—— Speech of Mr. Tang Shuangning at the “2007 China Financial Derivative Product Summit Forum”

　　I have attended a number of such meetings before; except that I am present at this meeting as a supervisee instead of a financial supervisor. Days ago during my participation of the Davos Forum in Dalian, the mayor of Dalian invited me to look at Dalian on the sea, saying “enjoy a different view since you have seen times of the city on the land.” I do not know whether this arrangement is intentional or not, and whether it indicates that I am going to look at the financial issues, including the QDII business, as a supervisee instead of a supervisor. Now, I am going to say something about the development of QDII business in China-invested financial institutions from the perspective of a supervisee.

　　1. Background

　　The development of QDII business is characterized by two points: one is the excess liquidity resulted from the drastic increase in foreign exchange reserve; the other is the accumulation of financial risks as a result of the unilateral price rise in the stock market and the real estate market. Against such a background, the financial regulators timely adjusted the foreign exchange management policies, loosened the restrictions on overseas wealth management of domestic capitals, and initiated QDII business in commercial banks, in consideration of the changes to demand and supply of foreign exchange and the overseas investment demands of domestic financial capital.

　　As a significant institutional and product innovation, the development of QDII business has become a key task in the globalization strategy of China’s capital market, imposing profound impact to the generation of international-based game rules and the market-based allocation of resources on the capital market: it will boost the gradual open-up of Chinese capital market and play a significant role in improving investor structure, enhancing investment concepts, promoting reasonable resource allocation on the capital market and etc.

　　2. Current Development Status in China

　　In April, 2006, the People’s Bank of China (PBOC) adjusted the foreign exchange management policies with the issuance of No. 5 announcement; in May, China Banking Regulatory Commission (CBRC) released the Provisional Management Measures on Agent Overseas Wealth Management Business of Commercial Banks, marking the official initiation of QDII business; in August, fund companies were allowed to conduct QDII business, and in December, insurance companies obtained the qualification for overseas investment. 2007 has witnessed fast development of QDII business. CBRC released the Circular on Adjustment to the Investment Scope of Commercial Banks’ Agent Overseas Wealth Management Business, broadening the investment scope of banking QDII products in May; China Securities Regulatory Commission (CSRC) released the Provisional Management Measures on Overseas Securities Investment of Qualified Domestic Institutional Investors in June, allowing the securities operation institutions including fund management companies and securities companies to manage and invest funds raised in China to the overseas securities markets in the form of portfolios. The rules and regulations released by CBRC, CSRC and China Insurance Regulatory Commission (CISC) established a sound policy platform for the development of QDII business.

　　During a talk with Mr. Ren Zhigang at the Joint Work Team Conference on Banking QDII Business in Hong Kong in November 2006, I encouraged domestic financial institutions to seize the market opportunity and develop plenty of competitive QDII products. From then, domestic financial institutions have achieved great results in the wealth management businesses: currently 22 China-funded and foreign-funded commercial banks have acquired the qualifications to engage in QDII business, 19 of which have acquired a credit line to purchase foreign exchange for overseas wealth management and investment, and 31 products were launched, with the subscription amount reaching RMB13 billion. In July, 2007, CSRC granted QDII qualifications to 4 fund management companies including Nanfang, Huaxia, Jiashi and China International Fund Management Co., Ltd. and 2 securities companies including CICC and China Merchants Securities. With issuance of guidelines on fund and securities QDII products, the fund and securities QDII business will initiate a large-scale voyage.

　　3. Existing Problems and Solutions

　　The problems facing China’s QDII business mainly include:

　　1. “Passive” business mode. Currently, the common practice of domestic financial institutions on banking QDII products is to purchase structural bills directly from or conclude swap agreements with foreign-invested banks under the framework of cooperation, where domestic financial institutions merely earn the commission incomes and play the role as a dealer by distributing products based on their extensive distribution channels. Though fund companies assume a much active role in the distribution of QDII products, they have to spend time learning the operation rules of the overseas markets, during which overseas advisors serve as an actual investment entity and undertake the tasks such as principal protection, profit gaining, asset allocation and etc. This is inevitable in the preliminary stage after integration into the international market. However, with the development of business, accumulation of experience and consolidation of risk prevention capability, we shall gradually shift from a passive role to an active one.

　　2. “Imperative” risk management. As QDII product investment is exposed to the legal, market, credit, exchange rate and operational risks in the overseas markets, it is imperative that we strengthen the risk awareness and sharpen risk management capability.

　　In fact, these two problems reflect the relationship between security and development. Efforts shall be made to improve the security of QDII business and enhance the risk prevention capability of China-invested and foreign-invested financial institutions; to transit from passive business mode to active one and vigorously boost the development of QDII business; to accelerate the internationalization of organizational structure, talent structure, business structure and etc., tap high-end fields such as product design, investment portfolio, transaction management, risk control and etc., and sharpen our core competitiveness in order to hold foot in the fierce global financial competition. The regulators shall, with a view to facilitating the long-term development of China-invested financial institutions, exercise class-based access management and supervision on financial institutions based on their respective management competency and risk prevention capability, and provide active support to the excellent and strong assistance to the weak, so that the China-invested financial institutions can marsh into the international market as soon as possible.

　　4. Development of QDII Business in China Everbright Bank

　　The State Council recently approved the reform plan of China Everbright Group. The incorporation of China Everbright Financial Holding Group Company will be a valuable exploration in the comprehensive operation of Chinese financial sector and provide significant opportunities for China Everbright Group and its subsidiaries to engage in QDII business.

　　As the first domestic commercial bank to launch RMB wealth management products, China Everbright Bank (CEB) nourishes a strong first-move advantage and good brand effect in the wealth management field, and always pays high attention to the development of overseas markets during design of wealth management products. In April, 2005, based on the cross-currency derivatives, CEB took the lead in launching RMB structural wealth management products, linking the return on investment to the performance of overseas financial markets, the accumulative issuance scale surpassed RMB45 billion within over two years, representing a market share of more than 65%. With the official commencement of QDII business, CEB acquired the qualification for QDII business and also a credit line of USD500 million in September, 2006. The first phase of QDII products, i.e. “Sunshine Wealth Management Sharing No. 1”, was successfully issued to overseas quality fund companies in April 2007, and performs well to date; and the second phase will be launched in late September. As one of the first innovative securities companies, China Everbright Securities (CES) did a lot of preparations in the personnel, technology and risk control of QDII business, and has basically completed the research and development of QDII products. Currently, CES has submitted the application materials for QDII business qualification, and is expected to be approved soon.

　　In the next step, China Everbright Group shall fully utilize its advantages of financial holding license, scientifically and effectively integrate the financial resources of CEB, CES, Sun Life Everbright Life Insurance and China Everbright Holdings, in order to explore the comprehensive financial operation path of the Group; it will make bold innovations to all business procedures of QDII business from product design, issuance, custody, investment research to asset allocation and risk control, in a bid to cultivating the core competitiveness of China Everbright Group in QDII business and erecting the service brand of “Everbright QDII”; it will devote efforts to the transformation of operation mechanisms, improve the core competitiveness and build China Everbright Group into a modern financial enterprise characterized by adequate capital, strict internal control, secure operation, quality service and sound performance.

　　Thank you!