of a speech by He Xiaojun, Party Secretary and Director of the Guangdong
Provincial Local Financial Supervision Administration:
government has launched two major initiatives in the region this year, for
which we should all be grateful. They are the Greater Bay Area, and the
designation of Shenzhen as a Pioneering Zone for Socialism with Chinese
Characteristics. With these, we have the means and the framework to conduct
significant reforms, especially of the financial sector.
First, let me share
some data points. Looking back on international patent applications for the
most recent year available, 2017, we see that the three other “bay areas” of
Tokyo, New York and San Francisco registered 22,000, 12,000 and 35,000 patents,
respectively. Our Greater Bay Area registered more than 176,000, almost eight times
that of Tokyo, 16 times that of New York, and about five times that of San
However, this is
nothing to celebrate. Most of our patents are in the consumer electronics
industry and advanced manufacturing. We must be soberly aware that we remain
stuck at the lower end of the industrial manufacturing value-added chain. Basic
research is where we are lacking.
This can be improved,
but it is going to require a more thoughtful approach to how we use financial
resources. Policy-based finance and medium- and long-term credit insurance
funds, for instance, can help. These can support the construction of national
key laboratories and high-level universities. However, this will take a long
What is required
mostly is a shift in mindset. I went to Dongguan for research some time ago,
where I saw a professor who had just come back from the United States and was
doing basic research on robotics development in the Songshan Lake district. He lamented
the drive to constantly transform scientific research into commercial success.
If your only indicator of the success of research is how much money it can
generate, the quality will never be good enough.
Clearly, we are still
excessively demanding that our scholars develop their research in the direction
of industrialization. We have too many short-term and fast-action requirements.
We must start to pay more attention to the next step of long-term funding to conduct
major breakthroughs in basic research.
The good news is that
we have an incredibly strong foundation on which to build a better model for
financing industrial growth. Take supply chain finance. There will always be a
need for finance to support the continuous optimization of manufacturing and
industrial chains. In this regard, we have an unrivalled supply chain,
which just needs a better financing mechanism.
There are currently
500 of what I like to call “professional towns” in Guangdong. The combined GDP
of these towns accounts for three average Chinese provinces. Of these, 146 each
generate output of more than RMB 10 billion per year. A dozen are above the RMB
100 billion level. Those in Dongguan, Foshan and Zhongshan are particularly
eye-catching. Xiaolan Town of Zhongshan produces 70% of the world’s lock
cylinders. Guangzhou’s Xintang Town produces 60-70% of the world’s denim. But
these towns have not been having an easy time rising up the value-added chain,
because of access to finance. This is vital to take the next step of Guangdong’s
Most of these enterprises
are small and medium-sized. This is why we have started to build a financing
platform for SMEs in Guangdong, since July 17. It makes good use of big data
and blockchain technology to build up trustworthy credit profiles for these
companies. It is working already, with a good case study being the conglomerate
TCL (based in Huizhou). All of TCL’s SME suppliers can now get unsecured loans,
which will help them to rebuild and restructure the industrial chain, and
further improve the quality of the industry. We are leading the country in this
At the same time, we are
also building a platform for the registration and protection of intellectual
property. Everyone knows that SMEs have many talents, but they are all
light on assets. What they have in abundance is intellectual property rights.
Therefore we are raising their capacity to access credit by placing a higher
value on that IP.
We are also
determined to create the right multi-level financing platform to support the
cultivation of “star” enterprises. We need to be more like Japan and South
Korea, which have clear plans to cultivate at least 100 companies with global clout.
This doesn’t always mean they must be large. They have found that they can have
technological leadership in the cross-border trade chain at the SME level. Such
stars will be grown into the multinational behemoths of the future.
Guangdong is also
preparing such a plan to cultivate star enterprises that can grow into major
We have some already:
companies with enormous potential that can become global giants with the right
access to funding. Take Shenzhen Guangfeng Technology, which recently listed on
the Shanghai STAR market, as an example. It makes 150-inch, high-tech laser-projected
TVs, which sell for RMB 1.5 million each. Before its recent listing, Guangfeng
was valued at between RMB 1 billion and RMB 2 billion. Although its stock price
has experienced twists and turns after the listing, it has recently stayed at a
market cap of around RMB 15 billion.
Transsion Technology is
another. This Shenzhen-based company entered the African market in only 2012, selling
cheaper mobile phones. It now has almost half of the entire African market and
is currently valued around RMB 38 billion.
We need to bring more
of such enterprises to our capital market and cultivate our own stars.
Look at it this way. There
are now 600 listed companies in Guangdong, but we have 45,000 state-level
high-tech enterprises based here – which means only 1.8% are listed. Under the
guidance of the CSRC, Guangdong will address this. We will dig out more star
enterprises and encourage them to raise public equity.
Macau could play a
valuable role in this endeavour. When I was in Shenzhen, we helped the Macau SAR
government draft a plan for the Macau Stock Exchange. I hope that it will
become the Nasdaq equivalent for the offshore Renminbi. The plan has been sent
to the central government, and I hope that it will be approved before the 20th Anniversary
ceremonies are held (on December 20).
We can also use “green
finance” to help our technological innovation efforts become more competitive
at the international level. In Guangzhou, we have established a
national-level “green financial experimental zone”. Guangdong’s carbon
emissions trading already accounts for 70% of the national total this year.
This is why it makes sense to establish the Guangzhou Futures Exchange. It
should be approved before the end of this year.
These things will
make Guangdong and the entire Greater Bay Area’s financial innovation
initiatives speed up.
Looking at the demand
side of the equation, it is clear that we need to catch up. The Greater Bay
Area has a population of 77 million, with per-capita GDP exceeding US$20,000. That
is a developed-country level, with high potential for a takeoff in consumer
spending. But these consumers need more sophisticated financial products.
Look at the
statistics. Online shopping in Guangdong ranks first in the country. Of 100
households, 43 have cars. Residential property markets turn over 100 million
square meters of space every year. Seven of the country’s 12 youngest cities are
here, with the average age of residents at least 10 years younger than the
Yangtze River Delta. We need a better financial industry.
This is all before
the rise of the industrial internet, thanks to the rollout of new 5G mobile
networks, which will provide a golden opportunity for equipment leasing.
Guangdong will be at the forefront of development of the industrial Internet of
Things. This will quickly become a RMB 1 trillion industry. Through
financial leasing, enterprises can better sell products that will be rapidly
upgraded, rather than relying on longer product life-cycles.
The Greater Bay
Area’s future clearly lies in cross-border finance. We have always attached
great importance to this aspect, and we are applying technological solutions
quickly. For example, we recently launched a provincial trade financing
platform using blockchain technology. Orders are encrypted and tracked,
verified with Customs and external management. There is no “false water” trade
finance data, in other words. This platform is being trialed at the moment and
is expected to be put into use by the end of October. Such innovations
will provide a good support for cross-border capital flow monitoring.
development of the financial industry itself is a very important area of technological
innovation. Take the example of Webank (owned by Tencent), which opened
less than three years ago. It has loans outstanding of RMB 3 trillion, with 150
million registered users, 70% of whom are blue-collar workers – and of these,
37% did not have any prior credit record. The bank’s average loan size is just
RMB 8,000. They have extended more than 300,000 corporate loans without
any written materials, approved within the same day.
Where is our banking
industry going? Webank’s general ledger system is built on blockchains. It
has fewer than 2,000 staff, half of whom are science and technology personnel.
The ecology of the banking system itself is also changing.
Ping An Technology is
another great example. It has more than 1,700 patents on financial technology, the
world’s No. 1, surpassing Bank of America and many others. The company has
99,000 software engineers. Its voiceprint recognition, facial recognition, and artificial
intelligence technology is world-leading.
Indeed, the development
of technology is changing our world. Those who don’t keep up can only expect their
financial leadership to be affected. Therefore, in the next step, we must
pay special attention to the renewal and development of financial technology,
and lead our financial technology companies to jointly promote the progress of everyone.