Hu Kaihong (host):

Ladies and gentlemen, welcome to today’s policy briefing. The recent executive meeting of the State Council discussed promoting PPP (public-private partnership) in key sectors, providing faster broadband and encouraging the securitization of credit assets. Today we are very glad to have Mr Shang Bing, Vice-Minister at the Ministry of Industry and Information Technology (MIIT), Vice-Finance Minister Shi Yaobin, and Mr. Pan Gongsheng, deputy governor of the People’s Bank of China (PBC) to give us more information on these issues.

First, let’s welcome Mr Shang.

Shang Bing:

The Central Committee of the CPC and the State Council always placed great significance on the development of broadband. President Xi Jinping proposed building a powerful network to allow the 1.3 billion people of our country to enjoy the fruits of Internet development. In 2013, the “Broadband China’’ strategy was issued by the State Council and the Ministry of Industry and Information Technology. About 290 million households in China were covered by optical fiber network by March 2015, 6.8 times the number of three years ago. Over 200 million households are using fixed broadband, with 94.7 million households with broadband speeds over 8 megabytes per second (Mbps), 3.9 times the number of three years ago. We built 2.27 million 3G and 4G network base stations in the past three years, 640 million households are now mobile broadband subscribers, a 2.9 times increase compared to three years ago. The fees for mobile network data declined by 60 percent and the fees for fixed broadband declined by 30 percent in the past three years. So, in a way, we improved our broadband as a strategic public infrastructure and it enhanced the information flow for our economic society as well as boosted the development of our information service industry. New technologies and new businesses are emerging and have been used in all aspects of daily lives.

Shang Bing:

However, we should also see clearly that the development of our broadband network still cannot satisfy our people’s needs. A huge gap can be found between our network speed and international standards as well as the expectations of our people. Network fees remain high. The development of the network in urban and rural areas is unbalanced and the quality of our services need improvement. Under such circumstances, Premier Li Keqiang said in this year’s government work report that we should accelerate the development of fiber-optic networks and significantly increase broadband speeds. He discussed it during a meeting on our first quarter economic situation in April and he made specific orders on it at the executive meeting of the State Council on May 13.

Shang Bing:

By the end of 2017, all households above prefecture level will have access to 100M fiber-optic networks, over 80 percent of villages will be covered by fiber-optic networks, all cities and villages will be covered by 4G networks, and broadband speeds in municipalities and provincial capitals will reach 30 Mbps. For other cities it will be 20 Mbps. Meanwhile, mobile broadband coverage will reach the level of moderately developed countries and Internet fees will drop sharply.

Generally speaking, the construction of a high-speed, cheap and convenient broadband network covering both urban and rural areas will boost investment and support the development of the “Internet Plus” Plan as well as mass innovation. The MIIT will concentrate on it and regularly disclose implementation progress. We welcome supervision from the media and society. Thanks.

Hu Kaihong:

Now let us give the floor to Minister Shi.

Shi Yaobin:

Good morning, friends of the press. Welcome to today’s policy briefing. I’d like to introduce policies concerning the promotion of public-private-partnership in the field of public services. And then ‘ll answer your questions.

The CPC Central Committee and the State Council has placed great importance on the promotion of this. Premier Li Keqiang has on many occasions required more areas to be open for private capital investment, and encouraged such investment to participate with public investment in promoting mass entrepreneurship and innovation, as well as in increasing public goods and services, to foster the new engine of economic growth.

The PPP model, as a major innovation of the public service supply mechanism, helps to give full play to the market, improves the quality and efficiency of public services, accelerates the transformation of government functions, lifts restrictions on market access, and ensures the efficiency of financial input.

Since the end of 2013, the Ministry of Finance has made great strides in various areas to promote the PPP model and carried out a number of PPP projects.

Shi Yaobin:

Of course, challenges do exist in our efforts to promote it.

First, a correct understanding should be adopted in order to make good use of the PPP. It should not be simply regarded a new financing channel or method.

Second, top-level designs should be strengthened to avoid any deviation from the PPP model’s development.

Third, as a newcomer, the PPP model has set higher demands for government departments.

Fourth, efforts should be made to adapt to local reality and industrial characteristics when the PPP model is applied in different regions.

Premier Li Keqiang and Vice-Premier Zhang Gaoli have asked the Finance Ministry to work with other ministries in removing barriers that hinder the development of the PPP to create a good environment. Under instruction of the State Council, the Finance Ministry, with related departments, has drafted guidelines on promoting the PPP in the public service field, and the guidelines have been approved by the executive meeting of the State Council.

Shi Yaobin:

Divided into six parts, the 25-article guidelines mainly focuses on the importance of promoting PPP, the improvement of public services, fostering a standard, open and transparent PPP market with fair competition and regulations and establishing a mechanism that facilitates the healthy development of PPP.

The guidelines also include clarifying systems and regulations concerning project implementation, improving preferential policies for finance and taxation, streamlining project approvals, encouraging direct financing, setting up a dynamic price adjustment system of public services, and ensuring that the PPP model is used in a standard way when providing qualified public services.

The Finance Ministry is required to coordinate with relevant departments in implementing the guidelines.

I think the release of the guidelines unleashes dividends of reforms and signals strong policy support for the PPP model. The guidelines will help to strengthen coordination in terms of policies and push forward the implementation of PPP projects.

They will also help to create a good environment for the development of PPP, give more confidence to private capital and stimulate the vitality of private investment.

That’s all, thank you.

Hu Kaihong (host):

Now I would like to invite Mr Pan Gongsheng, deputy governor of China’s central bank, to give an introduction.

Pan Gongsheng:

Good morning, everybody. On behalf of Mr Zhou Xiaochuan, China’s central bank governor, I would like to extend my sincere appreciation to friends from the press for their lasting attention and support for our work. This is the third time in the past four months I have come here to talk with the press, which shows China’s Central Bank’s transparency and openness.

In the executive meeting of the State Council on May 13, Premier Li Keqiang gave instructions to facilitate credit asset securitization. I will say a few words on this. China started this just about ten years ago but has made positive progress. In 2005, the State Council ratified a pilot scheme on securitization of credit assets. This progress witnessed a period of stagnation due to the subprime mortgage crisis in the United States but it was restarted in 2011. The State Council expanded this program in 2013 and made the decision to speed up the development of credit assets securitization at an executive meeting of this May 13.

We can conclude our work on credit assets securitization over the last ten years in two sentences. First, we have so far established a domestically applicable framework of regulations. Second, China has preliminarily formed a market system for credit assets securitization. By the end of April, 2015, financial institutions have circulated 112 credit assets backed securities with a total value of 450 billion yuan with a remaining balance of over 300 billion yuan.

Given the situation that China’s economy is entering a “new normal’’, securitization is helpful to revitalize existing assets, release credit resources, optimize the credit structure and enhance the efficient use of funds. This is also conducive to develop a multi-level capital market, accelerate the transformation of commercial banks, optimize distribution of financial resources and elevate financial support to China’s real economy.

China National Radio:

My question is for Mr Shang Bing. The public has great expectations of the document the government is about to issue, which is about improving Internet speed and cutting charges for surfing the Internet.

What benefits will the document offer to Internet users? What will the Ministry of Industry and Information Technology do to meet the requirements of the document? People worry that the improvement of Internet services might fall short of what the document says. What will the ministry do to address such concerns?

Thank you.

Shang Bing:

Thank you.

The public has been paying close attention to the issue ever since the State Council brought it up in its executive meeting.

Our goals for 2015 are: optic-fiber broadband will cover more areas enabling faster Internet speeds; both urban and rural residents will have access to 4G technologies; Internet access speed will be significantly enhanced; and charges will be significantly lowered.

By the end of this year, 80 percent of households in urban areas of cities that are above prefecture level should have the ability to access optic-fiber broadband with a bandwidth of 100 Mbps. Urban areas in more than half of the cities above prefecture level should be covered by optic-fiber broadband.

By the end of this year, there will be more than 1.3 million 4G base stations so that all areas above township level will be covered by 4G Internet. Also, the average Internet access speed for users in municipalities and provincial capitals will be enhanced from 9 Mbps to 20 Mbps, while the average speed in other areas will be enhanced from 7 Mbps to 10 Mbps.

At the same time, we encourage faster Internet services such as those with a bandwidth of 50 Mbps and 100 Mbps.

Shang Bing:

Also, we will push telecommunication companies to lower the fees they charge for Internet access and try to bring down the average fees charged for mobile data and for fixed broadband down by 30 percent.

Three companies -- China Mobile, China Unicom and China Telecom -- have come up with plans to implement the policy issued by the State Council.

Fixed broadband users using copper cable will all be able to enjoy Internet speed of 4 Mbps. Some cities won’t increase the price. Some cities will lower the price. A data plan within 1 GB will cost less than 50 yuan, among other favorable arrangements.

I hope users will consult telecommunication companies before choosing what’s best for them. We will also speed up the building of infrastructure.

From 2015 to 2017, the three companies will invest more than 1.1 trillion yuan in infrastructure building. In 2015, they will invest 430 billion yuan to extend optic-fiber Internet coverage to another 80 million households, upgrade communities using copper cable to access the Internet, and push ahead with the rollout of 4G Internet.

Telecommunication companies will be encouraged to compete with one another to bring down the cost of Internet use.

More than 30 cities will take part in the pilot program of allowing private companies to provide broadband Internet access. More than 100 companies will take part in the program.

We are also going to strengthen supervision of Internet service providers by cracking down on behavior such as false advertising and maliciously depleting users’ data plans by downloading applications without their approval.

We will continue to support the building of broadband infrastructure in rural and remote areas.

As to your last question, what you mean is actually that some telecommunication companies boast they offer Internet access with a large bandwidth, but what they don’t tell users is that the bandwidth is shared by all Internet users living in a community.

To deal with the issue, the government will strengthen supervision and crack down on false advertising. The government will further open up the market and introduce competition to ensure that Internet users have multiple options. It will also make sure companies offering optic-fiber Internet access services meet compulsory national service standards.

Market News International:

My question is about local government debt. The government released a policy this week that said the 1,000 billion yuan debt of local governments should be refinanced by the end of August this year. Can we say that the deadline indicates there will be more local government debt to be refinanced? Does it mean that central government should reappraise the amount of local government debt?

Shi Yaobin:

The question you raised just now actually does not belong to what we should talk about here today. What I should communicate to you today is questions about cooperation modes of government and social capital. I will simply say a few sentences regarding your question.

You are right. The government has released a document to issue local government bonds by way of directional underwriting to carry out bond swaps, the scale of which is 1,000 billion yuan. The Audit Commission has published the debt statistics of local governments by the end of June 2013. Currently we are examining and clearing up the remaining debt of local governments.

Pan Gongsheng:

Bond swaps at a local government level are important at enhancing the administration of local government debt. It is beneficial to relieve the burden of local governments and help form a regulated and transparent financing mechanism. Several days ago, the Ministry of Finance, the People’s Bank of China and the China Banking Regulatory Commission together released a document to swap the debt of local governments by directional swaps. Compared with public offerings, the swap can help to reduce the influence of market liquidity and interest rates. Meanwhile, issuing bonds of local governments is sticking to the principle of marketization. Local governments and investors can discuss the interest rates and equity terms.

We also noticed that there are some comments, some of which are not correct from my point of view. Loans of commercial banks changed into bonds of local governments, which will be seen as a change of portfolio on the balance sheet of commercial banks.

Debts of local governments and the country are the same as financial products. It does not mean that the central bank will launch a certain amount of liquidity. These are two concepts, and it cannot be understood as quantitative easing. Thank you.

Economic Daily:

My question is for Mr Shi. Latest data show that the public-private partnership projects across China are worth about 2 trillion yuan. However, projects that involve signed contracts account for less than 10 percent of the total. It is like a grand show with few spectators - what are the reasons behind this? How can the situation be improved?

Shi Yaobin:

Thank you for your question.

As you have said, media reports said that the PPP projects across China are worth roughly 2 trillion yuan.

As I mentioned earlier, local governments at all levels and departments in charge of different industries respond actively to these initiatives thanks to the efforts of the Ministry of Finance.

Many provinces - including Jiangsu, Anhui, Hunan and Hebei - have launched PPP promotional campaigns. All these projects have attracted an accumulated investment of 2 trillion yuan, though we have yet to conduct a statistical study to confirm this total amount.

Some people think that these projects were not implemented, or did not result in signed contracts, and that they are just a grand show with few spectators - but I believe this is a misreading of the situation or a misunderstanding.

Shi Yaobin:

PPP projects require a feasibility study, profound assessment and preparation. Additionally, private investors should also have a thorough understanding of these projects, and should evaluate the benefits and returns from the partnerships.

Only after thorough assessment should private investors determine if they wish to cooperate with the government authorities, and this assessment requires time.

Second, the experience of various countries shows that the process of a PPP project - from its approval to various preparations - takes at least 6 months or a year.

A hasty implementation of a project, with no assessment and preparation beforehand, will not only weaken the impact of public services offered by a government - it will also hurt the returns of private investors.

Above all, PPP is a new thing. Though such projects have been working well in other countries for years, it is something new for us to promote PPP in the public service sector on a large scale.

Therefore, after the launch of these projects, there should be a period of reaction for private investors, or the market, which could be either long or short in accordance with their own situation. And that is one of the reasons for the lack of signed contracts.

Shi Yaobin:

Third, it is because of the fact that PPP is a new concept - involving cooperation between government and private investors who expect to share returns and risks - that some private investors may wonder whether they will actually receive the benefits after the investment and operation. They need time to react and to assess, so there is thus a time lag regarding the signing of contracts and implementation of these projects.

The launch of projects worth a total of 2 trillion yuan does not mean that all of them will immediately involve signing contracts, and that is reasonable.

The Ministry of Finance, as the leading government agency in charge of the PPP program, has adopted various measures to address these issues.

First, we work to ensure that private investors have confidence in cooperating with governments to participate in PPP projects.

For example, we are considering the inclusion of a government’s payment of contract into its budget management and mid-term finance planning, which will enable us to solve the issues - regarding government obligations related to payment - that are of concern to private investors.

We also provide documents, guidance and guidelines to boost the confidence of private investors.

I believe that these measures will enable people to learn about, get familiar with, and understand the procedures of PPP projects.

From now on, the duration of a PPP project from its launch, contract signing to implementation will be greatly shortened. But of course, this requires efforts from all of us.

Reuters:

I think the PPP, including asset securitization, is a better way to maintain stable growth while promoting reform. But in April we saw the great downward pressure. So from the perspective of financial and monetary policy, what will the government do to maintain economic growth?

Pan Gongsheng:

You have raised a general question. Promoting the development of asset securitization plays a significant role in deepening financial reform, making good use of existing funds, promoting the establishment of the capital market, thus better supporting the development of the real economy.

From the macro perspective, through securitization of existing loans, the financial institutions sell them to investors, thus turning them into useful funds.

The Premier stressed at the State Council Executive meeting two days ago that these loan resources should be invested in the important areas and weak areas of the national economy, such as offering financial support for shantytown renovation, water conservancy, railway construction in central and western China, small and micro-businesses and agriculture.

From the view of the financial market development, asset securitization provides the market with a new type of investment, which will help promote the development and establishment of a multi-layer security market. From a micro perspective, commercial banks can adjust the structure of asset portfolios, thus enhancing the transformation of operations and reducing their possession of capital and improve the efficient use of funds. From January to April this year, asset securitization operated quite smoothly. By the end of April, asset securitization had reached 60 billion yuan, 10 billion yuan more than the same period last year.

Pan Gongsheng:

I want to say more about this question because it concerns the overall judgment of the current economic situation. To me, today’s policy briefing is mainly about the cooperation between the government and the social capital. I want to share my views with you on this point.

In fact, the PPP is an important policy tool to direct social capital in infrastructure construction, operation and management and improve the quality and efficiency of public service. By this way, more social capital will be encouraged to be invested in project construction, operation and management of public service areas, which itself is a support to economic development.

You can take a look at the Opinion which listed many public fields, including energy, transportation, water conservancy construction, hospitals and schools. These are all important tasks of new type of urbanization. The PPP can help promote urbanization and construction of more infrastructure, thus providing more jobs in public service areas, further boosting fixed asset investment, and increasing consumption.

On the one hand the PPP ensures that the government provides high quality and efficient public services with low costs. And on the other hand it offers an investment channel for social capital and brings reasonable returns. It will greatly increase efficiency and bring extra returns to people, thus increasing the confidence in social investment. So I think the PPP itself is a useful tool in promoting economic development.

A Foreign reporter:

About the local government bonds, are you confident that local governments can sell them? Not long ago, Jiangsu province delayed its plan to issue such bonds probably because banks are reluctant to purchase them. It seems that the scope of interest rates for local government bonds is fixed.

Pan Gongsheng:

I read reports about Jiangsu province’s bonds, which I think are inaccurate. The swap of local government debt has several patterns. The pattern used by Jiangsu is just one of them, other patterns include that of public issuance. As far as we know, financial institutes are quite active about the local government debt swap as it can help improve assets portfolios, save costs, reduce operation risks and boost asset liquidity. We hope that local governments and financial institutes can work together well in this regard based on market principles, on an equal footing and voluntarily.

China Radio International:

My question goes to Mr Pan. You have introduced the history of securitization of credit assets, and experiences learnt in this field, including consideration of policies, so what was the biggest problem during the period of stagnation? And the latest executive meeting of the State Council decided to invest 500 billion yuan in a pilot program for securitization of credit assets – a major investment, so what is your opinion on further development?

Pan Gongsheng:

It has been a decade since the beginning of China’s securitization of credit assets, during which the pilot program went into a period of stagnation in 2008 due to the economic crisis. The State Council decided to restart the program in 2011, and decided to expand it in August, 2013. The securitization of credit assets has witnessed great progress in the past two years, with the circulation of credit asset-backed securities reaching 350 billion yuan, and the remaining balance passing 300 billion yuan. That is a big success in terms of institutional construction and market development.

As to the future, I think China’s market in this field is still in its early stages, with many problems to be resolved, but I am confident. Why? I believe in its huge potential. Here is the data: first, China’s balance of loans stand at approximately 93 trillion yuan, with the securitization of credit assets accounting for 300 billion yuan, which means 0.3 percent of the whole loan market. Second, China’s balance of bonds is 37 trillion yuan, and the 300 billion yuan securitization of credit assets balance occupies less than 1 percent. Third, the securitization of credit assets balance of the United States is $10 trillion by the end of 2014, which means our balance accounts for only 0.5 percent of the American market. From these we can see how huge the potential of our market is, and I’m quite optimistic.

Kyodo News:

What kind of role will a Public-Private Partnership play in the operation of the Asian Infrastructure Investment Bank after it is launched? How will private capital be introduced to the AIIB?

Shi Yaobin:

At present, I don’t know whether the Asian Infrastructure Investment Bank will carry out public-private partnership projects because the bank is still in the process of launching.

The 57 founding members of the AIIB are negotiating on the Articles of Agreement. According to the timetable set by the founding members, they will sign the AOA before the end of June and each country will go through its legal procedure of approval. The AIIB will be founded at the end of this year and come into operation as soon as possible.

Personally, I think the model of public-private partnership refers to cooperation between government and social capital. It came into existence in the UK in 1980s. I was surprised to learn that the UK government’s treasury building was built and operated via a PPP model. If the AIIB wants to carry out PPP projects, I think it should be OK as long as the members could build a rational partnership and mechanism for interest distribution and risk sharing.

Bloomberg News:

My question is about China’s ABS market. As we know that the US mortgage-backed securitization finally lead to a global financial crisis. We would like to know if the People’s Bank of China have any plans to ensure that this expansion of ABS is riskless and it will not repeat the US mistakes. Will the central bank open the ABS market to foreign investors?

Pan Gongsheng:

As China is improving the development of its ABS market, we have studied all the experiences and lessons from the main developed economies, including the reforms of financial regulation, after the global financial crisis. For example, after the crisis, the major developed economies have tightened regulations for asset securitization, which has shifted the policy tone from encouraging financial innovation to preventing risks. The US government, for instance, released the Dodd-Frank Act to improve regulation reform. The key for the act is to keep risks to the securities’ sponsors and it requires improving information disclosure.

The scale of the Chinese ABS market is not so big. But we attach great importance to risk prevention and control along with the market’s growth.

Pan Gongsheng:

First, we will prevent excessive securitization. The State Council meeting said it wanted to expand the ABS pilot, other than through “re-securitization”. As we know the more levels for securitization means the investors will be further from the basic assets, and the financial products will be more complicated. Then the potential risk will be difficult to quantify and moral hazard will increase too.

We have a principle on developing the ABS market, which is to ensure the products are simple and transparent.

Second, we encourage market innovation as well as improved supervision.

Third, we improved the system’s construction. We learned lessons from the global financial crisis and studied financial regulation reform in major developed economies. We will build a flexible and transparent information disclosure system with high standards. We will also enhance regulation on issuers and rating agencies, and to keep part of risks on the issuers to prevent moral hazard.

To answer the second question, China has more than 220 foreign investors in the bond market, including foreign central banks, international financial institutions, sovereign wealth funds, offshore yuan clearing banks, QFII and RQFII. They are holding Chinese bonds of more than 600 billion yuan. The ABS is one of the bond products. So every foreign investor who can invest in the Chinese bond market can also invest in ABS products.

Economic Daily:

Is there any possibility of further expanding the amount of basic assets for asset-backed securitization (ABS)? Is it possible to try the securitization of non-performing assets?

Pan Gongsheng:

The main part of the current basic asset pool for ABS in China is the common corporate loan, which accounts for 90 percent. We have two thoughts on the future of the basic asset structure. First, look at the ABS market structure in the United States where 90 percent of the basic assets are retail loans, including mortgages, student loans, individual loans and bank credit-card loans. The ABS market structure in China is quite different from the US. As the retail loans are better for securitization, we will improve the ABS for that aspect.

Second, you mentioned the securitization of non-performing assets. It can broaden channels and accelerate the process to deal with non-performing loans in commercial banks, which can improve their asset quality. Meanwhile, it can better discover the value of the non-performing assets, and enhance the cash-asset ratio.

Pan Gongsheng:

In the recent meeting of the State Council, it mentioned exploring the securitization of non-performing assets. Before the global financial crisis in 2008 we had securitizations of non-performing assets, operated by China Construction Bank, China Asset Management Co and China Orient Asset Management Co. It totaled more than 10 billion yuan. Now those ABSs have all finished and they operated very well.

For the next step, we will follow the requirements of the State Council’s meeting to continually improve the securitizations for non-performing assets and strictly control risks.

Hu Kaihong (host):

That is the end of the policy briefing, thank you and bye.