Guo Mingshe | Harness the power of finance to serve the national strategy. Serving the country throu

Guo Mingshe

The following is a transcript of Guo Mingshe's speech:

I've gained a lot from attending this forum today. One key takeaway is the realization that achieving carbon neutrality and carbon emission reduction is indeed a very challenging task. Secondly, the financial aspects are also extremely difficult. I think that the next step in achieving our "dual carbon" goals, as I've heard from many experts this morning, ultimately boils down to one issue: funding. Where will the money come from? Money, capital, as everyone knows, is profit-driven. However…In the "dual-carbon" market, the construction cycle is relatively long and the rate of return is low. How can we get capital to flow in the opposite direction?I would like to share a few thoughts.

I worked in Inner Mongolia for a period of time, which is a major heavy chemical industry base. The pollution in Wuhai was extremely severe. For a while, when we went there, you didn't even need navigation; you could see a huge, dome-shaped area covered by coal mining—that was Wuhai, because it was heavily polluted by coal chemical industries. Living in such an environment, while it has its social significance, has a tremendous impact on everyone's physical and mental health.

We are now pursuing the "dual carbon" target, and we have solemnly pledged to the world that when we finally reach "3060," the amount of funding we will need is 139 trillion yuan, according to a figure released by the central bank. Such a large figure means that I feel relying solely on banks or one other party is insufficient. I sense that we may need the support of several parties:

First, we must give full play to the power of the capital market.There's a prevailing view in the capital market that it encourages innovation, while the traditional credit market stifles it, a view I strongly agree with. The capital market primarily assesses a company's potential and the direction of its project to determine whether to support it, approve its listing, or allow it to issue bonds. In contrast, the traditional credit market, due to the nature of banks, requires repayment of loans. Therefore, it imposes many barriers, such as financial statements, company characteristics, and future collateral requirements. While we've heard a lot about these issues today, like in carbon trading, there are still many problems to be solved. However, the relatively lower barriers in the capital market can incentivize innovation.

The host just asked about the China Development Bank's issuance of its first carbon-neutral green bond this year, worth 20 billion yuan. The interest rate was only around 3.0%, and the subscription multiple exceeded 8 times. Raising 20 billion yuan in a single transaction is impossible in the traditional credit market if considered using traditional lending concepts. Furthermore, this funding is provided in one step. Previously, it involved signing strategic cooperation agreements with various parties, which were merely on paper and in contracts; many conditions were required for actual use. But this is different. All 20 billion yuan is earmarked for green projects, specifically electricity and energy bonds. What does this show? Our market doesn't lack money; it lacks good projects. I think this is the first force we need to utilize—fully leveraging the power of the capital market. In this regard, I believe our country's capital market still has significant room for improvement in supporting economic development and green development.

Second, we must leverage the power of our mission.A mission, in essence, means that I am given a task, and that's what I do. I even looked this up specifically; it requires a mission. If one is burdened with a mission, how many virtuous and ambitious people in the past could completely abandon wealth and honor, risking their lives and shedding blood without hesitation? I think financial institutions should also be like that, instilling a sense of mission in everyone.

Because you are a national financial institution, serving the country through finance should be the mission of finance. It is not enough for just the People's Bank of China to be conducting research, nor is it enough for just the China Development Bank to be doing it. We may need to mobilize all sectors, including securities, insurance, and funds.

The first thing everyone should do is establish relevant green development organizations. Many financial institutions are already thinking about these issues. Once everyone starts thinking about these issues, the ideas and approaches will broaden considerably. Furthermore, the sources of funding and the utilization of social capital will expand significantly.

Secondly, we need a standard for our green financial support. What exactly is a green bond? What constitutes green finance? We can't just have everyone using this label and calling themselves green when they aren't actually green.

Thirdly, there needs to be a mandatory disclosure standard and a verification standard, which means there needs to be a post-evaluation. At one point, the default rate in our bond market was very high, reaching 60%, but many of those defaulters were AAA-rated companies, which is a very high rating. Why did these companies still default? Because the credit rating agencies themselves didn't follow through. Therefore, I think post-evaluation is also very important; it needs to provide verification.

Finally, we need an incentive mechanism, and the whole society needs to have this kind of atmosphere. This is a matter for all mankind, a matter concerning the survival and development of every individual, and a matter concerning future generations, so we all need to have this sense of responsibility. I think once we have this mission, everyone will be more dedicated to this development, to how we can do our best and contribute to green finance, and it will transform from "I have to do it" to "I want to do it."

Third, we must leverage the power of development finance.Development finance is actually a financial system led by the China Development Bank, guided by the concept of development finance. It differs from commercial finance in that commercial finance focuses on returns because it has shareholders, and maximizing shareholder interests is its operating objective. Policy-based finance, on the other hand, primarily focuses on national strategy. It does whatever the state tells it to do, whatever the Premier approves. If there are losses, the state bears the consequences. Development finance should be somewhere in between.

Policy-based finance is actually a synonym for loss-making banks. For example, after the China Development Bank was established in 1994, its non-performing loan ratio reached more than 40% by 1998. Therefore, relying entirely on policy-based finance is not feasible.

Development finance takes serving national strategies as its highest operating objective, but it achieves this through market-oriented means. It originated from a small bank with a base of just over 42% established in 1994. After Comrade Chen Yuan took office, it became the world's largest development finance institution, with total assets reaching 17 trillion yuan. For nearly a decade, its non-performing loan ratio has been kept below 1%, an extremely low rate. Furthermore, it has explored a model, system, and method for achieving national goals and serving national strategies through market-oriented approaches.

It used these methods to break through a series of bottlenecks in China's social development, including the urbanization wave, which was ultimately overcome by the China Development Bank, or development finance, through its concepts. I remember in the 1980s, when Nixon visited China, he thought of Hangzhou, describing it as a beautiful landscape but a dilapidated city. But that situation is no longer the case in China. Frankly, the credit for this achievement belongs to the China Development Bank, or development finance, which created and led this trend.

Another point is that many of you here may have received student loans to attend university. You might not realize now that the main bank responsible for student loans is the China Development Bank. It holds over 90% of the market share, making it the absolute dominant bank. Its non-performing loan rate is only slightly over 1%. The government later provided some compensation, but to this day, the vast majority of that compensation has not been used. This is because its system design has created a win-win situation for banks, schools, the government, and the students receiving student loans.

The China Development Bank (CDB) was, in theory, the least qualified to run student loans. It had few branches and no physical offices. Furthermore, it had no physical branches and only about 20,000 employees. Therefore, it's incredible that such a bank accomplished something so significant, especially since it entered the market at its lowest point. At that time, the non-performing loan rate for student loans reached 30%, and many banks withdrew. Only CDB entered the market. During the bidding process, the non-performing loan rate was set at 15%. Comrade Chen Yuan (CDB's founder) said, "We will definitely win the bid even with a 15% non-performing loan rate." Why? Because this was the biggest reason for their success. They aimed to change the intergenerational cycle of poverty through student loans, making equal access to education a reality for everyone. After entering the market, through various mechanisms, system designs, and arrangements, student loans have developed very well.

There's also the shantytown renovation project. In the past, many people in the old industrial bases of Northeast China lived underground, half above ground and half underground – it was incredibly difficult. The China Development Bank initiated this shantytown renovation project, and the people who benefited from it, when they went down to see for themselves, genuinely shouted, "Long live the Communist Party!" I think you rarely hear people shouting "Long live the Communist Party!" now, but those people truly meant it, because many of them were national heroes who still lived semi-underground, facing difficulties with transportation, housing, and even drinking water. Living in high-rise buildings with telephones and elevators was something they had never dreamed of for years. The China Development Bank, through innovative methods, made these things a reality.

If we want to achieve our "dual carbon" goals, what we need to learn from and draw upon is China's own development finance. I specifically mentioned the China Development Bank earlier because its development finance model has been extensively studied abroad. This is our own indigenous financial system, and its practices have proven it to be a successful financial theory, concept, and practice.

Therefore, I believe we should indeed have confidence in our path, theory, and practice in this regard. The reason we can achieve this, I think, is due to initiative—serving national strategy, not being dictated by others. I remember Chairman Chen Yuan saying something like, "I simply don't believe a bank under the leadership of the Communist Party can't be run well." He said he was determined to build a good bank under the leadership of the Communist Party and within the socialist system. In fact, many of our current indicators are comparable to those internationally.

I also learned today that the China Development Bank has launched a 50 billion yuan carbon neutrality credit package. This 500 billion yuan package has already been announced to the public and is a major deal to support new energy, electricity, and other green development sectors. It was just signed. It's very proactive in serving national strategies and improving the well-being of the people.

The second key factor is its creativity. It creates markets where none exist, and it improves credit where credit is lacking or nonexistent. This is a crucial reason for the success of development finance. For a long time, development finance guided the flow of social capital; wherever the projects it developed went, the funds flowed there, because other financial institutions immediately recognized its direction as correct. It was very forward-looking. At that time, Comrade Chen Yuan, who later became Vice Chairman of the 12th National Committee of the Chinese People's Political Consultative Conference, required us to learn from the banks—the banks of experts. These experts were professionals in their fields, including many in the power industry.

The third point we can learn from is its unwavering determination, no matter what difficulties it encounters. I just gave an example: student loans. Logically, when Kai Bank entered the student loan field, everyone thought it was impossible. They lacked advantages in terms of branches, personnel, and everything else. It seemed impossible. But they challenged the impossible, turned it into possible, and achieved great success. This demonstrates their unwavering determination—no matter what, once they identified a direction, they steadfastly moved forward. They built bridges over rivers and paved roads through mountains; we must have this kind of spirit.

Therefore, I think we should carefully review the many cases of the China Development Bank and other development finance institutions in the process of financial services supporting carbon neutrality, and analyze their systems and methods. I believe this will be of reference value for our current financial support for carbon neutrality. Thank you.