Market will now shift focus to Washington as Barack Obama will be sworn in as the 44th President of the US on January 20. Will a new President save the US economy and restore banking stability? Although many plans are in the pipeline and will be launched as soon as Obama takes office, including a new round of fiscal stimulus, in the form of tax cuts and government spending, and financial stimulus, perhaps in the form of a bad bank to take over bad assets of banks, it will take time for these measures to take effect. In the mean time, bank and corporate earnings will continue to disappoint and economic conditions will deteriorate. Despite government efforts, the US unemployment rate could surge past 9%, from 7.2% at present. All these will bode badly for riskier assets and provide more room for the US dollar to score further gains against other majors in the first quarter of this year.

Interest Rates

The race to zero rates is still on. After the Fed cut rates to a range of zero to 0.25% and the Bank of Japan to 0.1%, other central banks are not far behind. The Bank of England and the European Central Bank reduced rates by 50bps in the past two weeks as their economies fell into deeper recession. Rates in the UK stand at 1.5% and that in the euro zone at 2%. Both central banks signaled that more rate cuts could be expected if the downturn accelerates. The decline in inflation as a result of falling oil and commodity prices also give monetary authorities more leeway for further policy easing.

With US rates near zero, the Fed is resorting to unconventional monetary policy to revive lending. It is using its balance sheet to purchase commercial paper and mortgage backed securities. Starting in February, the Fed will provide three-year term loans to investors against consumer and small business loans. If credit conditions do not improve, the Fed might consider purchasing longer term securities as a means to push down longer term interest rates.

As a matter of fact, the Fed’s action has already helped ease stress in money markets, as evidenced by a narrowing spread, from over 450 bps in October 2008 to around 100 bps in mid-January 2009, between interbank interest rates and Treasury Bill rates. Mortgage rates have also come down after its announced plan of purchasing mortgage backed securities in government sponsored enterprises. The average rate on a 30-year fixed mortgage dropped below 5% in mid-January 2009, from about 6.5% in the last week of October, 2008.

The Fed is determined to revive growth and there is no limit to how far it Fed could expand its balance sheet. But the Fed’s action will of course has long term consequences, including escalating money supply growth and inflation, if not handled carefully and promptly.

(Xi’an, September 5th， 2001)

Distinguished guests,

Ladies and gentlemen,

In the golden autumn, I am very happy to welcome the distinguished guests
to China West Forum 2001 in the ancient capital Xi’an, an age-old and mysterious
city full of dynamism of the modern era. Taking this opportunity, I would
like to brief you on the new opportunities for foreign investment in the
west after China joins the WTO. I hope that foreign businesspeople could
take part in the development of western regions more actively to advance
the economic and social development of the vast western areas.

Ladies and gentlemen,

China has gone through a journey of 15 years in order to first resume the
contracting party status in GATT and later to enter the WTO. The twists
and turns over the past 15 years have been deeply embedded in the minds
of the Chinese people and witnessed by each and every foreign friend who
cares for and supports China’s cause of modernization. However, it is a
comfort to see that China’s accession to the WTO has been noticeably accelerated
with the concerted efforts of various relevant parties over recent years.

In May and June this year, China held consultations and reached comprehensive
consensus with US and EU on the outstanding issues in the multilateral
negotiation of China’s WTO accession. In early and mid July, the WTO held
the 16th and 17th sessions of the China Working Party Meeting, at which
the substantive negotiation on China’s WTO entry was concluded with the
drafting of the Protocol, Working Party Report and other multilateral legal
documents regarding China’s WTO accession completed. I believe at the 18th
Working Party Meeting to be convened in September, all the legal documents
on China’s accession will be eventually adopted and submitted to the WTO
General Council for review, thus wrapping up the historic mission of the
WTO Working Party on China. Hard endeavor of 15 years is about to turn
China’s entry to the WTO into a reality.

Ladies and gentlemen,

FDI absorption constitutes an important component of China’s basic state
policy of reform and opening up. As the reform and opening up going into
depth over the past two decades and more, China has been constantly improving
its FDI utilization in terms of scale and quality. As of the end of July
2001, China had cumulatively approved 378,000 foreign funded enterprises
with a contractual value of USD 717.01 billion, of which USD 372.83 billion
had been actually paid in.

China has maintained a good momentum in its FDI attraction since this year.
January through July, 14,000 foreign-invested enterprises were approved
to establish, 18.2% higher than the corresponding period of last year,
the contractual value of foreign investment grew by 45.8% to USD 40.29
billion and the actually utilized value climbed by 21.7% to USD 24.21 billion.

While the FDI absorption of the eastern areas is growing at a rapid speed,
the western regions have also made obvious headway in its FDI attraction.
Up to the end of June 2001, the project number, contractual value and actually
utilized value of FDI in the west accounted for 7.3%, 6% and 5.3% of the
national total. In the first 6 months of this year, 742 new foreign invested
enterprises were set up in the western regions with the contractual value
amounting to USD 1.91 billion and actually utilized value, USD 710 million.

Joining the WTO is an inherent requirement of China’s development of its
socialist market economy which also complies with the objective trend of
the world economic progress, and it will bring about unprecedented opportunities
to the economic and trade cooperation between China and various countries
and regions in the world. After becoming a member of the WTO, China will
open service areas such as banking, insurance, telecommunication, foreign

China Industrial and Commercial Bank hereby extends its deep respect to you and thanks you for your persistent confidence and support to Peony Card.

To adapt to the development trend of global bank card business, provide you with more quality service and ensure your lawful rights and interests, ICBC has revised the ICBC Peony International Debit Card Regulation and the revised regulation (hereinafter referred to as the new Regulation) has been approved by China Banking Regulatory Commission and was published on Financial Times and took effect on December 18, 2003. ICBC hereby makes the following statements about matters after the new Regulation takes effect.

1. After the new Regulation is published and takes effect, ICBC will no longer issue relief printed peony international debit card (hereinafter referred to as relief printed international debit card). Where your relief printed international debit card needs to be renewed upon maturity date, ICBC will renew the card with lithographic peony international debit card (both in RMB/USD, same as hereinafter). If your relief printed international debit card needs to be replaced due to loss reporting or damage of card during the card’s term, ICBC will renew the card with lithographic peony international debit card; if you still wants to replace relief printed international debit card, ICBC will renew card for you, and the term of the renewed card is consistent with that of the original card.

2. To improve service level, ICBC will, by combining implementation of the new Regulation after systemic reconstruction and preparation is completed, collectively add RMB account to the original relief printed international debit card on April 20, 2004 and update it into the bank card that can be used both in China and abroad.

Before adding RMB account, relevant provisions about RMB account in the new Regulation do not apply to relief printed international debit card with single currency for the time being. During this period, provisions that loss reporting by telephone takes effect instantly and account query and request for correction shall be replied within 30 days in the new Regulation apply equally to your relief printed international debit card.

3. After RMB account is added into your relief printed international debit card, deposit, withdrawal, account transfer in RMB can be conducted at ICBC business offices in China; cash withdrawal in RMB can be made at ATMs with ICBC mark or Union Pay mark; consumption by charging to card can be made at appointed stores with ICBC mark or Union Pay mark; account query can be made via ICBC internet banking (www.icbc.com.cn); if you lose the card in China, you also can enjoy emergency cash withdrawal service provided by ICBC. For deposit in RMB account, ICBC shall compute interest for you according to demand deposit interest rate stipulated by the People’s Bank of China and shall deduct interest tax for you according to law.

In order to prevent operative risks and ensure the safety of your capital, after RMB account is added, the relief printed international debit card no longer has functions of on-line shopping, pre-authorization and petty amount transaction. Other functions of relief printed international debit card held by you remain unchanged.

4. After RMB account is added, if you make consumption in appointed organization with peony international debit card in China, draw cash in RMB at appointed business offices or ATMs (including ATMs of other commercial banks) or conduct account transfer with your other RMB accounts, RMB account shall be used for settlement for all these transactions. If you make consumption or draw cash at international credit card organization outside China, draw cash in foreign currency at appointed business office in China or conduct account transfer with your other foreign currency accounts, foreign currency account shall be used for all these transactions. RMB account and foreign currency account shall not be mixed.

5. Notification period of the new Regulation is from December 18, 2003 to February 15, 2004. During notification period, if you do not want to use the peony international debit card any more due to modification of regulation, you can handle account cancellation procedure at card issuing institution and ICBC will refund annual fee pro rata according to the annual fee receipt provided by you. If you apply for account cancellation after expiration of the notification period, ICBC will not refund annual fee any more.

To ensure your normal use of the peony international debit card, if you have any question, don’t hesitate to call ICBC 24hour customer service telephone (010-95588).

ICBC Peony Card Center
December 18, 2003

ICBC Peony International Debit Card Regulation

Article I
Peony international debit card is issued by the Industrial and Commercial Bank of China (hereafter referred to as the “ICBC”), generally accepted in China Mainland and foreign countries, settled in both RMB and a certain designated foreign currency, and has such functions as consumption, account transfer and settlement, cash deposit and withdrawal etc.

Article II
Any of ICBC business offices handling Peony international debit card business, appointed units, and holders of Peony international debit card should abide by this regulation.

Article III
Peony international debit card is classified into Peony Visa Card and Peony MasterCard by brand.

Article IV
Peony international debit card can be used at any of appointed units, designated business offices, local registration authorities (LRA) of domestic and foreign credit card organizations.

Article V
Any person with complete civil capacity and steady income can apply to the card issuing institution for a Peony international debit card by his/her own valid identity certificate and related data.

Article VI
Any transaction by use of password will be deemed the cardholder’s own conduct by the card issuing institution, and any of electronic information records produced by various settlement transactions by use of such electronic information as password etc. will be valid evidence for these transactions. The receipt for any transaction without the use of password will be valid evidence for this transaction if recording the signature of the cardholder. The card issuing institution has right to record income and expenses incurred by the use of Peony international debit card into the cardholder’s account.

Article VII
Any cardholder can deposit his/her cash or wages, or transfer personal legal labor income, investment yields, and other income into the RMB account of Peony international debit card.
Any cardholder can deposit his/her foreign cash, or transfer funds from his/her foreign exchange account (foreign currency account inclusive) into the foreign currency account of Peony international debit card, but should abide by the Management

Measures on Personal Foreign Exchange of the State Administration of Exchange Control in any way, and follow the personal foreign management system of the P.R. of China when withdrawing foreign cash no matter in China Mainland or foreign countries.

The deposit in the account of Peony international debit card accrues interest at the rate of RMB or foreign currency demand deposit provided by the People’s Bank of China (hereafter referred to as the “PBC”), and the card issuing institution will withhold and remit the interest tax according to the laws.

Article VIII
Any cardholder can use his/her RMB account to settle his/her consumption at domestic appointed units, RMB cash withdrawal at designated business offices or ATMs (those of other commercial banks inclusive), fund transfer to/from any other of his/her own RMB accounts.

Any cardholder can use foreign currency account to settle his/her consumption or cash withdrawal at any LRA of domestic or foreign international credit card organizations, foreign cash withdrawal at any of domestic designated business offices, or fund transfer to/from any other of his/her own foreign currency accounts.

The use of RMB account and foreign currency account should be separated.

Article IX
Any cardholder can use his/her Peony international debit card in foreign countries only for the payment under the service trade account, but not for the investment and trade payment under the capital account, or the illegal transactions and acts prohibited by the international laws.

Article X
Any cardholder can but withdraw RMB cash for five times and accumulatively RMB 5,000 at most every day at any of domestic designated ATMs by card and password.

Any cardholder can but use his/her Peony international debit card in foreign countries to withdraw cash accumulatively no more than USD 1,000 or equivalent foreign currency every day, and accumulatively no more than USD 5,000 or equivalent foreign currency every month.

Article XI
Peony international debit card can not be overdrawn. If there is any overdraft incurred by the acceptance of foreign banks or appointed units, or the commissions, the card issuing institution has the right of resource to the cardholder for the amount of overdraft, and also has right to freeze the use of card. The card will return to normal use only after the cardholder pays off the amount of overdraft.

Article XII
The useful life of Peony international debit card is eight years, the card issuing institution will charge the annual fee for the first year from the cardholder’s account after the cardholder deposits money for the first time, and initiatively debit and collect the annual fee for the years to come when sufficient balance is available based on the collecting date in the first year. If wanting to continue the use of card after maturity, the cardholder should replace it with a new card.

Article XIII
The card issuing institution should provide the cardholder with such services as consulting, inquiry, loss-reporting, processing complaints, and issuing bank statements for the cards involving transactions (except otherwise agreed with the cardholder) etc., and give a reply to the requirements of the cardholder for inquiring and correcting transactions and accounts within 30 days after the date of acceptance.

Article XIV
The cardholder of Peony international debit card can only use the card him/herself, but not lease or lend it out, and should not refuse paying the amount due to the card issuing institution by the reason of any dispute with any of the appointed units.

Article XV
Any cardholder should advise the card issuing institution about any change of his/her correspondence address, telephone number, dwelling place etc. in written or other forms agreed by both parties in due course so that the change procedures can be handled. Otherwise, the card issuing institution assumes no responsibility for any consequence accrued hereof.

Article XVI
Any cardholder should cancel his/her account and apply for a new card if his/her card gets damaged.

Article XVII
Any cardholder should go to the nearest ICBC business office and handle written loss-reporting or telephone loss-reporting immediately getting his/her Peony international debit card lost. The cardholder assumes no responsibility for any transaction arisen after completing the loss-reporting procedures. If wanting to replace with a new card after loss-reporting, the cardholder can conduct the replacement procedures by the written loss-reporting application and his/her own valid identity certificate.

Article XVIII
The card issuing institution has right to cancel the qualification of any cardholder disobeying this regulation, and authorize a competent authority to take back his/her Peony international debit card.

Article XIX
Any amendment to this regulation or adjustment on the interest rate of Peony international debit card will be announced on the newspaper within 30 days after getting approved by the China Banking Regulatory Committee, and any cardholder can choose whether to continue the use of Peony international debit card within 60 days after the date of announcement; if not, the card issuing institution will refund the collected annual fee proportionally, and handle the cancellation procedures.

Article XX
This regulation is subject to the constitution and construction of the ICBC, and shall come into effect after the approval of the China Banking Regulatory Committee.

Article II
Any of ICBC branches handling international card business, appointed units, or international card holders should follow this regulation.

Article III
The international card can be used at any of the domestic appointed units, the designated business offices, or the accepting points of domestic and foreign credit card organizations or international credit card companies and settled in both RMB and a certain designated foreign currency.

Article IV
The international card is classified into Peony Visa Card, Peony Master Card and Peony Express Card by brand, business card and personal card by issuing objective, and Platinum Card, Golden Card and Classic Card by credit line.

Article V
Any legal person or other economic organization authorized by the legal person (hereunder referred to as the “unit”) able to legally possess foreign exchange can apply to any of ICBC International Card Issuing Institutions (hereunder referred to as the “card issuing institution”) for business cards by virtue of its bank account license issued by PBC. Any unit can apply for several business cards but should designate their cardholders respectively on the application form.

Any person with complete civil capacity and steady income can apply to the card issuing institution for personal cards by virtue of his/her own valid identity certificate and relevant data. He/she can apply for either personal principal card with different brands or different credit lines or supplementary cards for his/her spouse or relatives with complete civil capacity.

Article VI
Any corporate or personal applicant for an international card should complete the application form, and sign the Peony Credit Card Use Agreement with the card issuing institution. The card issuing institution will determine whether to issue the card, the variety of card issued and the credit line according to its application data and credit status.

Article VII
The card issuing institution will set up a RMB account and a foreign currency account for the cardholder and authorize credit lines for the RMB account and the foreign currency account respectively. The card issuing institution has right to adjust the credit lines of his/her accounts according to the situations of the cardholder’s card use and the changes of his/her credit status.

Different card varieties have different credit lines, and the credit line (monthly overdraft balance) of all personal cards underlying the same one account should not exceed RMB50 thousand (or equivalent foreign currency). The credit line of business card will be included into the integrated credit line for unified management, and should not exceed 3% of the integrated credit line provided by the card issuing bank for this client. The monthly overdraft balance of the client without any integrated credit line should not exceed RMB100 thousand (or equivalent foreign currency). Any international card underlying the same one account will jointly use the credit line of this account.

Article VIII
Any transaction conducted by the aid of password will be deemed as the cardholder’s own act by the card issuing institution. Any electronic information record incurred by various settlement transactions conducted by the aid of password and other electronic information will be deemed as the valid certificate for these transactions. For any transaction without the aid of password, any transaction receipt recording the cardholder’s signature will be deemed as the valid certificate for this transaction.

Article IX
Any client can transfer funds from his/her basic account to the RMB account of his/her business card, but cannot conduct cash deposit or withdrawal, or deposit his/her sales revenue into the account of his/her business card. When settling the payment for goods or labor services, the client cannot use the credit line.
Any corporate client can transfer funds from its foreign exchange account to the foreign currency account of its business card, but cannot deposit or withdraw foreign cash in China, and its foreign exchange account should meet the following conditions.
(I) It is opened according to relevant provisions of domestic foreign exchange account management issued by PBC;

(II) There include corresponding payment contents within the income and expenditure scope of foreign exchange account. The single overdraft amount of the same one cardholder’s business card should not exceed RMB50 thousand (or equivalent foreign currency).

Article X
Any personal card holder can deposit his/her cash or transfer his/her wage funds from his/her income accounts such as personal legal compensation for services and returns on investment into the RMB account of his/her personal card, or deposit his/her foreign cash or transfer from his/her foreign exchange account (or foreign currency account) into the foreign currency account of his/her personal card. Both account transfer and deposit of this account should be conducted according to the Management Measures on Personal Foreign Exchange promulgated by the State Administration of Foreign Exchange. The foreign cash withdrawal in China should follow the relevant personal foreign exchange management system of the P.R China.

When withdrawing cash at domestic designated ATMs by virtue of card and password, any cardholder can only withdraw RMB cash for five times at most every day, with an accumulative amount of not exceeding RMB 5000. The cash that the cardholder uses the credit line to withdraw by each card every day should not accumulatively exceed RMB 2000 (or equivalent foreign currency).

Article XI
Except cash and account transfer transactions, any other transactions conducted by the cardholder is interest free from the date of transaction to the date of repayment at maturity advised on the bank statement (hereunder referred to as the “date of repayment at maturity”) (inclusive), which is the 25th day after the date of generating the bank statement. The cardholder should repay any amount payable before the completion of business at the date of repayment at maturity (business day, the same as below) without the necessity of paying any overdraft interest.

The cardholder can make repayment according to the minimum repayment amount provided by the card issuing institution, which should not be lower than 10% of the overdraft balance. Any cardholder failing to make full repayment before the date of repayment at maturity (inclusive) can not enjoy the treatment of interest-free repayment period; for the paid part, the interest will be charged from the date of overdraft transaction to the date of repayment, and for the unpaid part, the interest will continue to be accrued from the date of overdraft transaction. The overdraft will be charged a compound interest by month. If failing to fully repay the minimum repayment amount before the completion of business at the date of repayment at maturity, the cardholder should also pay an overdue fine according to 5% of the unpaid part of the minimum repayment amount besides paying an overdraft interest according to the interest accrual method stated above. If the cardholder fails to fully repay the minimum repayment amount before the completion of business at the date of repayment at maturity for no less than two times in succession, the card issuing institution has right to stop the use of this card.
The overdraft interest rate follows the relevant provisions of PBC.

The card issuing institution pays no interest for the deposit in the account.

Article XII
Any cardholder using the credit line to withdraw cash or transfer funds into other personal account can not enjoy the treatment of interest-free repayment period and should pay an overdraft interest according to five ten-thousandth of the payment amount every day from the date of transaction to the date of repayment.

Any cardholder overusing the credit line authorized by the card issuing institution and failing to repay the overrunning part before the completion of business at the date of account overrun (namely the date of entering the amount of this transaction into account by the card issuing institution) should pay an overrunning fee according to 5% of the overrun part.

The overdraft interest, fee (overrunning fee, overdue fine, account transfer fee etc.) will enter the account of cardholder as a debit item.

Article XIII
Any cardholder’s consumption at the appointed units or RMB cash deposit & withdrawal at the designated savings office will be credited or debited into the RMB account; any foreign cash deposit & withdrawal at the designated savings offices, or consumption or cash withdrawal at the accepting point of domestic and foreign credit card organizations or credit card companies will be credited or debited into the foreign currency account.

Article XIV
The useful life of international card is five years at most, any cardholder needing to continue its use after maturity should conduct new card replacement procedures. Any expired international card cannot be used any more, but the use agreement continues to take effect. The card issuing institution continues to reserve the right of management and recourse to the international card. Any cardholder not replacing his/her expired card with a new card or suspending his/her card use in the midway should return the international card to the card issuing institution and conduct the cancellation procedures.

The useful life of the replaced card is the same as that of the original card.

Article XV
The card issuing institution should handle the cancellation procedures for the cardholder according to the relevant business provisions after accepting the cardholder’s application for cancellation and return the funds in the business card account to his/her basic deposit account after cancellation.

Article XVI
Any cardholder should timely repay the principal & interest and the expense of bank loan underlying the international card, otherwise the card issuing institution has right to press or claim for payment according to the laws.

Article XVII
Both the card issuing institution and the cardholder should abide by the Peony Credit Card Use Agreement. If any party fails to perform the agreement, the other party has right to prosecute its legal responsibility according to the agreement. If the cardholder fails to follow the regulation and the use agreement, the card issuing institution has right to cancel his/her qualification, and authorize the competent authorities to recall his/her international card.

Article XVIII
The card issuing institution should provide consulting, inquiry, loss-reporting, complaints and other services for the cardholders, give reply to the cardholder’s inquiry about the account information or request for change within thirty days, and keep the cardholder’s credit data confidential according to relevant laws of the state.

Article IXX
The cardholder should provide the card issuing institution with real and authentic application data, and offer up-to-standard guarantees according to the requirements of the card issuing institution; abide by the ICBC Peony International Credit Card Regulation, and perform the Peony Credit Card Use Agreement; keep well the international card and password; should not rent and lend his/her international card; should not refuse to repay the amount due to the card issuing institution by reason of any dispute with the appointed units; and should advise the card issuing institution in written or in other forms agreed by both parties if there occur any significant change in his/her correspondence address, contact number, address, occupation, income etc.

Article XX
Any cardholder should go to the nearest ICBC business office to conduct written loss-reporting or telephone loss-reporting immediately after getting his/her international card lost, and will assume no responsibility for any transaction conducted after the completion of loss-reporting procedures. If needing to replace it with a new card after the loss reporting, the cardholder can carry his/her written loss-reporting application form and his/her own valid identity certificate to conduct the replacement procedures.

Any cardholder can carry his/her own valid identity certificate and international card, and apply to the card issuing institution for password resetting in written if getting his/her password forgotten.

Article XXI
If any adjustment on the charging items and standards is announced on the newspaper within 30 days after authorized by China Banking Regulatory Committee, any cardholder can choose whether to continue his/her bankcard use within 60 days after the date of announcement; if the cardholder choose not to continue his/her bankcard use, the bank will proportionally refund the collected annual fee and handle the cancellation procedures.

Article XXII
This regulation is to be constituted and constructed by ICBC, and will be put into effect after authorized by China Banking Regulatory Committee.

China Industrial and Commercial Bank hereby extends its deep respect to you and thanks you for your persistent confidence and support to Peony Card.

In order to adapt to the development of peony international credit card, provide more quality service for you and ensure your lawful rights and interests, we have revised the ICBC Peony International Credit Card Regulation. The revision has been approved by China Banking Regulatory Commission and was published on Financial Times on October 8, 2003.

The revised Regulation differs from the original one mainly on aspects of interest calculating mode, fee and card’s term, etc.

1. In the revised Regulation, the provision about interest calculating mode is that: “cardholder can repay the minimum repayment amount stipulated by card issuing institution and the minimum repayment amount shall not be less than 10% of overdraft balance. If cardholder fails to make repayment in full before the date of repayment on maturity (inclusive), he cannot enjoy interest free repayment period; interest accrues on the repaid part from the date of overdraft transaction to the date on which repayment is made. Interest accrues on unpaid part from the date of overdraft transaction. Overdraft interest accrues monthly by compounding.” The original Regulation provides that: “Where a cardholder has difficulty to repay all the money owed to the bank before the end of operation at the date of repayment on maturity, he can repay the minimum amount stipulated by card issuing institution. Where a cardholder repay the minimum amount, the card issuing institution only charge five ten-thousandth per day as loan interest on the unpaid part for days from the date on which the bank charges to account to the date on which repayment is made, and loan interest accrues monthly by compounding.” The two differ in stipulation about whether interest accrues on the paid part if cardholder cannot make repayment in full

2. The revised Regulation stipulates about overrun fee that “where card holder uses line of credit over the amount approved by card issuing institution and fails to repay the money in excess of the line of credit before the end of operation at the account overrun date (i.e. the date on which card issuing institution charges the amount of the transaction to the account), he shall pay 5% of the amount in excess of the line of credit as overrun fee.” The original Regulation stipulates that “if card holder fails to pay the part in excess of the line of credit before the end of operation at the date of repayment on maturity, he shall 5% of the amount in excess as overrun charge.” The two differ in the time on which overrun fee begins to be charged.

3. The revised Regulation stipulates about card’s term that “the maximum term of international card is 5 years.” The original Regulation stipulates that “the maximum term of international card is 2 years.” From the date on which the revised Regulation goes into effect (December 8, 2003), the term of newly issued card and renewed card is 5 years. The term is extended and use time of cards is lengthened, thus your trouble for frequent card change is reduced.

4. Revised Regulation stipulates about loss reporting that “cardholder who has got his international card lost should timely conduct loss reporting by writing or by telephone at the nearest ICBC office. Cardholder bears no responsibility for transactions happened after loss reporting is completed.” But the original Regulation stipulates that “written loss reporting is the formal way of loss reporting. For loss reporting by telephone, the card issuing institution only gives its assistance in guarding but bears no responsibility. All the economic losses before written loss reporting and within 24 hours (inclusive) the next day from the time on which card issuing institution accepts written loss reporting shall be borne by cardholder.” The revised Regulation stipulates that loss reporting takes effect instantly, thus cardholder’s interests can be ensured more effectively.

5. The revised Regulation stipulates that “cardholder’s queries about account and request for correction shall be replied within 30 days”, while the original Regulation stipulates that “for cardholder’s queries about account and request for correction, reply shall be made within 30 days for transactions in RMB accounts; replay shall be made within 90 days for transactions in foreign currency accounts.” The revised Regulation eliminates difference of time limit for reply between RMB account query and foreign currency account query and shortens the time for replying foreign currency account query to provide more quality and speedy service for you.

6. The revised Regulation cancels the clause that “Overdraft of single transaction by one cardholder shall not exceed RMB 20,000 (including foreign currency of equivalent value)” provided in the original Regulation.

Moreover, the revised Regulation adds content about “Peony Express Card” and “Platinum Card”. But it is hereby stated that these two cards are planned to be issued in the future and are not issued yet at present.

ICBC shall implement the new “ICBC Peony International Credit Card Regulation” on December 8, 2003. To ensure your normal use of peony international credit card, please log on ICBC website (www.icbc.com.cn) to query detailed content of the Regulation, or call the 24hour customer service telephone (010-95588) to consult relevant information.

We wish you happy use of the card!

ICBC Peony Card Center
October 8, 2003

　　But before you liquidate your financial assets, buy gold bullion, and move to a cave in Montana, you may wish to consider that current predictions of global economic collapse may be simply hyperbole. It has happened before. Clinton’s quote above actually refers to the collapse of Long Term Capital Management in 1998 —— right before NASDAQ clocked an 88% gain in 1999. Nor does this global crisis stand up to the scrutiny of historic comparison. Remember the S&L crisis in the early ’80s? It cost the U.S. economy about 3.5% of GDP —— about 5x the size of subprime write-offs so far. Or how about the dark days of 1981, when the Federal Reserve drove its key interest rate to 19% in an effort to whip inflation? Bill Clinton’s “Great Depression of 1998″ doesn’t even merit mention.

　　Global Financial Crisis: The Current State of Play

　　Comparing economic statistics is inevitably a “glass is half empty” versus “glass is half full” kind of game. Both Pollyannas and Cassandras can marshal endless statistics to support their version of events. But since it’s the Cassandras’ views that are the flavor of the day, let’s look at some “glass is half full” statistics on the U.S. economy.

　　Companies in the U.S. private sector added 130,000 jobs in January and the unemployment rate eased to 4.9%. The Institute for Supply Management’s index of manufacturing activity rose to 50.7 in January —— back above the 50 threshold that indicates expansion consistent with GDP growth of roughly 2%. Nearly 93% （!） of purchasing managers said that turmoil in financial markets was having no effect on their companies’ ability to obtain regular or additional financing. That situation indicates that the turmoil is restricted to Wall Street and subprime households.

　　True, that after rip roaring performances in Q2 and Q3, the U.S. economy has stumbled. But a look behind the headline numbers is revealing. Good news came from the consumer sector （spending increased by 2%）, business investment （jumping 7.5%）, and exports （up 3.9%）. It was declines in residential investment （down 23.9%） and in inventory investment that almost wiped out those gains. All of this indicates that the economy stands less at the precipice of the next Great Depression than at a cyclical purging of excesses —— particularly in the housing sector.

　　Global Financial Crisis: Professor Bernanke’s Report Card

　　Aware that the financial crisis could spread to other sectors, the Fed has moved remarkably aggressively, cutting rates by 1.25 percentage points in eight days —— a rate-cutting spree almost unheard of in central banking history. The Fed now has cut rates five times by a cumulative 2.25 percentage points —— and there is no sign that the Fed is done. Thanks to the maneuverings of Hank Paulson, George Bush soon will sign a bill that will pump some $150 billion into the American economy for U.S. consumers to spend. That kind of coordination between fiscal and monetary authorities is as unprecedented as it is both prompt and impressive.

　　Sure, the Cassandras are vilifying the Fed’s actions. Bernanke has been criticized for everything from pandering to Wall Street traders to still being behind the curve. But opinions are like a nose —— everybody has one. The current din of criticism against Bernanke is a lot like baseball fans, screaming “throw the bum out” at the game or venting their frustrations on post-game AM radio talk shows. But it’s a lot easier to criticize than to step up to home plate and swing the bat. The reality is that few of Bernanke’s most vitriolic critics were even smart enough to make it into an introductory economics class taught by Bernanke at Princeton —— let alone to run the world’s most influential Central Bank. And to assume that Fed policy is based on responses to such criticism would be as absurd as for baseball star Alex Rodriguez to walk over and hand his bat to an obnoxious, beer-swilling critic in the bleachers of Yankee Stadium to take his place at home plate. Thankfully, airline pilots guiding a plane through rough turbulence play to a less vociferous crowd.

　　Here’s the reality. Neither Bernanke’s interest rate cuts nor the federal stimulus package likely will hit the policy nail right on the head. But no real-time decision making is perfect. As John Maynard Keynes, himself an academic with plenty of real world experience, observed: “It’s better to be approximately right than exactly wrong.” The Fed can’t stop a downturn, but it can help it be short and shallow. This is a complex, fast-changing situation. Let’s give the Fed and the U.S. government some credit for acting swiftly and decisively.

　　Global Financial Crisis: The Investment Strategy of the World’s Top Traders

　　So are things really that bad? What has gotten lost in the din is that credit markets have returned to normal. Foreclosures are at record levels, but aren’t as numerous as originally forecast. And even if policy responses by the Fed only slow the rate of decline in U.S. housing prices, that alone will already have a dramatic impact on U.S. economic growth. And the Fed has shown that it is willing to act quickly to reverse course and hike interest rates once it is clear that the economy is through this bout of weakness.

　　Uncertainty means that it is reasonable to pull your horns in a bit —— and diversify away from stocks, emphasizing a diverse group of assets that are less correlated to the stock market. The top hedge managers I know are more focused on playing defense until the dust settles. The most bullish signal is that investors are almost uniformly bearish. And it is precisely during periods of panic that the greatest fortunes are made.

The year 2008 is an eventful year in the world financial history. The US subprime crisis has evolved into a global financial storm, which, in turn, has caused a downturn in the real economy that has reinforced the strains in the financial system. So far, the negative impact is universal and China is not immune to it. One year ago, when there was a huge debate on whether China could decouple from the world, I said it was only a myth. Now, the Caijing Magazine is offering us a valuable opportunity to look from the hindsight and lay a solid foundation for the future.

Today, I would like to address four topics.
First, the financial turmoil and economic woes are likely to continue.
In short term, restoring confidence in the market remains an arduous task. Liquidity is squeezed and the volatility is high because the accurate figure of losses in financial institutions cannot be calculated due to the challenge in valuing their positions in derivatives. In this context, buying shares alone is not enough. The recapitalization and buying toxic assets should undergo simultaneously, otherwise, more losses will be revealed. My rough estimation is that the aggregate loss in this crisis could amount to USD 3 trillion, which indicates that we are still far from the bottom.
In long term, the de-leveraging process will be very painful. One of the key lessons we have learned is that financial institutions should not be over-leveraged. The appropriate leverage ratio should be no more than 20. However, Lehman Brothers was 30 times leveraged on its book and 20 times leveraged off its balance sheet on the eve of its bankruptcy. Therefore, as banks are de-leveraging, shrinking their balance sheet, and changing their business approaches, we predict that the economic recovery will be a U-shape at the best in stead of a V-shape.

The financial turmoil hit real economy very hard, which will further amplify the credit risk and liquidity risk in the financial sector. We have seen the global shipping business is in a deep recession, which strongly indicates the gloomy outlook of major economies across the world. In the meantime, the emerging markets are more vulnerable in front of external shocks. A number of countries are turning for help from the World Bank. What is worse is that some emerging markets are in stagflation as the economy is slowing down while the inflation stays high.

Second, China’s banking sector is facing serious challenges as the economic growth is dwindling.

1. The deflation is looming large. Both CPI and PPI are dropping very fast from around 8.7% and 9.1% to 2.4% and 2.0% respectively. The industrial added value is seeing a year-on-year decline to 8.2%. The real estate development investment has a year-on-year growth of 24.6%, down 6.8 percentage points. The foreign trade volume is shrinking and the power demand is clearly reducing.
2. The correction in domestic assets market is likely to trigger capital outflow. The housing price has seen a consecutive monthly decline for several months. The stock market plunged over 62% and its function of providing funds for companies is seriously undermined.

Third, we should continue our reform to strengthen the banking sector.

Western countries have identified numerous reasons for the financial crisis, i.e. over trust in rating agencies, over reliance on quantitative models, defects in liquidity management, pro-cyclicality in accounting standards and capital standards and so on. But I would like to highlight five problems that should be addressed; otherwise, the mistakes that have been made this time will be repeated in the future.

1. The firewall between the banking market and capital market has been torn apart by “financial innovation”, which facilitated risk contagion across the board.
2. The western regulatory authorities are too obsessed with innovation and market force and have neglected the role of prudential regulation. Without sober judgment and counter-cyclical moves by the regulators, market failures will be frequent.
3. Excessive use of leverage leads to speculation. We always stress three fundamental rules for banking business. 1) each financial firm should ensure they have reliable and stable funding source. Pure reliance on inter-bank borrowing is strictly prohibited. 2) each financial firm should ensure they have strong risk management expertise, prudent business model and careful due diligence procedure. 3) each financial firm should have a qualified board and senior executive team with duty of care and fiduciary duty.
4. It is necessary to oversee the incentive schemes in financial instituitions. Regulators should not go out to set the compensation package for each senior executive, but we should ensure that the incentive scheme in each financial firm is rational and sustainable. This is important because the incentive is linked to performance. Distorted incentive package will encourage people to take excessive risks and sacrifice the long-term benefits for short-term gains.
5. There are serious defects in the rescue plan. The US bailout plan was originally for big embattled financial institutions. But many people argued that it should be used to boost the sluggish economy. Now similar debate arises in the auto industry. Therefore, to address the crisis, we must first have a broad vision, then a building block a approach, and also a sequenced arrangement.
Fourth, China should avoid the mistakes made in the Western world and highlight the role of regulators.

1. Improving corporate governance. It is an appropriate time to encourage banks to improve corporate governance. The boards in Chinese banks should start to review their institutional arrangement and improve their management procedures.

2. Maintaining boundaries between businesses. The bank-based market and capital-based market should be separate. In this regard, we should maintain the current status and prevent risk contagion from capital market to commercial banks.

3. Regulating financial innovation. While financial innovation is important to manage and distribute risks, banks and regulators should have more in-depth understanding of the innovative instruments in the market. From the CBRC’s perspective, we encourage banks to conduct business innovation. But we also require them to put in place sound risk control structure to ensure that they can understand and manage the risks in these new businesses.
4. Using conventional measures to supervise banks. No matter what the risk is, we should always highlight the traditional measures in managing it, namely, corporate governance, capital adequacy, large exposure, NPL ratio, provision coverage ratio and transparency.

5. Building a strong talent pool. At this critical juncture, it seems more important that we should have a strong professional team that is able to handle the sophistication amid the crisis. In the meantime, we should be more involved in the global supervisory cooperation and create a favorable external environment for Chinese banks.
To conclude, the crisis has brought us both challenges as well as opportunities. I wish all of us could work hand in hand to weather this financial storm and I believe that after this storm, Chinese banking sector will enjoy a brighter future.