Hello, everybody! Just Before I began my speech, a poem of Emperor Li Yu of the Nantang Kingdom (961-976) sprang up in my mind. The poem goes: “In silence I walked up West Lodge, The moon a mere sickle. A lone parasol tree in a deep courtyard. That locked up a limpid autumn. A feeling welled up, too stubborn to be severed, too tangled to be sorted. This the sorrow of parting, this a strange emotion that’s heart-pervading.” He composed the poem when he was jailed in Kaifeng. Please do not take me wrong when I say I thought of this poem just now. I was not in bad spirit. What I mean is that when I saw the mayors in charge of financial affairs, I thought of the regional finance and the city commercial banks which I had long been in charge of. Though I am working today for Everbright Group, I still have the sorrow of parting from the city commercial banks, which is too stubborn to be severed and too tangled to be sorted. That was a unique feeling in my heart. For years, I had forged a close relationship with the city commercial banks. Beginning in 2003, I worked as the vice president of the China Banking Regulatory Commission, to be in charge of regulating city commercial banks. On five occasions when the national conference on the work of city commercial banks and the forums on the development of city commercial banks were held respectively in Nanjing, Yinchuan, Shenzhen, Jinan and Beijing, I attended and addressed all of them. I may say that I was the main person who defined the principles for the development of city commercial banks under the leadership of President Liu Mingkang and with the support of the comrades of the second regulatory department of the China Banking Regulatory Commission. In recent years, city commercial banks have continued to ease their original risks and to reform and grow, without a penny injection from the state (central finance), on the basis of the past work of the People’s Bank and with the strong support of the regional governments. Today, many of the past “ugly ducklings” have become “white swans”. Today when I meet the financial mayors, I have a sense of fulfillment and a sense of satisfaction. We are comrades-in-arms in the same trench.

　　The development of China’s city commercial banks can be roughly divided into three stages.

　　First, the stage of difficult beginning. As you all know, city commercial banks were formed in the mid-1990s on the basis of city credit cooperatives. And the city credit cooperatives were mainly established in the first years of China’s reform and opening up by some financial institutions to run service trades and offer employment to the children of their staff. These city credit cooperatives played some positive roles in offering employment and promoting the development of the regional economies. However, due to their innate defects such as systems, mechanisms, management expertise and personnel qualifications, these credit cooperatives accumulated lots of risks in the course of development. When city commercial banks were formed in 1995, they were over 5,200 city credit cooperatives nationwide, which were described by some people as 5,200 time-bombs (naturally, not all of them were time bombs. Some of them were in good shape. But on the whole, the risks were enormous.) To ease these risks, the State Council decided that city commercial banks would be established as from 1995 in the 30 plus large and medium-sized cities across the country. That represented the difficult beginning of the journey of the city commercial banks.

　　Second, the stage of work transformation. From 1995 to 2002, over 100 city commercial banks operated on the market. At the very beginning, the ratio of their non-performing assets on account was as high as 30 percent according to the four-category classification. In fact, the ratio could be more than 50 percent according to the five-category classification and the capital adequacy ratio was a negative figure. As no accurate statistical data were available at the time, it was very difficult to clearly illustrate the risks of these city commercial banks. But on the whole, the risks were fairly high. The People’s Bank did a great deal to ease these risks. It convened three forums on city commercial banks and conferences on regulatory work, at which all of the participants worked together to analyze the situation and identify the problems. We should say that the three forums held by the People’s Bank helped identify the overall state of risks confronting city commercial banks and heighten the sense of urgency in handling these risks. They provided an information exchange platform for risk reduction and explored ways for easing these risks. In the meantime, the three forums forced city commercial banks to move from a one-man battle to a collective battle. Through this exchange platform, city commercial banks formed a group, in which they communicated with and draw strength from each other. From then on, the city commercial banks began moving from extensive to intensive operation and management.

　　Third, the stage of accelerated reform. The period from 2003 to 2008 is a period of accelerated reform and development of city commercial banks. This period is yet to end, and now we are in the late stage of the acceleration period. After the China Banking Regulatory Commission was established, five more conferences were held on top of the previous three forums, to summarize and exchange the new conditions and new problems concerning the reform and development of city commercial banks and to introduce a series of measures and requirements for easing risks and for promoting reform and development. As a result, the overall state of the risks of city commercial banks has improved tangibly.

　　One, their historical problems have been effectively solved. In recent years, the regional governments have eased the risks of city commercial banks and effectively solved the problems left over in history, through effective asset replacement, non-performing asset stripping and government capital injection. Over the past five years, 59 city commercial banks across the country disposed a total of RMB 70 billion of non-performing assets and 31 city commercial banks received capital injection of RMB 10 billion from regional finance. In 2006 in particular, the city commercial banks replaced RMB 10.6 billion of non-performing assets, with a capital injection of RMB 4.2 billion from regional finance. Through these effective risk disposal measures and without receiving any state input, the bad loan ratio of the city commercial banks on average dropped from 30 percent based on the four-category classification five years ago to 4.8 percent based on the five-category classification. Their capital adequacy ratio also rose from the negative figure five years ago to 8.5 percent. These were the great historic achievements made in the reform and development of city commercial banks.

　　Two, their corporate governance mechanisms have been gradually improved. In the course of solving historical problems, the city commercial banks have introduced strategic investors and actively learned and drawn on the advanced concepts, advanced expertise and advanced experience of best foreign banks. Through capital cooperation and strategic cooperation, they have worked hard to enhance their own level of risk management and their capacity for independent innovation and constantly improved their corporate governance mechanisms. So far, the city commercial banks in Shanghai, Nanjing, Xi’an, Jinan, Beijing, Hangzhou, Nanchong, Tianjin, Ningbo and Chongqing have introduced overseas strategic investors. Capital attraction has also promoted the attraction of intellectual properties, mechanisms, expertise and human resources. Meanwhile, the city commercial banks in Ningbo, Nanjing and Beijing have also constantly explored new ways for reform and development. They tried to further improve their internal control and risk management systems by listing on the capital markets. Besides, they have optimized the structure of their stock rights, increase information transparency and accepted social supervision so as to pursue better and faster development.

　　Three, their core competitiveness has been rising. On the basis of an effective solution to their historical problems and a gradual improvement of their governance mechanisms, the city commercial banks have made rapid progress in the scale and quality of their assets and in their operational performance. In 2006, the city commercial banks across the country reaped RMB 13.6 billion in profit, their capital adequacy ratio rose to 8.48 percent and their bad loan ratio dropped to 4.8 percent. At the end of 2006, the assets of the city commercial banks around the country totaled RMB 2.57 trillion and their liabilities totaled RMB 2.45 trillion. They were respectively 364 percent and 362 percent over the levels at the end of 1999. Nine of the Chinese city commercial banks were included in the world top 1000 banks published in 2006 by the British magazine Banker. This year is an even better time for the city commercial banks. The Bank of Nanjing, the Bank of Ningbo and the Bank of Beijing have been publicly listed, thus embarking on a road of virtuous development.

　　The regulatory principles of the regulatory authorities on city commercial banks over the years can be summarized as follows. One, one policy was designed for one bank and regulation was based on categorization. While the city commercial banks constituted a group, their development was quite uneven from one another and therefore policies should be flexible. While one policy was designed for one bank, regulation was exercised on a categorized basis. Two, risks were eased in keeping with the principles of relying on regions, introducing diverse policies, easing risks and removing root causes. “Relying on regions” means to rely on the regional governments. The achievements made over the years by the city commercial banks to dispose their risks were mainly a result of relying on the support of the regional governments, virtually without a single penny coming from the central finance. “Introducing diverse policies” was necessary because what had plagued the city commercial banks was a syndrome, which could not be cured by just one prescription. Therefore, diverse policies were required, including asset replacement, asset restructuring, government capital injection and related supporting policies. “Removing root causes” means that while disposing risks, efforts should be made to realize the fundamental goal of transforming their operational mechanisms. Three, alliance, reorganization and trans-regional operation were carried out in keeping with the regulatory principles of “setting standards, offering active guidance, supporting the good and restricting the poor”. Everybody wanted to develop, but there should be a set of standards. Therefore, some special support policies were granted to those city commercial banks that had reached the middle or higher levels for a joint-stock commercial bank. With regard to the city commercial banks noted for poor operations and high risks, another set of regulatory policies were needed, such as increasing the frequency of field inspections and tightening the market access. Four, their market positions were defined in keeping with the principles of “relying on regions, cultivating brands and pursuing uniqueness”. In other words, the city commercial banks should learn from, instead of vying with, the large banks. Furthermore, they should tap their own strength and overcome their own weakness. The city commercial banks must “rely on regions to cultivate brands” so that they could have what other people did not have and they were better when other people also had what they had. Each of them must strive to be unique. Five, the city commercial banks should build their corporate cultures through scientific development. In other words, they must emphasize internal control, ease risks, operate according to law and develop in a scientific way. Based on these principles, the regulatory authorities introduced some new policies each year. These new systems, rules and policy measures, such as establishing institutions in different places, intra-provincial alliance, inter-provincial operation and risk disposal, have promoted the development of the city commercial banks.

　　Overall, the city commercial banks today are still facing three problems. First, risks are quite unevenly distributed among different banks. Second, corporate governance is still unsound. Third, well-qualified personnel are insufficient. Therefore, the city commercial banks still have to further improve their corporate governance structure, vigorously introduce the risk management system based on flattened management, improve their personnel mechanism, clearly define their market positions and establish differential modes of operation so as to overcome the unevenness in their development, the unsoundness of their management mechanisms and the weakness of their corporate cultures and to further optimize development space, operate according to law and pursue scientific development.

　　Like the city commercial banks, Everbright Bank is also a product of financial reform. Everbright has had excellent cooperation with some city commercial banks, such as in the fields of entrusted wealth management, capital transfer, customs clearance, settlement and co-branded credit card. In the future, Everbright and the city commercial banks can not only strengthen their cooperation in financial product innovation and syndicated loan but also conduct joint useful explorations in other fields. By so doing, they both can develop and win in the course of the vigorous development of China’s financial industry.

　　Thanks!