OREANDA-NEWS. August 01, 2013. Interview with Hu Huaibang, secretary of the party committee and chairman of the board at CDB. In China's banking system, China Development Bank (CDB) is the only bank bearing the word "National" in its name [CDB's name in Chinese reads "National Development Bank"].

CDB has in recent years played an active role in serving national strategy and supporting economic and social development, and has explored a unique path of development financing. CDB's new leadership was recently formed. Under new circumstances, what opportunities and challenges will this major bank of longer-term investment and financing face? How will CDB seize opportunities and meet challenges? How will CDB achieve a great leap forward in its own development while adhering to serving the national strategy? With these questions on mind the reporter interviewed Hu Huaibang, secretary of the party committee and chairman of the board at CDB.

CDB is in an important period of strategic opportunities with great potential

Reporter: In recent years, CDB has become an irreplaceable important force in China's overall economic and social development and its financial system. The new situation has raised higher requirements for financial support for economic restructuring and transformation and upgrading. As the new head of CDB, how do you view future development opportunities?

Hu Huaibang: Focusing on the grand blueprint drawn by the 18th Party Congress for the completion of the building of a well-off society in an all-round way, the new central leadership has proposed the goals of achieving the "Chinese Dream" and building an "upgraded version" of the Chinese economy. In the new period, CDB, facing a new environment, new tasks, and new requirements, is still in an important period of strategic opportunities with great potential.

First, deepening reform will build a favorable external environment for CDB's reform and development. In the next 10 years, the central leadership will deepen reform with greater courage and wisdom, and do away with system and mechanism drawbacks that constrain scientific development. This will bring about major changes in the economic and financial fields and will provide an opportunity for CDB to further enhance its positioning and give play to its advantages.

Second, the steady progress of new urbanization will provide strategic support for CDB's business development. CDB is a major bank in promoting urbanization building. As urbanization continually progresses to higher levels and higher quality, there will be better prospects and greater potential for CDB's support for new urbanization building with longer-term investment and financing.

Third, the strategic adjustment of the economic structure will develop a new driving force for CDB's business development. Economic restructuring requires further pushing forward the transformation and upgrading of traditional industries, the absorption and transferring of excess production capacity, the acceleration of development of strategic emerging industries, as well as urban and rural coordination and regional coordination. These fields are all components of the national development strategy and are key content of CDB's promotion of scientific development and its support for the real economy.

Fourth, people's livelihood and social developments will bring important opportunities for CDB to highlight its institutional value. Social and people's livelihood fields are typical development fields with obvious strategic importance but low level of market development, so we need to continually explore the business model and methods. CDB is capable of playing a greater role in promoting social and people's livelihood development.

Fifth, enhancement in China's level of opening to the outside world will create favorable conditions for CDB's support for enterprises "going abroad" and its efforts to make itself into a bigger and stronger bank. China's implementation of a more proactive opening strategy and the acceleration of enterprises "going abroad" have raised higher requirements for CDB's serving the national economic and diplomatic strategy.

Reporter: After many years' rapid development, China's banking sector is currently facing a number of challenges, and it has also become a pressing requirement for the banks' own transformation and development. What are your views?

Hu Huaibang: At present, international economic recovery is ever changing, the domestic economy is facing downward pressure, there are more potential risks, and the task of reform in the economic and financial fields is arduous and onerous. All these factors have posed many difficulties and challenges for CDB's reform and development.

Looking at the external environment, China's economy is generally stable, but the recently there has been increased downward pressure, which may accelerate the exposure of risks in some sectors. For instance, there are prominent problems of excess capacity and serious losses in the steel, shipbuilding, photovoltaic and sectors; some enterprises and especially SMEs are experiencing increasing operating problems with serious credit risks; and international business risks have been rising due to the impact of the complex and volatile international political and economic situation.

Looking at financial development, interest rate marketization has accelerated, exchange rate system reform is progressing, the RMB continues to appreciate, and the trend of financial disintermediation is increasingly evident, so the development model of credit expansion and interest income will become unsustainable and it become urgently necessary for banks to accelerate the transformation of development mode. Particularly the exposure of problems related to liquidity management is forcing financial institutions to de-leverage and utilize their assets efficiently. This indicates that the money supply driven economic growth mode will change. How to optimize debt structure, develop funding channels, and strengthen liquidity risk management has become an urgent major issue for CDB, which replies on issuing interbank bonds for funding.

Looking at CDB's own operation, debt ratings, funding sources, differentiated supervision, performance appraisal, and other reform bottlenecks need to be tackled urgently. With increasingly fierce competition, CDB is facing considerable pressure to maintain its traditional strengths, and its profit margins continue to narrow. At the same time, fine-tuned management and operational efficiency need further improvement.

Giving play to the advantages of a major bank in longer-term investment and financing

Reporter: Your analysis of the situation is comprehensive and profound as well as rational and sober. How will CDB seize opportunities and meet challenges?

Hu Huaibang: Faced with opportunities and challenges, CDB need to enhance the sense of crisis and sense of urgency and push forward the development of various undertakings with the spirit of reform and innovation. We must handle the following five relationships:

1) the relationship between the leading core role of the party committee and modern corporate governance. We must speed up the formation of a new leadership system with respective clear managerial structure and responsibility for the party committee and the corporation, which are mutually integrated and operate in coordination, and bring into play the two advantages of the core leadership of the party committee and modern corporate governance.

2) the relationship between serving the national strategy and adhering to market principles. To serve the longer-term major national development strategy is an important duty given to CDB by the State Council. CDB must adhere to commercially sustainable principles and serve the national strategy and fulfill government intentions with market means.

3) the relationship between supporting development and managing risks. Risk management is vital to CDB's own survival and also a prerequisite for better serving the national development strategy. CDB must always attach great importance to risk management, ensure quality and sustainable development, and stick, for the state, to the bottom line of no systemic or regional financial risks.

4) the relationship between domestic and international markets. CDB must integrate focusing on domestic development with strengthening international cooperation. While being aware that the domestic market is the foundation for CDB's survival and development, we must also realize that the international market is an important means for CDB to expand its influence and enhance its international competitiveness, and it can provide greater room and a higher platform for CDB's development.

5) the relationship between inheriting traditions and strengthening  innovation. We must give play to, carry forward, and safeguard the precious experience accumulated by CDB in long-time exploration and practice and the great performance results CDB achieved. At the same time, we must adapt ourselves to the development of the real economy and the requirements of risk management, ratchet up innovation, boldly explore in concepts, products, models, mechanisms and management, and continually improve our efficiency and ability to serve economic and social development.

Reporter: As a financial institution that used to be a policy bank, CDB's development path has always attracted public attention. Do you already have a blueprint for the future of CDB?

Hu Huaibang: CDB will closely focus on the general requirement for the party's and the state's current and future work, serve the major longer-term development strategy of the national economy, give play to the advantages and role of a major bank in longer-term investment and financing, solidly push forward reform and innovation, consolidate its first-rate performance and market competitiveness, continually improve its comprehensive service standards and sustainable development capacity, and contribute wisdom and strength to the promotion of economic and social development.

To focus on the country's future development blueprint, first, CDB must adhere to the development financing orientation of serving the national strategy. We must improve the level of serving the national strategy with market means to achieve the goal of joint growth for CDB as well as its customers in accordance with the principles of "strategic necessity of the projects, financial balanceability of the overall business, and sustainability of institutional development".

Second, CDB must adhere to the service concept of "offering timely support on key government issues", continually deepen its financial cooperation with various parties, play a proactive role in some major projects with an impact on the development of national economy and economic and diplomatic strategy and on key social and the people's livelihood areas, and offer strong financial backing to the government.

Third, CDB must adhere to the development strategy of "one body and two wings". Supporting the construction of infrastructure, basic industries, and pillar industries; international cooperation; and the people's livelihood are three business sectors characteristic of CDB. Adhering to this development strategy is an important means for CDB to support economic restructuring and transformation and upgrading and to play its role as a major bank.

Fourth, CDB must adhere to the business strategy of "serving strategy, controlling risks, and making reasonable profits". Serving strategy is CDB's mission, while controlling risks and making reasonable profits are the foundation and guarantee of CDB's sustainable development. CDB effectively integrates national interests with its institutional interests, makes reasonable profits, and preserves and consolidates its first-rate market performance through innovating models and building and perfecting the credit structure.

Fifth, CDB must adhere to the investment and financing model of "planning ahead, driving by financing, government credit, and market building", enhance the ways to increase credit and operating model, rely on government credit, and plan ahead to integrate the organizational advantages of the government with the financing advantages of finance, integrate resources, and push forward the building of healthy enterprises, healthy finance, and healthy fiscal finance.

Sixth, CDB must adhere to the guiding principle of "doing a good job in party building to run the bank and support development", lead the whole bank's reform and development situation with party building, make efforts to turn the party's political, organizational, and mass work advantages into CDB's innovative, competitive, and scientific development advantages, and ensure that CDB's development will prosper and be always in the right direction.

At present, CDB is, in accordance with central arrangements, thoroughly engaged in the party's mass line education and practice activities with its main content of pragmatically serving the people and honest and clean governance. CDB party committee has earnestly studied and understood the central spirit, made meticulous arrangements through careful organization, focused on carrying out the eight central rules, earnestly analyzed the specific forms of the "four styles", made efforts to solve outstanding problems, and ensured that the activities are unique, effective, and excellent. Through these activities, CDB has comprehensively strengthened the party's ideological, organizational, work style, anti-corruption, and institutional building, effectively improved the scientific level of the building of the leadership team and cadres ranks, and provided strong political, organizational, and talent support for CDB's reform and development.

Continuing to support key areas and weak links

Reporter: The recently issued State Council General Office's Guiding Opinion on Financial Support for Economic Restructuring and Transformation and Upgrading calls for optimizing social financing structure and continuing to strengthen financial support for key areas and weak links. What is CDB's plan in this respect?

Hu Huaibang: CDB will continue to serve the national strategy and further help with the government functional change and the development of the real economy. CDB must bring into play its functional advantages between the government and the market, and push forward the government shifting its emphasis to social management and public service with limited resources. CDB must adhere to the essential requirements for finance to serve the real economy, implement a credit policy that does helping, controlling, protecting, and curbing all at the same time, step up its support for infrastructure, basic industries, pillar industries, coordinated regional development, industrial transformation and upgrading, and other major national strategic projects, weak links, and bottleneck areas. CDB must continue to explore the effective ways to promote social justice and social harmony with finance, focus on the hot and difficult issues in the people's livelihood attracting government and public attention, offer priority support to welfare housing, medium, small and micro enterprises, agriculture, forestry, water conservancy, education, healthcare, and other sectors to accelerate development, and make efforts to achieve CDB's integration of its political, economic, and social responsibility.

CDB must play a major role in promoting new urbanization building. We must take the support for new urbanization building as a major current task and do it well. We must pay attention to scientific planning, grasp the pace, work in a smooth and orderly manner, and avoid excessive or haphazard construction. We must highlight our features and characteristics, focus on revamping urban shantytowns, and help break up the dual urban and rural structure. We must promote the integration between industrialization and urbanization, support the building of development zones and industrial parks, and integrate support for urbanization with promotion of industrial restructuring and upgrading. We must innovate our financing model, play an exemplary role, lead social funds to urban construction, and push forward the establishment a investment and financing system that is prudent and can offer sustainable support for urbanization.

CDB must strengthen international cooperation to support Chinese enterprises in their "going abroad". We must continue to take achieving mutual benefit and a win-win outcome and promoting common development as a principle, actively expand our global vision and strategic thinking, and unswervingly and steadily push forward international cooperation to pave the way for Chinese enterprises to "go abroad". We must focus on priorities, optimize positioning, strengthen market operation, highlight the principle of controllable risks and commercial sustainability, continually innovate products and service methods, make good use of international syndicates and other effective models, strictly control credit risks, and ensure sustainable business development.

Reporter: Preventing and controlling financial risks is an issue that attracts a great deal of attention right now. You also mentioned handling well the relationship between supporting development and managing risks. Has CDB made any specific arrangements?

Hu Huaibang: In the current situation, CDB will further strengthen our sense of adversity and sense of risks, balance well the relationship between speeding up development and serving the national strategy on one hand and managing risks on the other hand, and make efforts to improve our ability to control risks and our cross-cycle operating capacity.

CDB must improve its comprehensive risk management system. First, we need to strengthen risk management system building. Second, we need to strengthen the management of the entire process of credit assets. Third, we need to deepen bank-government cooperation and control risks in supporting development. Fourth, we need to step up innovation, and effectively control risks through innovative financing model design and credit growth arrangements as well as a strong restraining and supervising mechanism.

CDB must strengthen risk management in key areas. We must keep a close watch on financing platform debt management, attach great importance to sectoral credit risks, seriously guard against credit risks caused by a breakdown in the funding chain in major projects, effectively preventing country-specific risks, and set up plans for handling major risk events.

CDB must establish risk management accountability. We must strengthen everybody's awareness of risk management and establish an "everybody's business" risk culture. We must further improve incentive and restraint mechanisms for risk management, establish accountability mechanisms, and enhance the economic responsibility audit mechanism that the "sword of Damocles" could offer support for sustainable business development.