Huang suggested that we should combine fiscal policy with monetary policy. The International Monetary Fund recently put forward a proposal that the Ministry of finance, the central bank and financial institutions jointly establish a so-called special purpose platform. The central bank provides liquidity, financial institutions issue financing, and the finance will cover the bottom. Such financing has a policy function during the outbreak, and there will be some risks, but it can be sustained if there is financial support.
The following is the full text of the speech:
Its a great honor to participate in todays forum. The topic I share is about the financing of private enterprises in China. I would like to share with you three points of my observation or experience:
First, where is the difficulty of financing for private enterprises.
Second, China has actually provided some good innovations in solving this problem.
Whats what Chinas novel coronavirus pneumonia has played in the new crown pneumonia epidemic period? What kind of problems have I encountered? I want to share with you the third.
The first point is about the financing difficulty of private enterprises. Objectively speaking, I think it is a worldwide problem. Because most of the private enterprises are relatively small in scale and large in uncertainty, it is relatively difficult to provide financing for them. I remember talking with the deputy governor of the Bank of England last year. He once said that one of his responsibilities was to be responsible for the financing difficulties of small and medium-sized enterprises in the UK. I was surprised at that time. I said that there are also serious financing difficulties of small and medium-sized enterprises in the UK? He said, of course, that about half of small and medium-sized enterprises in the UK usually have difficulty getting loans. I thought it might be a problem, but my colleague told him that we did a research in Peking University about a few years ago. At that time, we found that the proportion of small and medium-sized enterprises in our sample who had obtained bank financing was only about 20%. So the first thing I said about this example is that it is indeed universal that the financing of SMEs is relatively difficult. Secondly, perhaps the problem of our country has become more prominent.
Specifically, why is it difficult for private enterprises to finance? In the past seven or eight years, the government has been taking various measures, especially the State Council, which often holds executive meetings to introduce policies to help support the financing of small and medium-sized micro enterprises and private enterprises. However, it seems that the improvement of this problem is not particularly large, so where is the difficulty? I think if I make a brief summary, there are three factors: the first is the difficulty of getting customers, the second is the difficulty of risk control, and the third is how to make risk pricing.
Its probably easier to understand the difficulty of getting customers, because if banks want to provide services to small and medium-sized micro enterprises and private enterprises, they must first find out where and what kind of needs they have. It is relatively easy for large enterprises to deal with banks. Most of the small and medium-sized micro and medium-sized private enterprises are large in number, small in scale and relatively scattered, so it is not easy to find them, which is what we often say is difficult to get customers.
Second, risk control is difficult. Because we know that banks generally do risk control for customers to provide loans. Generally speaking, there are three common methods for credit evaluation: first, look at historical financial data; second, look at mortgage assets; third, what we often see in our country is that if your industry is in line with the direction of government development and there is implicit guarantee from the government, the bank can also provide guarantee for you. Whether its financial data, mortgaged property or government guarantee, I believe you can understand that ordinary private enterprises are not very unique. In this way, the government often requires financial institutions to provide financing for small and medium-sized micro enterprises and private enterprises, but the lack of effective risk control means makes it difficult to promote.
The third is risk pricing. In principle, a very important rule in the financial market is that your pricing should cover risks. That is to say, I can do business with the same customers, but different risks need different pricing, and the pricing should be able to cover your risks. But now we have a special problem that our loan interest rate is not fully market-oriented. In such cases, if the bank can not raise the loan interest rate to a high enough level to cover the risks of private enterprises, its willingness to provide such loans is not high. Even if it does, it may encounter some difficulties in the next step. So whether we can make market-based risk pricing, that is to say, determine the real free loan interest rate according to the market, is a big problem we are facing now. Therefore, in China, the problem of financing difficulty and high cost of private enterprises is really prominent, and it may be more prominent than some developed market economy countries. In short, the reason is that it is difficult to obtain customers, control risks and market-oriented risk pricing. This is the first point I want to share with you.
In finance, we often hear a saying that the 28 rule is the 28 rule. Generally speaking, the easiest thing for a financial institution to enter a market is to serve the customers with the best profit and the 20% with the most wealth, that is, the large enterprises with the best profit and the families with the most money. Generally speaking, we can seize 80% of the market share by seizing these customers. When you serve the remaining 80% of customers in this way, the return is very low, which is why the development of Inclusive Finance has become a worldwide problem. This is the first point.
Second, I think that in China, we started to develop Inclusive Finance in response to the call of the United Nations in 2005, and we have taken many measures in China, including the development of a lot of micro credit companies; commercial banks are required to provide a lot of financing for small and medium-sized micro enterprises, private enterprises, and so on. In fact, we have made a lot of progress. In the past, our breakthroughs in three aspects are obvious:
The first obvious area is actually shadow banking, private lending. We know that these areas have been relatively active in the past few years. And it is precisely these mechanisms that provide a lot of financing for private enterprises. For example, in Wenzhou, private lending is very active, and many local enterprises are private enterprises. These private loans provide important and critical credit support for the development of local private enterprises. There are many forms of shadow banks, some are entrusted loans, some are financial products, but in fact, they also provide a lot of financing for many private enterprises. Why can it do it? Why cant a lot of online transactions and transactions on the table be done? I think one of the reasons is that when you leave the balance sheet of a regular bank to do business off the balance sheet, whether its shadow banking or private lending, its equivalent to circumventing our on balance sheet supervision of interest rates and becoming a disguised market-oriented interest rate. We know that the interest rates of shadow banks and private lending are relatively high, but whether they are too high can be discussed, but at least the interest rates can be moderately raised so that the price of financing can cover risks. In this respect, I think shadow banking, private lending, is actually a disguised market-oriented interest rate, which has positive significance. Of course, I also have to say that such practices are not well regulated and will bring many problems. So in the past two years, our regulatory authorities have issued a lot of policies, hoping to standardize some transactions. My hope is that while we put these transactions into the formal regulatory framework, we can retain some of the previously realized disguised market-oriented risk pricing, which is very important.
Second, there are many innovative people in China who call it offline soft information. As mentioned above, many private enterprises do not have traditional financial data to mortgage assets and implicit guarantee from the government, so how do banks provide loans to them for risk assessment? We have three banks as representatives in some cities in the south, especially in Taizhou, Zhejiang Province. What they do is to understand your customers in-depth and all-round way, not only your balance sheet and business, but also your personality, your history and your business environment. On this basis, we will make a risk assessment and decision The loan is actually very good. But its cost is also relatively high, generally speaking, in the community. I have a good understanding of customers and can do a very good risk assessment without the traditional banks approach. I think there are many small and medium-sized banks in China that are taking such a risk control approach.
The third one is related to the very active Internet Finance in our country. Internet loan in Internet finance is a very active business now, and I think its done very successfully. Of course, when talking about Internet loans, I still want to explain that we have both successful experience and not very good ones, so I am not talking about P2P platforms that are not very good. There are several Internet banks in our country, such as the new online bank in Chengdu, the online commercial bank in Hangzhou, and the micro bank in Shenzhen. They have all taken a new path in using big data for risk control. They use the methods of financial technology to do risk control and solve the problems we couldnt do in the past. First, use mobile terminals to combine them with a large technology platform, and combine them into a platform. As we all know, WeChat pays well, Alipay is also good, every platform now has nearly 1 billion or even more than 1 billion users, which first solved the problem of getting passengers. These customers have left a lot of digital footprints when trading on your platform, which is what we call big data. This is the second very important concept. Third, we now have cloud computing, which is to use new computing methods to analyze and evaluate these digital footprints, and finally come to the decision whether we can provide you with loans. In principle, this approach is similar to the offline soft information I just mentioned, but there are certainly many differences in the specific approach. This is an online big data platform. The first reason we use this platform is that there are hundreds of millions or even billions of customers. The biggest advantage of it is the long tail effect. The long tail effect means that the marginal cost will be very low after the platform is established. After I set up a platform, I will add 1 million, 10 million or even 100 million users to my marginal cost, which has little impact on my marginal cost, so that the financing service reflects a strong feature of inclusiveness. But more importantly, the new financial technology risk control model issued with these big data has actually achieved very good results.
I would like to share a brief account of the latest research conducted by the digital finance research center of Peking University and the economists of the International Monetary Fund, which is to compare our new financial technology risk control model -- simply speaking, two: one is big data, one is machine learning model, and the traditional risk control model -- simply speaking, two, the past line Sex scoring model and add traditional data. Comparing the two models, we can draw several conclusions
First, if we add big data and machine learning methods, the evaluation reliability of our traditional model can be greatly improved. That is to say, even if there are traditional data, including the data of the central bank credit system, it is generally reliable to make risk decisions when these data are available, that is, the traditional method is generally reliable. But if we add machine learning and big data, the effect will be better. This is the first point.
The second and more important thing is that we know that most of the private enterprises and small and medium-sized micro enterprises have not entered into these traditions, including the credit system of the central bank, so the greater advantage of the financial technology risk control method is that it can cover a large number of customers who have no data in the original traditional banks and cannot do risk control on them. This is a long tail effect, and the effect of Inclusive Finance is very clear Obviously. We have recently seen that the number of employees in each of the three banks is about 1000-2000, whether it is online commercial banks, micro banks or even new online banks. But now each bank can grant nearly 10 million loans each year, including personal loans and small and micro enterprise loans. This is a breakthrough in our development and improvement of financing for private enterprises Innovation. Moreover, its non-performing rate is relatively low. Recently, the digital finance research center of Peking University and the IMF President were invited to hold a special online seminar to discuss how Internet banking and Internet credit support Chinas private enterprises. These are our innovations in China, which I think are very proud of.
Finally, lets briefly talk about the functions of these methods, especially the big data risk control and financial technology risk control just mentioned during the new crown epidemic. I will briefly talk about three points:
The first is that the past did play a very important role. We have a very simple study. The impact of the epidemic on individual economic entities across the country is very large. We find that the impact on individual risk will be small in areas where Internet loans are relatively developed. One of the reasons I guess is that many small and medium-sized micro enterprises are facing the problem of cash flow disruption, because the income is gone and the expenditure is still going on. Whether there is financial support has become a very critical place for them. In places where Internet loans are relatively developed, by the way, Internet loans fully reflect the advantages of contactless loans during the epidemic period. It does not need to meet, do not need to contact, and can directly issue loans on the Internet. I think it has played a very important role as a stabilizer.
Second, its true that such loans can alleviate the risk of cash flow rupture of private enterprises in a short period of time. But at the same time, if our current epidemic lasts for a period of time, the economic recovery cant rebound quickly. Is it a sustainable way to alleviate the private enterprises by relying on the financing of our financial institutions? I think this question needs to be raised. At present, the government and the central bank are encouraging financial institutions to provide financing for private enterprises, but for private enterprises, they are also worried: if the economic situation has been bad, they have encouraged me to borrow money to pay wages and rent, and even after the epidemic is under control, will my financial situation become very bad? I think what needs to be considered is the combination of financial institutions, central bank and financial needs. The International Monetary Fund recently put forward a proposal that the financial central bank and financial institutions jointly establish a so-called special purpose platform. The central bank provides liquidity, and the financial institutions issue financing, and the finance will cover the bottom. In other words, financing like this does have a policy function during the outbreak, and there will be some risks. If there is financial support, I can continue to do my work. Finally, we have done a very good job in Internet banking, but it also faces many constraints, such as not a lot of funds. Recently, the Bank Insurance Regulatory Commission issued an interim management method on Internet loans, asking for your opinions. I think this is a very important policy measure to promote some good innovations in the field of Internet finance to the whole banking sector, better help private enterprises to finance and realize inclusive finance. Zhou Xiaochuan: the financial market needs to be better connected with the financial policy_ NF2100
Second, its true that such loans can alleviate the risk of cash flow rupture of private enterprises in a short period of time. But at the same time, if our current epidemic lasts for a period of time, the economic recovery cant rebound quickly. Is it a sustainable way to alleviate the private enterprises by relying on the financing of our financial institutions? I think this question needs to be raised. At present, the government and the central bank are encouraging financial institutions to provide financing for private enterprises, but for private enterprises, they are also worried: if the economic situation has been bad, they have encouraged me to borrow money to pay wages and rent, and even after the epidemic is under control, will my financial situation become very bad? I think what needs to be considered is the combination of financial institutions, central bank and financial needs. The International Monetary Fund recently put forward a proposal that the financial central bank and financial institutions jointly establish a so-called special purpose platform. The central bank provides liquidity, and the financial institutions issue financing, and the finance will cover the bottom. In other words, financing like this does have a policy function during the outbreak, and there will be some risks. If there is financial support, I can continue to do my work.
Finally, we have done a very good job in Internet banking, but it also faces many constraints, such as not a lot of funds. Recently, the Bank Insurance Regulatory Commission issued an interim management method on Internet loans, asking for your opinions. I think this is a very important policy measure to promote some good innovations in the field of Internet finance to the whole banking sector, better help private enterprises to finance and realize inclusive finance.