial and social development. improvement of financial ecological environment holds great importance not only to financial stability, but also to financial innovation and development. i would like to take this opportunity to share with you my observations on the relationship among improving financial ecological environment, promoting financial innovation and boosting financial development. with huge increase of financial assets and more diversified financial institutions, on one hand, china's financial industry developed rapidly since opening - up and reform. on the other hand, the overall financial development is still at low level and lack of competition. we have the highest saving ratio globally, but we have not fully and rationally utilized those savings, particularly, we have rather unsatisfied financial structure that cannot meet the investment and financing needs of multi - layer economic agencies, with the banking sector taking a dominate position over other financial sectors, low proportion of direct finance and limited breadth and depth of financial market. furthermore, due to the simplified financing structure and lack of financial instruments, financial risks were concentrated excessively and financial stability is under threat as well. the situation roots from not only china's current economic and financial development stage, but also from some fundamental conditions, especially financial ecological environment conditions. as a result, the improvement of financial ecological environment plays an important role in encouraging financial innovation and creating a favorable external environment for the financial industry. 1. an improved legal environment. an ideal legal environment can promote financial innovation. basic legal rights, like property right and creditor's right, could provide clear definition and sufficient protection in the process of financial innovation. take the enterprises insolvency law as an example. it was stipulated mainly to deal with state - owned enterprises'insolvency more than 20 years ago. currently, many state - owned enterprises have been transformed into companies with different ownership structures, thus we need a standard enterprises insolvency law consistent with the socialist market economy. a good enterprises insolvency law will define and