zhou xiaochuan : development of china ’ s inter - bank market address by dr zhou xiaochuan, governor of the people ’ s bank of china, at the opening ceremony of the shanghai clearing house, shanghai, 28 november 2009. * * * mayor han zheng, distinguished guests, dear colleagues, ladies and gentlemen, good morning. today, we gather here to celebrate the establishment of the shanghai clearing house. this is a milestone in the development of china ’ s inter - bank market. on behalf of the people ’ s bank of china ( pbc ), i ’ d like to extend warm congratulations on the founding of the shanghai clearing house. i also thank the shanghai government and people for your gracious support. as a key component of the financial market system, the inter - bank market is playing an increasingly important role in macroeconomic management, fund allocation, pricing and risk management. the people ’ s bank of china is committed to developing the inter - bank market. over the past few years, efforts have been made to enhance financial innovation, improve the market - based mechanism, and expand institutional investors on the market. the inter - bank market has grown in both depth and width. in 2008, the turnover in the inter - bank borrowing market and the inter - bank bond market totaled 114 trillion yuan, an increase of 560 percent from that in 2003. nominal turnover of interest rate derivatives recorded 924. 32 billion yuan, 6. 56 times that in 2006, while nominal turnover of exchange rate derivatives registered us $ 917. 9 billion, 7. 07 times that in 2006. transactions on the inter - bank foreign exchange market also multiplied. the rapidly developing inter - bank market needs more efficient and secure clearing services. in june, the pbc launched the net value clearing service for spot over - the - counter ( otc ) transactions in the inter - bank foreign exchange market, which effectively reduced bilateral credit sizes and lowered clearing costs. the centralized clearing of otc transactions is an international issue. centralized clearing systems for over - the - counter spot trading and derivatives transactions of foreign exchange and interest rate products have been set up in advanced countries and in emerging market countries such as brazil and india. more importantly, following the financial crisis, countries have reached consensus on controlling financial transactions risks. countries agreed that lowering counterparty risk and ensuring effective supervision and regulation are the key to ensure secure and orderly development of the otc derivatives market, which can be best achieved through centralized clearing. in april,

and will take time for the demand - supply equilibrium to be established. on the asia pacific front, the asian development bank has recently announced us $ 500 million of immediate budgetary support to help countries that have been worst hit by rising food prices. with increasing food prices and high oil prices, mitigating the impact of strong inflationary pressures will remain a key priority for many asian governments. in such an environment, companies too will have to carefully manage the higher input and other costs and how much of that to pass on to consumers, to preserve your margins without losing either competitiveness or affordability. subprime crisis and asia ’ s continued push to deepen capital markets the second issue is the turmoil in global financial markets. the transmission of the crisis is a good illustration of how inter - connected financial markets are today. the problem started with us subprime mortgages, in fact a relatively small part of the us mortgage market, but it rapidly escalated into other securitized markets, to more generic debt capital instruments and eventually into the wholesale or libor money markets. from there, as central bank surveys have shown, there is now a general tightening of lending conditions to end - borrowers, which are exerting a drag on the us and western european economies. asia has felt some of the tremors of this crisis, but as yet we have been relatively unscathed. in the banking sector, a number of banks in the region wrote off losses on their us sub - prime mortgage related assets. compared to their peers in the us and europe, the impact on their balance sheets and profitability has been less severe. this can be attributed to a combination of factors. following the asian financial crisis, banks here had taken active steps to improve their credit standing by enhancing their capital base. we are also aided by the fact that we are more reliant on traditional banking rather than the capital markets for our debt financing. beyond the direct impact on banks, the general reduction in risk capital and financial deleveraging will be felt in asia, through higher costs of capital. this is the downside that many companies and investors will have to confront. on the upside, this should further spur the efforts of asian countries to make their own financial intermediation process more efficient. this can be done through a lowering of barriers to global capital and the building of channels to facilitate the growth of this capital. global investors will increasingly look to asia for investments as asia remains an attractive area for growth