OREANDA-NEWS. August 21, 2013. Financial News Front Page Story: To Serve as a Longer-Term Investment and Financing "Engine" for the Real Economy -- Interview with Hu Huaibang, secretary of the party committee and chairman of the board at CDB.

During the first half of this year, the domestic economic and financial situation was intricate and complex. In order to solve the outstanding contradiction of economic structural imbalance, the State Council held several executive meetings to study and issue a series of macro control policies including the Guiding Opinion on Financial Support for Economic Restructuring and Transformation and Upgrading in order to guide financial institutions in stepping up their support for the real economy and better push forward the transformation and upgrading of the economy. How to forecast the economic trend in the second half of the year? How will the banking industry follow the requirement of "revitalizing existing assets and using new capital well", continue to strengthen financial support for key areas and weak links, and improve the level and quality of financial support for the real economy? Starting from today, we present the "High-end Interviews" column, in which we ask senior bank managers to offer their analyses of the current operational situation and discuss their thoughts on the key work areas for the second half of the year.

In July 2013, the State Council issued its Guiding Opinion on Financial Support for Economic Restructuring and Transformation and Upgrading, requiring giving better play to finance's supporting role for economic restructuring and transformation and upgrading, and continuing to strengthen financial support for key areas and weak links. As a leading bank for longer-term investment and financing in China, China Development Bank (CDB) has in recent years played an active role in serving national strategy and supporting economic and social development, and has become an irreplaceable important force in China's financial system. Under new circumstances, how will CDB achieve its own sustainable development while supporting the development of the real economy, and how will it balance between business development and risk management in the process of serving the national strategy? With these questions on mind the reporter recently interviewed Hu Huaibang, secretary of the party committee and chairman of the board at CDB.

Reporter: Under the circumstances of a complex and volatile domestic economy, what major achievement has CDB made in the first half of the year?

Hu Huaibang: In the first half of this year, faced with severe and complex domestic and international economic situation, CDB focused on the general task of completing the building of a well-off society in an all-round way, gave full play to its advantages and role in longer-term investment and financing, and actively served stabilizing growth, adjusting structure, and promoting reform. As of the end of June, the bank's total assets stood at 7.8 trillion yuan, with NPL ratio of 0.32%, which has been kept under 1% for 33 consecutive quarters.

First, we made diligent efforts to step up support for the real economy in order to lay a solid foundation for "stabilizing growth" and to add an impetus for "adjusting structure". As of the end of June, over 80% of CDB's total loans were granted to infrastructure, basic industries, and pillar industries including coal, electricity, oil, transportation, agriculture, forestry, water, communication, and public infrastructure. We increased our lending by 288.8 billion yuan in the first half of the year, carried out new urbanization pilot schemes in Anhui and Liaoning, increased lending to central and western China by 212.4 billion yuan, issued loans of 38.9 billion yuan to the old industrial bases in northeastern China to promote regional coordinated development, supported the second phase of ecological restoration for Chaohu Lake, Changsha sewage treatment and other projects, and issued loans of 93.4 billion yuan for environmental protection and energy conservation and emission reduction to promote harmonious economic and social development.

Second, we vigorously pushed forward people's livelihood related business to promote social building. In the first half we issued incremental loans of 86 billion yuan for welfare housing projects, continuing to put us ahead of our peers in the banking industry. We issued irrigation and water conservancy loans of 44.3 billion yuan, up 42% YoY; agricultural loans of 16.4 billion yuan, up 165% YoY; and SME loans of 47 billion yuan. We pushed forward the building of a college student loan risk prevention mechanism, strengthened post-lending management. We effectively supported the earthquake relief work in Ya'an by issuing emergency loans of 1.5 billion yuan.

Third, we steadily pushed forward international cooperation to serve the national strategy of "going abroad". CDB actively helped Chinese enterprises carry out international cooperation, supported major infrastructure construction and people's livelihood project development, and achieved mutual benefit and common development. As of the end of June, CDB's foreign currency loans stood at USD 262.4 billion with excellent asset quality.

Reporter: As the new head at CDB, what is your judgment on the situation for CDB's operations in the second half of the year and beyond? What kind of vision do you have for the next step in CDB's development?

Hu Huaibang: At present, the world economy is in the middle of deep adjustment, while international and domestic, long-term and short-term, and structural and cyclical factors are intertwined in affecting one another, and the environment for development at home and abroad is very complex. China's economy is generally stable, with major economic indicators within a reasonable range of the year's targets, but is still facing many risks and challenges. Against the backdrop of strong downward pressure, economic restructuring, and the "gear change" in growth rate, 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. In financial development, China's financial reform is advancing thoroughly, interest rate liberalization is accelerating, RMB exchange rate system reform is ongoing and the RMB continues to appreciate, the trend of financial disintermediation trend is increasingly evident, urgently requiring banks to speed up the transformation of the development mode, revitalize existing assets and use new capital well to better serve the development of the real economy.

Overall, in the new period CDB is facing a brand new environment, tasks, and requirements. There are both opportunities and challenges. Next, 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 leading bank in longer-term investment and financing, steadily push forward reform and innovation, consolidate first-rate performance and market competitiveness, continually improve our comprehensive service level and sustainable development capability, and contribute our wisdom and strength to the promotion of economic and social development.

To focus on the country's future development blueprint, 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". 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 that are characteristic of CDB. Adhering to this development strategy is an important means for CDB to support economic restructuring and transformation and upgrading. CDB must adhere to the business strategy of "serving strategy, controlling risks, and making reasonable profits".

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. 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. 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, thoroughly carry out the party's mass line education and practice activities, and promote reform and development at CDB with a good work style.

Reporter: The General Office of the State Council's Guiding Opinion on Financial Support for Economic Restructuring and Transformation and Upgrading calls for continuing to strengthen financial support for key areas and weak links. What specific arrangements will CDB make for the second half of the year? How to seize opportunities to speed up development?

Hu Huaibang: As China's leading bank in longer-term investment and financing, CDB will take comprehensively implementing the General Office of the State Council's guiding opinion as an opportunity, actively support major strategic and overall state projects, weak links, and bottlenecks, and push forward the transformation of the economic development mode and the development of the real economy. We will try to do a good job in the following six aspects:

Actively pushing forward shantytown revamping. We will take shantytown revamping as an entry point for our support for new urbanization building, deepen bank-government cooperation, give play to CDB's role as a leading bank in shantytown revamping, innovate financing models, lead social funds, and vigorously support the achievement of the government's goal of shantytown revamping for 10 million households within the next five years.

Giving priority support for infrastructure, basic industries, and pillar industries. We will adhere to the principle of synchronized industrialization, urbanization, informatization, and agricultural modernization, actively support on-going and follow-on key state projects, and promote investment and financing structural reform in railway and other key areas.

Continuing to promote coordinated regional development. We will implement the national strategy of regional development and main functional area planning, continue to step up support for central and western China, the old industrial bases in northeastern China, and disaster relief, and support the leapfrog development in Tibet, Xinjiang, and other areas.

Pushing forward industrial transformation and upgrading with financing. We will strengthen cooperation with key strategic customers, push forward M&A and technological innovation, foster strategic emerging industries and cultural industries, support advanced manufacturing, information industry, high technology, energy saving and environmental protection, and other areas, implement the "Green Credit Project", and push forward the resolution of the contradiction of excess production capacity.

Vigorously supporting the protection and improvement of the people's livelihood. We will focus on the hot issues related to the people's livelihood that have received the attention of the government, the public, and the ordinary people, support the "three rural" issues, small and micro enterprises, agriculture, forestry, water conservancy, education, healthcare, and other fields, explore the effective ways to promote social justice and social harmony with financial means.

Steadily pushing forward international cooperation business. We will adhere to the principle of achieving mutual benefit and a win-win outcome and promoting common development, build bilateral and multilateral financial cooperation mechanism, serve the national strategy of "going abroad" with market means, and pave the way for Chinese enterprises to "go abroad".

Reporter: What do you think are the risks that the banking industry needs to keep a close watch on while improving the quality and effectiveness of supporting the real economy? Has CDB made any specific arrangements?

Hu Huaibang: At present, China's economic and social development has entered a period of accelerated transformation, reform has gradually entered the deep-water area, and there is now a rising trend for various financial risks. These include: 1) while transforming the economic growth mode and carrying out structural adjustment in industries with excess production capacity, when there is a lack of impetus for economic recovery, we must pay great attention to bank credit and market risks; 2) with the easing growth in the economy and in local government fiscal revenue, local government debt is entering a peak repayment period, with considerable debt risks; 3) there is weak basic credit in SME and other people's livelihood areas with asymmetric information, and the risk mitigation tools available to banks are limited and can hardly cover relevant risks; and 4) while supporting Chinese enterprises' "going abroad" campaign is an important measure for the banking industry to support the real economy, country risks, trade protectionism, and increasing exchange rate risks have made risk management more difficult.

Ever paying great attention to the various risks in the banking industry, CDB has comprehensively strengthened risk management, built a strong defense, balanced the relationships among speeding up development, serving the national strategy, and preventing and controlling risks, and made efforts to improve its ability to guard against risks and to operate across cycles. Currently we will need to do a good job in the following areas:

First, we must adhere to the advanced risk management philosophy, always give top priority to enhancing the awareness of risk management and control, further strengthen a sense of adversity and risk awareness, and adhere to the principle of giving equal priority to development and risk management. Second, we must enhance the comprehensive risk management system, build a risk management framework under the integrated business model, and further enhance the full-process and full-coverage risk management from business development, assessment to post-lending management. Third, we must strengthen risk management in key areas, pay great attention to local government debt risks, effectively control industrial credit risks and country risks, and set up plans to handle major risk events. Fourth, we must establish a risk management accountability system, strengthen the risk management awareness of all staff members, advocate a risk culture of "everyone's business" and "sword of Damocles", establish an accountability mechanism, and effectively improve CDB's ability to serve the real economy and the national strategy.