su ning : press ahead with reform and opening - up and promote the rapid and healthy development of the financial sector speech by mr su ning, deputy governor of the people ’ s bank of china, at the financial summit, beijing, 23 may 2006. * * * distinguished guests, ladies and gentlemen, good morning. it is a pleasure to attend the financial summit. this year is the concluding year of china ’ s wto accession transitional period. soon, china ’ s opening - up will reach a new stage. over the five years of transitional period, the chinese government has unswervingly pressed ahead with opening - up, actively implemented the promises of financial sector opening, and promoted the reform, innovation and development of financial sector. let me take this opportunity to review the opening - up of financial sector in the past five years and its impact on the reform and innovation of the banking sector. 1. honoring wto commitments and actively opening up financial sector with china ’ s accession to the wto on 11 december 2001, the policy of financial sector opening - up has become more transparent, and the pace of opening more steady and orderly. at present, not only the geographical restriction and business limit on foreign financial institutions have been lifted according to our wto commitment, but also the range of financial sector opening - up has been widened. in the banking sector, the commitment of lifting geographical and business limit on rmb business of foreign banks was honored. foreign banks are allowed to provide rmb services to chinese companies in 25 cities. the geographical and client restrictions on foreign exchange business of foreign banks were removed. under the precondition of ensuring the state ’ s controlling stake and the country ’ s financial safety, foreign capital were allowed to take part in the reform of state - owned commercial banks. in the securities sector, commitments of opening - up were honored ; in addition, explorations have been made to further open the securities market. foreign investors are allowed access to the b share market ; sino - foreign joint ventures are allowed to raise fund in the a share market ; qfiis are introduced to the a share market ; securities service sector are partially opened by allowing sinoforeign joint venture or cooperative companies access to underwrite securities issuing and wealth management in the domestic market. in the insurance sector, almost all geographical and business limits have been lifted. foreign insurance companies can operate without any geographical limit and in almost all businesses except compulsory insurance. international financial institutions are given further access to the

luxembourg we still have significant gaps, particularly with respect to institutional reforms and the adjustment of our model of supervision. in this regard, i am aware that there is no perfect supervisory model, nevertheless, we must try to profit from the recent experiences of other neighbour countries in order to mitigate systemic vulnerabilities and enhance financial stability. as you know, different countries ; u. k., belgium, france and recently switzerland, have adjusted their model to be more integrated. so it would appear self - evident that central banks, given their role as lenders of last resort and their responsibilities in monetary policy and liquidity management, should play a key role in safeguarding financial stability. however, the lender of last resort might be the most important backstop during periods of financial turbulences, nevertheless this should not be a “ free lunch ”. in order to fulfill their responsibilities effectively, central banks should be equipped with a clear and independent macro - prudential mandate and toolbox to assess and mitigate macro - prudential risks at the systemic level. this proposal is coherent with the bis central bankers ’ speeches recommendations of the de larosiere report which attributed an umbrella role to central banks in the supervisory framework. in this regard, it must be assured that national macro - prudential authorities have the flexibility to adjust regulatory requirements over the business cycle. thus, i welcome the commission ’ s proposal regarding crd iv in particular, the countercyclical capital buffer. however, the macro - prudential regime must find a balance between preserving national flexibility – as the business cycle varies between european countries – and maintaining a level playing field so as not to distort competition within the single market. as i mentioned, aside from the institutional arrangements, many challenges remain to be resolved. the g - 20 and the european commission have taken some initiatives in addressing the regulatory deficiencies highlighted by the crisis. these include basel iii, otc derivatives, the shadow banking system, high frequency trading, central counterparties ( ccps ) and crisis resolution mechanisms, etc... such proposals remain at an early stage and still face the challenges of jurisdictional realities. let me now focus on some specific issues that may arise under the new regulatory regime. with respect to liquidity, two new instruments have been proposed i. e. the liquidity coverage ratio ( lcr ) and the net stable funding ratio ( nsfr ). these quantities are intended to improve financial institutions ’ liquidity risk profiles