zhou xiaochuan : financial cooperation between china and europe address by zhou xiaochuan, governor of the people ’ s bank of china, at the first china - europe financial services and regulation roundtable conference, shanghai, 28 october 2005. * * * ladies and gentlemen, good morning. on behalf of the people ’ s bank of china, i would like to take this opportunity to express my warm welcome to all the guests and delegates to attend the first china - europe financial services and regulation roundtable conference co - sponsored by the people ’ s bank of china and the european commission. the roundtable conference not only provides a good opportunity for china and europe to have high - level dialogue about financial services and regulation, but also creates a new platform for further cooperation in this regard. we will exchange our views sincerely about financial services and financial markets regulation, the challenges brought by globalization trend, international cooperation and other issues of our mutual interests in a very pleasant atmosphere. the conference was held in shanghai because it is the financial center of china harboring a large number of domestic and foreign financial institutions. on 10 august 2005, the people ’ s bank of china established the shanghai head office. the event of the first china - europe financial services and regulation roundtable conference in shanghai holds great significance for the development of shanghai as a financial center, as well as financial exchange and cooperation between china and europe. in the recent years, economic and trade relations between china and europe have been strengthened gradually. the ancient “ silk road ” tied china and europe closely more than 2000 years ago. since the reform and opening - up, china has registered an average annual gdp growth rate of 9. 4 percent, while on the other side of the euro - asia continent, the european union has gradually developed into an organization comprising 25 member countries. in 2004, the enlarged european union became the largest trading partner of china, china became the second largest trading partner of the european union and the bilateral trade volume reached over usd170 billion, increasing by 33. 6 percent. as of end - december 2004, the european union had nearly 20 thousand enterprises invested in china with the contractual value of capital reaching usd75. 38 billion. china has benefited much from the eu in the process of economic cooperation in terms of capital, technology and advanced management experience. at the same time, the rapid development of chinese economy also provided many chances for the eu countries. after its accession to the wto, china has stepped up reform and opening - up of

the household financial assets. the irrational financing structure not only fermented a formidable potential financial risk but also seriously hindered economic development. therefore, the financial community has reached a consensus on improving financing structure, with emphasis on developing capital market especially the bond market, which shall allow enterprises and investors to directly raise funds from or invest in the market. in addition to promoting the steady development of the stock market, developing the inter - bank bond market provides us another effective way to reform the irrational financing structure. thus, an improved financing structure is in great need and shall provide new opportunities for accelerating the inter - bank bond market development. second, improving financial macro control system and transmission mechanism calls for fostering the development of the inter - bank bond market. a well - functioned financial market is crucial for conducting indirect financial control. in recent years, the inter - bank bond market has grown rapidly and played a significant role in ensuring the effective transmission of monetary policy and improving macroeconomic control. however, the depth and breadth of the market still need to be developed, financial products and trading instruments are yet to be diversified, and the market liquidity remains low. therefore, efforts should be made to strengthen market infrastructure, increase the diversity of financial products and improve market functions so as to ensure the effective implementation and transmission of financial control policies. third, upgrading the inter - bank bond market is vital for the reform of financial institutions. the interbank bond market should provide not only investment facility for commercial banks and other financial 2 / 4 institutions but also instruments for their liability management, flexible means to adjust asset structure, and source of funds to supplement the capital base and enhance the capital adequacy ratio. moreover, it should offer more measures and various instruments for financial institutions to adjust their asset and liability structure and create a favorable market environment for their reform so as to enable them to transform their operating mechanism through market - based means and become micro financial entities commensurate with the market - oriented economy. iii. some reflections on accelerating the inter - bank bond market development in order to further develop the inter - bank bond market, under the guidance of the central government and the state council, the pbc will deepen the reform with the priority in financial product innovation by following the principles of market economy and relying on the initiatives of market participants. meanwhile, the pbc will also coordinate the development of product innovation and the market growth within the market capacity, foster the market infrastructure construction, and advance the development of the inter