OREANDA-NEWS. April 03, 2013. The 18th Party Congress pointed out: Rejuvenating the nation requires focusing on economic construction, and development is still key to solving all issues in China. Only by pushing forward sustainable and healthy economic development can we firmly build the material foundation of national prosperity, people's happiness and well-being, and social harmony and stability. As a major bank in China's medium- to long-term investment and financing field, the China Development Bank (CDB) has, in the 10 years since the 16th Party Congress, always adhered to taking the scientific development concept as a guide and thoroughly practicing the concept of developmental finance. It has embarked on the road of scientific development that serves the national strategy by market means, and has played an important role in supporting China's economic and social development.

Today we have carried this report with the aim of comprehensively showcasing CDB's practices and experiences in supporting China's economic and social development by looking back at its journey over the past 10 years, and we hope the report will be able to offer some inspiration to our readers.

As the saying goes, there will be no stability without agriculture. The "three rural" issues have always been a focus of public attention that has an impact on overall stability, national prosperity and national rejuvenation. In 2013 the Central Document No.1 once again focused on the "three rural" issues and put forward speeding up the development of modern agriculture and further strengthening the vitality of rural development.

On 25 February, the China Development Bank (CDB) and the China National Cereals, Oils and Foodstuffs Corporation (COFCO) signed a developmental financial cooperation agreement in Beijing. CDB will provide COFCO with a credit facility of 30 billion yuan in the next five years to help COFCO accelerate the development of its cereals, oils and foodstuffs business, enhance the buildup of its fully integrated value chain, effectively safeguard national food security, and help promote "three rural" development. This cooperation agreement is an important measure for CDB to carry out the spirit of the Central Document No.1 in a timely manner and take the initiative in supporting the "three rural" development. As of the end of 2012, CDB's agriculture-related lending balance stood at about 765 billion yuan. Issuing 135 billion yuan in new rural construction loans and 21.6 billion yuan in agricultural loans last year, CDB has given its strong support to new countryside and county infrastructural construction and the development of leading enterprises of agricultural industrialization, rural health care, education, and modern agriculture.

Supporting the "three rural" development is only a microcosm of CDB taking the initiative to serve the national strategy. Over the years, in the fields of infrastructure and urban construction, people's livelihood business and international cooperation, CDB has always fulfilled the mission of "strengthening national power and improving people's livelihood" with concrete action. Looking back at CDB's 19-year journey of development, we can find that CDB has always put store on seamlessly integrating its own development with the nation's overall development strategy and acting as a financial pioneer serving the national strategy.

Serving the national strategy by market means

"It is CDB's role and function to accomplish the government's goals by market means rather than fiscal or administrative means."

Among China's many banks, CDB, established in 1994, is the only one bearing the word "National" in its name [CDB's name in Chinese reads "National Development Bank"]. The presence of this important word shows both CDB's state ownership and its responsibility for serving the national strategy.

In 1998, Chen Yuan, who had just taken office as president of CDB, put forward the new thinking of running a policy bank "in the market environment and within a bank's framework", followed by three successive rounds of lending reform. He gradually managed to find a road of developmental finance that is in line with China's national conditions, and "serving the national strategy" became a main line throughout CDB's development.

Throughout the history of the CDB, whether it was the concentrated support for key construction in infrastructure, basic industries and pillar industries shortly after the bank's founding, the support for expanding domestic demand and investment during 1998-2003, the implementation of the government's regulation and control policy to prevent economic localization and structural heatedness during 2003-2008, or the response to the impact of the international financial crisis in order to maintain steady and rapid economic growth since 2008, as a national financial institution and medium- to long-term financing tool, CDB has always followed the requirement of the macroeconomic policy and taken the initiative to adjust and optimize aggregate credit as well as its pace and lending destination, and has ensured the continuous supply of funds for key projects that have an impact on national and local overall development and thus served the development of the real economy.

The 18th Party Congress pointed out: The key issue for economic structural reform is to properly deal with the relations between the government and the market, and we must show more respect for the laws of the market so as to play a better government role. Over the past 10 years, in the process of adhering to developmental financial practice, CDB has, through bank-government cooperation, taken the initiative to build the market, construct a bridge between the government and the market, and lay a solid foundation for sustainable economic and social development.

"A developmental financial institution manages the risks of medium- to long-term financing through modernizing its risk management system, promoting local system building, credit building and market building, and through promoting the optimization and adjustment of China's industrial structure. This is a highly scientific way of approach." Said Chen Yulu, president of Renmin University of China.

What is the main difference between developmental finance and commercial finance? The goal of commercial finance is to use and rely on a mature market to achieve profit maximization. Developmental finance, as practiced by CDB, seeks to integrate its own development with economic and social development, fully reflect the national strategy and the government's intentions in financial resource allocations, ease the bottleneck constraints by market means, nurture a blank and deficient market to maturity, and pave ways and build bridges for commercial banks, with wider service areas and better efficiency.

Take urban construction as a typical example. In the past, due to the lack of market mechanisms, bank funds did not dare to enter areas such as urban road and rail transportation and environmental remediation. Using bank-government cooperation as an entry point and establishing a "Wuhu model", CDB began by building market-style financing platforms together with local governments and has broken the deadlock of no bank funds entering urban construction and formed a good situation of positive interaction between finance and fiscal revenue to jointly promote urban construction. As of the end of 2012, urbanization-related lending accounted for two-thirds of CDB's total lending with excellent loan quality.

"It is CDB's role and function to accomplish the government's goals by market means rather than fiscal or administrative means," said Chen Yuan, who has been CDB's chairman of the board since 2008. Over the past 10 years and based on such concepts and practices, CDB's loan balance for supporting key construction in infrastructure, basic industries and pillar industries has grown from 880 billion yuan at the end of 2002 to nearly 6 trillion yuan by the end of 2012, an increase of more than five times. The loans have supported a large number of major infrastructure and industrial projects and laid a solid foundation for the national economy. By industry, more than 70% of the lending was made in coal, electricity, oil, transportation, agriculture, forestry, water, communications, public infrastructure and other key areas to support a large number of key national projects such as transporting water from the south to the north, the national petroleum reserve, the highway network, Beijing Olympic Games and Shanghai World Expo. By geographical region, more than 60% of the lending was made in the midwest and the northeastern old industrial base with a focus on strengthening support for Tibet, the Tibetan areas in four provinces, and Xinjiang.

In the process of serving the national strategy, CDB's own performance has also steadily risen. According to its president Zheng Zhijie, as of the end of 2012, CDB's assets stood at 7.37 trillion yuan; its loan principal and interest recovery rate was 99.7%, a high level for 13 consecutive years; and its non-performing loan ratio was 0.3%, under 1% for 31 consecutive quarters. A number of the bank's indicators such as per capita asset management and per capita profit are all leading the banking industry at home and abroad.

Some people believe that CDB has achieved excellent results mainly because it enjoys state subsidies for its losses. In fact, the state has not given CDB a single penny of loss subsidy since 1998. The state has only kept its promise to offer CDB the initial capital of 50 billion yuan in the form of annual tax rebates. Therefore, CDB has had to make every penny from market operations. This shows that on one hand there is no difference between policy and commercial banks when it comes to market performance, and on the other hand CDB's successful exploration in serving the national strategy by market means has changed people's stereotype about "policy bank = loss-making bank = subsidized bank" and has established a new image for policy banks.
Everyone is entitled to equal access to financing

"We must not only see small loan amounts and the hard work needed in financial business related to people's livelihood. We must see its important historical significance and strategic significance."

Known as "Guizhou's Tibet", the Weining Yi, Hui and Miao Autonomous County, under Bijie City, is the largest county by area and population and with the highest altitude in Guizhou. As an underdeveloped region of an underdeveloped province, for a long time Weining has large impoverished areas and a large number of poverty-stricken residents. But in this county with relatively backward economic and social development, Sunshine Residential Community and other affordable housing communities financed by CDB have been put in operation, and several other affordable housing projects are currently under construction at full steam. In addition to welfare housing, CDB has also extended strong support to the areas of environmental remediation, education, health care, student loans and other areas related to people's livelihood in Weining, Bijie and Guizhou. Speaking of CDB's support for local development, local residents have been using one word: gratitude.

Some people may ask: In a region like Weining, with little aggregate economy, non-mature financial market, and various relatively backward conditions, CDB actively involved itself in local people's livelihood projects, so how did CDB do it and why did it do it?

How did CDB do it? By model innovation. CDB established a brand new model of bank-government-enterprises tripartite cooperation model that was specifically targeted for poverty alleviation in Weining. CDB arranged financing and also gathered wisdom and extended comprehensive support for the development in Weining in funding, manpower and system. Turning "blood transfusion" into "blood making" has achieved good results.

Why did CDB do it? CDB's goal of serving the people's livelihood has given us the answer: "Developmental finance is meant to build a society in which everyone is entitled to equal access to financing."

Precisely because of such beliefs and goals, CDB has positively responded the call of the party and the government, aimed for achieving everyone's equal access to financing, committed to providing financial services that benefit all people, explored ways to solve the financing difficulties of a vast number of customers by wholesale means, and consistently provided financial support to serve the people's livelihood. As of the end of 2002, the balance of CDB's loans related to people's livelihood was 1.7 trillion yuan; by the end of 2012 it has grown to 3 trillion yuan, an increase of 76%.

Many people imagine that CDB, as a big bank, mainly caters to the needs of major projects and large enterprises with loans of billions and billions of yuan to say the least. But on 21 December 2005 CDB issued a loan of just 15,000 yuan to an individual businessman.

As the saying goes, from small increments comes abundance. Although this loan had a small amount, it was nevertheless a milestone in CDB's development history. CDB's first ever micro-loan, it marked the beginning of CDB's adjustment of its business development strategy, namely to shift from the unipolar development of supporting key construction in infrastructure, basic industries and pillar industries to the bipolar development of increasing small-amount lending to support people's livelihood to make them more affluent.

Why did a state-owned big bank with its main business in supporting key construction in infrastructure, basic industries and pillar industries become attracted to finance related to the people's livelihood?

"For a long time, China's market building and financial building in the field of people's livelihood are quite weak, which is not conducive to the goal of speeding up the comprehensive building of a well-off society," conceded Chen Yuan, adding that, since financial institutions use public funds, we should start from the fundamental interests of the people and put money where it is most needed. Projects that can make people affluent, no matter how small they are, are our social responsibility, so we must have the courage to take the initiative in assuming the responsibility. Ultimately finance is to make sure that everyone is entitled to equal access to financing and equal social development opportunities, and that is the reason why CDB accelerated its people's livelihood related financial business.

A bank that up to now has only 8,000 employees is committed to promoting the concept of "everyone entitled to equal access to financing". Isn't this a wild stretch of the imagination?

As long as one finds the right approach, there will be a way despite difficulties. In recent years, CDB has committed itself to the development road of socialized, marketized, specialized, organized finance related to the people's livelihood. Beginning with its cooperation with the World Bank and other international financial institutions in launching the "sustainable Chinese micro enterprise lending" project, CDB has selected domestic small and medium banks as its cooperation partners, provided technical assistance and pass-on lending funds, and provided customers with micro business loans through partner banks. During that process, CDB has gradually formed its own unique standard operating procedures in micro business lending, closely focused on the key link of bank-government-enterprises cooperation, solved retail issues by wholesale means, and met the financing needs of a vast number of customers in a unified standardized way.

Student loan business is a bright spot in CDB's financial innovation regarding the people's livelihood. Due to the risks in student loans, since the business began in 2004, it has for many times failed to find a bidder among commercial banks at various localities, and this business, which has a bearing on the interests of tens of thousands of students, was nearly on the brink of failure. After a great deal of investigation and research, CDB came to the opinion that to run the student loan business requires more than a sense of responsibility and enthusiasm. The market operation mechanism and credit system, upon which the business depends, were quite insufficient, so only by starting with market building and credit building could we overcome the student loan bottleneck and make sure that the business become a commercially sustainable mainstream business rather than one-off "charity of love".

Take Chongqing, where CDB made its first student loans in a pilot scheme, as an example. Through cooperation with the education authorities and local governments, CDB created a system of functional division with clearly specified rights and responsibilities, formulated a scientific and effective system of assessment incentives, carried out education about honesty, and strengthened post-lending supervision, and it has made considerable accomplishments. As of the end of 2012, CDB has cumulatively issued student loans amounting to 1.88 billion yuan in Chongqing with a 99.88% repayment rate. CDB has reached its target of lending to all who need a loan and kept its commitment of not leaving a single needy Chongqing student behind.

In the field of student loans, developmental financial market building is an outstanding success. This success lies in the fact that everyone -- from the education authorities and institutions of higher learning at various localities to borrowing students and their parents -- now has a firm concept of credibility, which has made possible the sustainable and healthy development of the student loan business. As of the end of 2012, CDB's student loan business covered 1,767 counties in 25 provinces, municipalities and autonomous regions and 2,594 institutions of higher learning with a cumulative lending balance of 42 billion yuan that has supported over 7.74 million needy students. At present, eight out of 10 college students with student loans have been supported by CDB.

"The student loan practice has made us realize that we must not only see small loan amounts and the hard work needed in financial business related to people's livelihood. We must see its important historical significance and strategic significance. We must pay close attention to the people's livelihood with a sense of mission for promoting social development and turn the fruits of financial work into real tangible interests of the people and into a solid force for supporting social development," said Chen Yuan.

In addition to being the leading bank in making student loans, CDB has in recent years kept another record: it is also the leading bank in making loans for low-cost welfare housing construction. CDB began to make such loans in 2005 in connection with the welfare housing reform in Liaoning, with a balance of just 4.9 billion yuan in that year. By the end of 2012, cumulative loans for welfare housing projects have reached 459.8 billion yuan, accounting for 58% of such loans in the banking industry. Those loans have supported about 340 million square meters of housing construction and benefited 6.61 million middle- and low-income households. CDB issued such loans amounting to 148.1 billion yuan in 2012, accounting for 65% of the total of such bank loans made in 2012 nationwide. With excellent loan quality, CDB is a major bank in making loans in support of welfare housing construction.

Since 2003, from micro business loans, "three rural" loans and student loans to welfare housing construction and emergency loans, every step made by CDB in the people's livelihood has been illustrating the pioneering significance of people's livelihood related business with vivid cases and demonstrating the unique role of developmental finance in promoting social development with gratifying changes.

International cooperation achieves win-win outcome
CDB attaches importance to "two markets and two resources", promotes multilateral financial cooperation, and helps Chinese enterprises "go out" [develop overseas business] in order to achieve a win-win outcome by jointly developing with countries of cooperation.

In 2002, the 16th Party Congress put forward "adhering to the integration of 'bringing in' and 'going out' and comprehensive improvement of the level of opening to the outside world". After that CDB began to test the water for its "going out" business. As an important wing of the "two wings" of CDB's business (along with supporting key construction in infrastructure, basic industries and pillar industries and the people's livelihood), CDB's international cooperation business has since blossomed. As of the end of 2002, CDB's foreign currency lending stood at USD6.7 billion. By the end of 2012, it has grown to USD 248.2 billion, an increase of 36 times.

CDB has by now become China's leading bank in external investment and financing cooperation.
A priority during the initial phase of CDB's international cooperation business was to dispatch personnel overseas to set up offices. Based on the experience of other state banks with overseas offices, it was going to be a complex and difficult process. However, business couldn’t wait and opportunities wouldn't wait, so CDB had to find a new way. Unlike the commercial banks, which began overseas business after office setup, CDB had to first dispatch people overseas to do business, which would later naturally help set up offices. Ultimately, the promotion of overseas business is a process of seeking acceptance by local markets abroad. Chen Yuan called CDB's new way "building up presence with chess pieces".

In November 2005, CDB took its first step in "building up presence with chess pieces" by dispatching an SCO Interbank Association project team to Central Asia. Since then, CDB has dispatched over 1,000 professional bankers with international experience and foreign language proficiency, and the business has spanned 195 countries and regions around the world.

Only after the foundation for financial "going out" was laid did Chinese enterprises become ready for "going out". In 2008, when the global financial crisis broke out, CDB work teams were already actively seeking business opportunities. Through providing information and financing plans, they have helped Chinese enterprises analyze local situation and markets, helped solve problems they met in trade finance and M&A, and helped them carry out cooperation worldwide and speed up their development. They have played an outstanding bridging role for Chinese enterprises to "go out".

Huawei used to be a little-known private enterprise in China. Today it has become a globally renowned telecom equipment manufacturer with leading sales among global peers. Behind "Huawei's Miracle" lies the strong support role played by developmental finance. In December 2004, CDB issued a loan of USD 10 billion to Huawei to help it advance into international markets with the aim of making global sales exceeding US\\$10 billion within five years. Thanks precisely to this huge loan, not only did Huawei reach its target two years in advance, it has also grown amid the financial crisis with its international revenue growing to over 75% share of its total revenue.

During the follow-up bilateral cooperation, CDB provided commercial buyer's credit for overseas businesses to buy equipment from Huawei, and helped improve Huawei's cash flow with bulk factoring, thereby creating a mutually beneficial "iron triangle" consisting of CDB, Huawei and its overseas customers. Driven by the financing from CDB, as it achieved globally leading sales, Huawei has also gradually taken the high-end position in R&D and branding through independent innovation within the international telecom industry, and it has embarked on a road of independent innovation that is upgrading from "made in China" to "created in China".

In recent years, CDB has successively helped a number of Chinese enterprises such as PetroChina, Sinopec, Baosteel, Minmetals, CITIC and ZTE "go out"; successfully operated a number of major projects such as the China-Russia oil deal, the China-Brazil oil deal, the China-Venezuela large funding, and the China-Turkey natural gas deal; launched the China-Africa Development Fund; and promoted the establishment of multilateral financial cooperation mechanisms such as the BRICS Interbank Cooperation Mechanism, the SCO Interbank Association, and the China-ASEAN Interbank Association. It can be said that, consistent with the new global development trends, CDB has attached importance to "two markets and two resources", promoted multilateral financial cooperation, and helped Chinese enterprises "go out" in order to achieve a win-win outcome by jointly developing with countries of cooperation.

Party building and leading: Core competitiveness of developmental finance
Party building could become CDB's core competitiveness because the party's advanced nature and its advancing with the times have been incorporated into CDB's various business.

Since 2007, the 17th Party Congress and the Fourth Plenary Session of the 17th CPC Central Committee have made a number of important arrangements on strengthening party building, and a key measure is to thoroughly carry out the activities of building advanced grassroots party organizations and seeking to become outstanding party members among grassroots party organizations and party members. CDB has earnestly implemented the central spirit and used the activities to further strengthen and improve the core role of party building in the practice of developmental finance, and pushed forward business and promoted ranks building with party building.

As China's major bank in medium- to long-term investment and financing, CDB has made remarkable achievements in recent years. This would not have been possible if the Bank had not adhered to the guiding principle of "paying special attention to party building, running the bank well and supporting development". In recent years, CDB has integrated China's national conditions with advanced international financial theories, integrated the party's ideological advantage, political advantage and organizational advantage with CDB's financing advantage, and has explored a road of developmental finance with Chinese characteristics and a road of party building with CDB characteristics within the banking industry.

Party building could become CDB's core competitiveness because the party's advanced nature and its advancing with the times have been integrated into CDB's various business.

According to the central requirement for thoroughly carrying out the activities of building advanced grassroots party organizations and seeking to become outstanding party members, CDB focused on "developmental finance serving the transformation of the national economic development mode" and on the bank's development and reform goals, and actively carried out the activities among its 386 grassroots party organizations and 6,420 party members. CDB's activities of building advanced grassroots party organizations and seeking to become outstanding party members have adhered to taking as the bank's responsibility to serve the national strategy and incorporating the party's advanced nature into the practice of developmental finance, enabled party organizations at all levels to make efforts to solve outstanding problems affecting and constraining the development of the respective units, given full play to the important role of developmental finance in pushing forward scientific development and promoting social harmony, and diligently enhanced the bank's contributions to economic and social development.

Over the years, based on the guiding principle of "paying special attention to party building, running the bank well and supporting development", CDB has incorporated the party's ideological building, organizational building, work style building, institutional building, and party style and clean government building into the concrete work of developmental finance; adhered to making joint arrangements and conducting joint inspections for party building work and business work; initially set up a unique system of punishing and preventing corruption; continually enhanced and strictly enforced the decision-making procedure when it comes to deciding on major issues, appointing or removing major cadres, deciding on major investment projects, and making major financial decisions; carried out democracy in financing; and formed a mechanism of scientific and democratic decision-making that combines mass participation, expert consulting, and collective decision-making. CDB has also explored establishing joint supervisory mechanisms together with local governments, implemented external evaluation of lending projects and public announcement of projects, set up the system of project reporting and risk reporting, carried out "sunshine investments" and built "sunshine projects", achieved the organic integration between supporting development and controlling risks, and promoted economic and social development.

Since the 18th Party Congress, CDB has earnestly studied and implemented the spirit of the congress, actively carried out the eight central regulations on improving work style and General Secretary Xi Jinping's important written instructions on practicing thrift and frugality and combating extravagance and waste, effectively unified the thinking and actions to central decisions and arrangements, followed the requirement of "taking scientific development as a major theme and the transformation of the economic development mode as a main line", adhered to tightening party discipline and tightening bank discipline, guarded against both business risks and corruption risks, thoroughly carried out the work of party style and clean government building, steadfastly pushed forward developmental finance, and better supported economic and social development.

It is an arduous task and heavy responsibility for developmental finance to serve the national strategy. Looking ahead, Chen Yuan said CDB will continue to adhere to serving the national strategy by market means, give better play to the advantages of medium- to long-term investment and financing, and make new contributions to the comprehensive completion of the building of a well-off society.