Section 2 Reform and development of China's financial system（1978—2012）

The period of 1978—1992 witnessed the restoration and development of China's modern financial system，but its function wavered between “managing funds” and “regulating the market”. The Third Plenary Session of the 11th CPC Central Committee held in December 1978 kicked off the reform of China's financial system. In 1979，Deng Xiaoping proposed to “turn banks into real banks”. The reform and opening-up of China's financial system and the reform of commercial banks also began. China established a central bank system and formed a multilayered financial organization system and a diversified financial market system composed of state-owned banks，joint-stock banks，urban commercial banks，rural credit cooperatives，and foreign-funded banks. China's financial industry persisted in deepening reforms，continuously expanded its opening-up，and underwent tremendous changes，showing the characteristics of accelerated and progressive reform despite ups and downs.

I.Preliminary improvement of China's financial system：1978—1992

In 1979，China launched a planned and step-by-step financial system reform in line with the idea of “turning banks into real banks”. In February 1979，the State Council decided to restore Agricultural Bank of China to perform unified management of agricultural support funds，handle rural credit，and lead rural credit cooperatives. In March，the State Council approved the reform of China's banking system，and separated Bank of China from PBC. In August，People's Construction Bank of China was separated from the Ministry of Finance and became an independent specialized bank. On January 1，1984，Industrial and Commercial Bank of China was officially established to take over the financial services originally provided by PBC. These moves led to the creation of a basic secondary banking system consisting of a central bank（PBC）and four major state-owned professional banks（Industrial and Commercial Bank of China，People's Construction Bank of China，Bank of China，and Agricultural Bank of China）.

The development of China's securities market began with the restoration of government bonds issuance in 1981 and the public offering by Shanghai Feilo Acoustics Co.，Ltd. in 1984.Then the Shanghai Stock Exchange and Shenzhen Stock Exchange were set up in 1990 and 1991 respectively，and the Securities Commission of the State Council and China Securities Regulatory Commission（CSRC）were established in 1992，marking the formation of a preliminary securities market and regulatory system in China.

As for the insurance market，the State Council approved the restoration of domestic insurance business in 1979.But before Xinjiang Construction Corps Agriculture and Animal Husbandry Insurance Company was established in 1986，PICC had monopolized the Chinese insurance market. The subsequent establishment of China Ping An Insurance Company，China Pacific Insurance Company and foreign-funded insurance companies contributed to an insurance market where a diversity of insurance companies coexist and compete with one another.

Through a series of reforms，an insurance landscape where various financial institutions from the securities industry and insurance industry coexisted under the leadership of the central bank and national specialized banks played a dominant role，was basically formed. By the end of 1992，apart from PBC，there had been four specialized banks，nine national and regional commercial banks，12 insurance companies，387 financial trust and investment companies，87 securities companies，29 finance companies，11 financial leasing companies，59，000 rural credit cooperatives，and 3，900 urban credit cooperatives. In addition，302 representative offices and 98 operating branches of 225 foreign financial institutions were established in China.[5]

On September 17，1983，the State Council decided that PBC would begin to serve as a central bank on January 1，1984，and specified the ten duties of PBC. After that，PBC vigorously explored to establish a new financial system led by the central bank，strove to organize and manage financial operations using economic and necessary administrative methods，and conducted financial and administrative regulation over various financial institutions. In terms of macro-control means and methods，in addition to improving planned control means，PBC also used interest rate，deposit reserve ratio，and central bank loans to control the supply of credit and currency，and leveraged monetary policies to grow the national economy and promote economic restructuring.

II.Deepened reform of China's financial system：1993—2001

In order to promote the development of the socialist market economy，in July 1993，the State Council decided to intensify the reform of the economic system，and announced five major reforms in finance，taxation，investment，foreign trade and foreign exchange. The proposed reform of the financial system required that PBC should be established as a true central bank，and an effective central bank macro-control system should be formed；policy banks should be set up；commercial banks should be developed and improved；the financial market should be further developed and improved；guidance should be provided to promote the healthy development of non-banking financial institutions；and the foreign exchange management system should be reformed.

The Third Plenary Session of the 14th CPC Central Committee convened in November 1993 established the reform goal of establishing a socialist market economy，bringing an end to the debate over whether the financial reform should focus on “managing funds” or on “regulating the market”. On December 25，the State Council issued the Decision on Reforming the Financial System，which clearly stated that the goal of the financial reform was to “establish a central bank macro-control system that is under the leadership of the State Council and independently implement monetary policies；establish a financial organization system where policy-based finance and commercial finance are separated from each other，state-owned commercial banks play a dominant role，and various financial institutions coexist；and establish a unified and open financial market system that features orderly competition and strict management”. [6] The document marked the launch of China's in-depth financial reform with the goal of transforming PBC into a true central bank，developing state-owned specialized banks into real commercial banks，building a financial market from scratch，and achieving the transition from multi-department management by local governments to unified management by the central government.

To meet that goal，three policy banks，namely，China Development Bank，Export-Import Bank of China，and Agricultural Development Bank of China were successively established in 1994.Meanwhile，the four major specialized banks，namely，Agricultural Bank of China，Industrial and Commercial Bank of China，Bank of China，and People's Construction Bank of China（in March 1996，People's Construction Bank of China was officially renamed China Construction Bank），transformed their mechanisms and strengthened the one-level legal person system in accordance with the requirements of commercialization reforms，changed their organizational structures and management systems to adapt to commercialized operations，and actively expanded their business overseas，starting a difficult transition to commercial banks. On January 1，1994，the national foreign exchange quoted price and the market foreign exchange adjusted price were merged to realize conditional exchange ability of RMB under current accounts. A single and regulated floating exchange rate system based on market supply and demand was established，bringing an end to the exchange rate system that had been monopolized by the state for more than 40 years.

The Law of the People's Republic of China on the People's Bank of China was promulgated in 1995，which clearly clarified PBC's independent exercise of the responsibilities of a central bank，and strengthened the regulatory functions of the central bank. Later，the central bank's goals，methods and control model were continuously innovated and improved. The RMB exchange rate unification reform was completed，RMB current account convertibility was realized，and the reform of capital account was deepened：so far，92% of accounts have been fully or partially liberalized. The separation of policy-based finance and commercial finance promoted the commercialization reforms of four state-owned commercial banks. Through asset restructuring，bringing in strategic investors，carrying out the joint-stock reform and going public，state-owned banks addressed “technical bankruptcy” and are now rated among the top ten banks in the world. Industrial and Commercial Bank of China has been the world's largest bank for years. Banking institutions such as joint-stock banks，urban commercial banks，and cooperative finance，as well as non-banking financial institutions，had accelerated the process of reform and development，and policy banks such as China Development Bank had realized commercialization. A multilayered and multifunctional financial market had been developed and improved，leading to the increasing richness and diversify of financial products. Market-oriented reforms of the interest rate and exchange rate also produced remarkable outcomes.

The PBC system was also reformed by closing down its provincial branches and setting up trans-provincial regional branches. By the end of 1998，PBC had basically established a new management system that consisted of nine branches（including 20 financial regulation offices），328 central sub-branches and 1，828 county sub-branches.

On November 27，1996，PBC announced that RMB had become convertible under current account. In addition，in order to improve the operation of state-owned commercial banks，Cinda Financial Asset Management Co.，Ltd. was incorporated on April 19，1999 to dispose of some of the non-performing loans of China Construction Bank. Then three asset management corporations，namely，Huarong，Orient and Great Wall，were established to dispose of some of the non-performing loans of the other three state-owned commercial banks.

As for the financial market，led by the State Commission for Restructuring the Economic System，the Securities Trading Automated Quotations System（STAQ）was established in December 1990 by referring to the US Nasdaq market. In April 1993，led by PBC，the National Electronic Trading System（NET），which was similar to STAQ，was set up.However，due to lack of a market maker system—the core system of the over-the-counter market，corporate shares were rarely traded. By February 1999，the share price of all the listed companies on NET and STAQ had fallen below the face value and the net asset value per share，meaning that the two systems had failed to exercise their preset functions. In September of that year，the management decided to terminate trading on the two systems. On June 12，2001，in accordance with the Measures for Piloting the Agent Transfer of Shares Service in Securities Companies issued by the Securities Association of China（SAC），the third board market was established and six securities companies were selected to pilot trading of shares of the 11 remaining listed companies on the NET and STAQ at their outlets. At the end of 2001，the functions of the third board market were further expanded to support transfer of shares of the companies delisted from the main board market.

At the end of 1998，commercial banks and their respective trust and investment companies，securities companies，and other economic entities were decoupled.PBC was no longer in charge of supervising the securities and insurance industries（the responsibility of supervising securities institutions was transferred to CSRC；and on November 18，1998，China Insurance Regulatory Commission（CIRC）was established to regulate the insurance industry）. According to the State Council's organizational reform plan reviewed and approved at the Tenth National People's Congress，PBC's duty of supervising banks，financial asset management corporations，trust and investment companies，and other deposit-taking financial institutions was separated and integrated with relevant functions of the Central Financial Work Commission to establish the China Banking Regulatory Commission（CBRC），which was responsible for unified regulation of the aforementioned financial institutions to maintain the legal and stable operation of the banking industry.[7]

During this period，the legal construction of China's financial industry had been further improved. In 1995，the National People's Congress adopted the Law of the People's Republic of China on the People's Bank of China，the Law of the People's Republic of China on Commercial Banks [8]，the Insurance Law of the People's Republic of China and the Bill Law of the People's Republic of China.The status of PBC as China's central bank was established，and major issues such as the commercial bank system and insurance system were clarified in the form of national legislation. The basic legal framework of China's financial system was formed，marking that China's financial system had become legally institutionalized and standardized. The Securities Law of the People's Republic of China adopted on December 29，1998，the Securities Investment Fund Law of the People's Republic of China adopted on October 28，2003，and the Banking Regulation and Administration Law of the People's Republic of China adopted on December 27，2003 further improved the legal framework of China's financial system.

It is necessary to point out that China became a full member of the World Trade Organization（WTO）on December 11，2001.According to its WTO commitments concerning the financial industry and other related industries，China would further open its financial sector to the outside world，which would bring opportunities and challenges to the development of China's financial industry. Bringing in foreign-funded financial institutions and improving the investment environment would be conducive to promoting the reform and competitiveness of Chinese-funded financial institutions，as well as helping Chinese-funded financial institutions to better enter the international financial market. However，China's accession to the WTO also brought tough challenges to Chinese-funded financial institutions，the financial regulation capability of relevant regulatory authorities，financial macro-control，and the exercise of government functions.

III.Changes of China's financial system in the first five years after its accession to the WTO：2002—2006

China's financial system reform significantly advanced during this period. In 2003，the separated operation and regulation system of “one bank and three commissions” was established and improved. Commercial banks carried out the joint-stock reform. Since 2003，Bank of China，China Construction Bank，and Industrial and Commercial Bank of China had successively conducted the joint-stock reform. The government used foreign exchange reserves to inject a total of 60 billion US dollars into the three banks（22.5 billion US dollars respectively for Bank of China and China Construction Bank，and 15 billion US dollars for Industrial and Commercial Bank of China）. Following the overseas listing of Bank of Communications and China Construction Bank in 2005，Bank of China and Industrial and Commercial Bank of China got listed both at home and abroad in 2006，creating a precedent for the “A-shares + H shares” listing model of the Chinese banking industry，and becoming the highlight of the joint-stock reform of state-owned commercial banks and the development of the capital market in that year. Four banks that had conducted the joint-stock reform raised a total of approximately 47 billion US dollars through stock market listing. According to calculation based on the closing price at the end of 2006，the market value of state-owned shares reached 3，606.2 billion yuan，and state-owned assets realized value preservation and appreciation. Industrial and Commercial Bank of China，Bank of China and China Construction Bank were rated among the world's top ten banks，ranking the 3rd，6th and 7th respectively，which was an unprecedented achievement. In 2006，the four banks obtained remarkable achievements in terms of corporate governance mechanisms，development strategies，operating concepts，transparency building，and incentive and constraint mechanisms. Their operating performance was greatly improved，and the gap between them and advanced international banks was closing. In April 2006，by referring to the general practice of the international banking industry，CBRC issued the Guidelines for Corporate Governance and Related Regulation of State -owned Commercial Banks，which set seven assessment indicators under three categories to evaluate the performance of state-owned commercial banks：operating performance（net return on total assets，net return on equity，cost-income ratio），asset quality（non-performing loan ratio），and prudent management（capital adequacy ratio，large risk concentration，loan loss provision coverage ratio）. In addition，a mechanism for continuous monitoring and evaluation of state-owned commercial banks was established.

Reform of the rural financial system was also put on the agenda. In May 2005，according to the deployment by the Microfinance Task Force of four ministries and commissions under the State Council，four provinces（Shanxi，Guizhou，Sichuan，and Shaanxi）and one autonomous region（Inner Mongolia）were designated to pilot rural microfinance. On December 27 of the same year，the first batch of new-type non-governmental commercial financial organizations formally registered since the founding of New China—“micro-loan companies”—were established in Pingyao County，Shanxi Province. As of the end of 2006，30 provinces（including autonomous regions and municipalities）across the country had begun to deepen the reform of rural credit cooperatives. Rural credit cooperatives underwent changes in terms of the management system，property rights model and organizational form，and reported preliminary outcomes. Firstly，the reform of the management system was basically completed. The management of rural credit cooperatives was handed over to the provincial government，and a preliminary management framework of “national macro-control，strengthened regulation，management by the provincial government and implementation of accountability according to law，and self-discipline and risk self-retention by credit cooperatives” was formed. Three provincial administrative models were developed：27 provinces（including autonomous regions and municipalities）set up provincial unions；Beijing and Shanghai set up municipal rural commercial banks with first-level legal person system；Tianjin set up municipal and district（county）-level rural cooperative banks with the second-level legal person system. Secondly，vigorous efforts were made to explore new property rights models and organizational forms. Property rights began to be clarified，corporate governance was improved，and operating mechanisms were preliminarily transformed. On the basis of the cooperative system，new forms of property rights such as the joint-stock system and the joint-stock cooperative system were explored，and rural commercial banks，rural cooperative banks，and county-level unified legal person entities were established. Thirdly，historical burdens were removed. The support policies of the central and local governments were implemented in an orderly manner to remove historical burdens and address risks. The agricultural support service capability and quality were significantly enhanced. Fourthly，profitability was improved. Rural credit cooperatives turned losses into profits and their overall book profits continued to grow（18.7 billion yuan in 2006）.

Regarding the postal savings reform，CBRC approved the proposal to set up Postal Savings Bank of China on June 22，2006.On December 31，China Post Group Co.，Ltd. was formally approved to establish Postal Savings Bank of China as its wholly-owned subsidiary. This was a historic step for China's post savings business to achieve standardized operation and management.

Urban commercial banks focused on risk management as well as reform and development，brought in domestic and foreign institutional investors，regulated information disclosure，and carried out combination and restructuring. Following the restructuring of six urban commercial banks and seven urban credit cooperatives in Anhui Province to form Huishang Bank in 2005，10 urban commercial banks in Jiangsu Province were merged to set up Jiangsu Bank in 2006，and more than a dozen urban commercial banks in Shandong Province explored the formation of a cooperative alliance to build a cooperation platform. The establishment of nonlocal branches was subject to prudent approval based on the principle of supporting excellence and limiting inferiority，Bank of Shanghai became the first to establish nonlocal branches. It was approved to set up a branch in Ningbo，and Bank of Beijing was approved to set up a branch in Tianjin.

As for the financial market system，in addition to the main board market，the second board and third board markets were established，forming a basic framework for a multilayered capital market. In January 2006，non-listed joint-stock companies based in Zhongguancun Science Park were allowed to enter the third board market for share transfer. As a result，companies listed on the third board market included companies that only issued third-board stocks，companies delisted from the main board，and high-tech companies in Zhongguancun. The official name of the second board market is SME Board. SME stands for “small and medium-size enterprises”. On May 27，2004，with the approval of the State Council，SME Board was established as a new market for stock trading in the Shenzhen Stock Exchange，and a prototype of the second board market appeared. Subsequently，the number of companies listed on the second board market gradually increased，marking that China's securities market structure was gradually shifting from parallel operation of the main board market and agent transfer market to a system with the main board market at its core and the second board and third board markets operating in parallel.

Since 2003，China's futures market had experienced a growth rebound，and the total turnover in that year exceeded the historical record of 1995.After June 2004，CSRC successively introducedfuel oil，cotton，corn，No.2 soybean and other varieties. In January 2006，it introduced white sugar and soybean oil futures，and the varieties of commodity futures became increasingly abundant. As more innovative varieties of commodity futures emerged，financial futures staged a comeback. On September 8，2006，with the consent of the State Council and the approval of CSRC，the China Financial Futures Exchange（CFFEX），was established by Shanghai Futures Exchange，Zhengzhou Commodity Exchange，Dalian Commodity Exchange，Shanghai Stock Exchange and Shenzhen Stock Exchange. On October 25，2006，CFFEX issued the Rules of the China Financial Futures Exchange for Simulation Trading，and on October 30，simulation trading of CSI 300 Stock Index（CSI 300）futures was launched. This would play an important role in deepening the reform of the capital market and improving and giving full play to the capital market.

In order to fully draw on foreign mature experience and actively promote the opening up of China's capital market，on November 5，2002，CSRC and PBC jointly issued the Interim Measures for the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors，announced the launch of the QFII system in China. [9]On November 28，the State Administration of Foreign Exchange issued theInterim Provisions on Foreign Exchange Management of Domestic Securities Investments by Qualified Foreign Institutional Investors，which detailed relevant requirements for foreign exchange management. On December 1，the Shanghai Stock Exchange，Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Limited（CSDC）respectively issued trading and clearing rules for QFII system. On July 9，2003，Swiss Bank completed the first QFII transaction，and QFII officially entered the Chinese A-share market. On August 25，2006，CSRC，PBC，and the State Administration of Foreign Exchange jointly issued the Measures for the Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors，indicating that the requirements for foreign capital to enter the financial market of the Chinese mainland were further lowered. In addition，as another institutional arrangement for opening to the outside world，the Measures for the Administration of Strategic Investments of Foreign Investors in Listed Companies was officially implemented on February 1，2006，allowing foreign investors to make strategic investments in listed companies.

Regarding the reform of the foreign exchange system，on July 21，2005，China began to implement a regulated floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies. The RMB exchange rate was no longer pegged only to US dollar. Instead，based on the actual situation of China's foreign trade，several major currencies were selected and given weights to form a currency basket. On August 2，2005，PBC issued and implemented the Notice on Issues Concerning the Expansion of Forward Settlement and Sale of Foreign Exchange for Clients and the Launching of the RMB and Foreign Currency Swap Business by Designated Foreign Exchange Banks as a supporting measure to expand the business of commercial banks. On September 22，the State Administration of Foreign Exchange issued and implemented the Notice on Adjusting the Administrative Measures on Bank Settlement and Sale of Foreign Exchange Positions，which expanded the scope of settlement and sale of foreign exchange positions to cover foreign exchange positions held by designated foreign exchange banks as the result of transactions between RMB and foreign currencies. Comprehensive settlement and sale management of foreign exchange positions was formed.

IV.Reform of China's financial system in the context of comprehensive opening-up：2007—2012

In 2007，large commercial banks continued to deepen their cooperation with institutional investors in such aspects as corporate governance，business transformation，risk management，employee training，and strengthened the optimization of corporate governance and business processes. In such fields as credit card and private banking，based on the requirements for building “process banks”，a number of relatively independent business units were established，advanced risk control technologies were directly introduced，and business innovation，risk management and overall competitiveness were enhanced. The reform of policy banks accelerated. At the beginning of 2007，the national financial work conference made it clear that the reform of policy banks should adhere to the principle of “classified guidance and one policy for one bank”. The direction and principles of China Development Bank's commercialization reform were basically determined，and the reform was advanced to establish a modern enterprise system，achieve fully commercialized and independent operation，conduct risk self-retention，assume profits and losses，and focus on medium and long-term business. On December 31，China Investment Corporation（CIC）injected 20 billion US dollars into China Development Bank，which strengthened the capital strength of China Development Bank. Agricultural Development Bank of China and Export-Import Bank of China steadily pushed forward internal reforms，vigorously strengthened internal control and risk management，steadily broadened their business scope，strived to improve market-oriented management，and actively created favorable conditions for comprehensive reform. Breakthroughs were also made in the establishment of Postal Savings Bank of China. The head office of Postal Savings Bank of China was formally established on March 20，2007.The focus of the reform began to shift to promoting corporate governance and the establishment of branches. In 2007，CBRC approved Postal Savings Bank of China to establish 36 first-tier branches（including 31 provincial branches and five branches in municipalities with independent planning status）and the corresponding 20，405 sub-branches across the country，and broaden its business scope to cover the business operations stipulated in the Commercial Bank Law.The network of Postal Savings Bank of China hence became the largest financial network that connected China's urban and rural economies and communities. Its branches covered all cities and counties and most of the towns and villages in China. They were mostly located in counties，towns and villages，playing an important role in the rural financial service system. After its establishment，Postal Savings Bank of China continued to rely on the postal network，established strict internal control and risk management systems in accordance with corporate governance and management requirements of modern commercial banks，and implemented market-based operation and management. Its market positioning was to focus on retail business and intermediary business，provide basic financial services to residents in urban and rural areas，and support the construction of a new socialist countryside and the coordinated economic and social development of urban and rural areas. Small and medium-sized commercial banks further explored new models of joint development，with focus on strengthening corporate governance and building the capability of risk prevention. In 2007，China Guangfa Bank（CGB）launched an internal reform，Shenzhen Development Bank completed the split-share reform，and the financial restructuring plan of China Everbright Bank（CEB）was approved. Five banks including CITIC Bank，Industrial Bank，Bank of Ningbo，Bank of Nanjing and Bank of Beijing successfully got listed. A number of urban commercial banks accelerated joint restructuring and cross-regional development. Fourteen eligible urban credit cooperatives were approved to establish urban commercial banks. In 2007，CBRC also approved the establishment of a batch of new rural financial institutions. At the beginning of 2007，CBRC issued six detailed implementation documents to provide institutional support for new rural banking institutions to serve villages，agriculture and farmers：the Interim Provisional Regulations on the Management of Village Banks，the Guidelines for the Examination and Approval of the Formation of Village Bank s[10]，the Interim Provisional Regulations on the Management of Loan Companies，the Guidelines for the Examination and Approval of the Establishment of Loan Companies [11]，the Provisional Regulations on the Management of Rural Mutual Credit Cooperatives，and the Guidelines for the Examination and Approval of the Establishment of Rural Mutual Credit Cooperatives，with the aim of regulating the establishment and exit，organizational structure，corporate governance，operation，and examination and approval for establishment procedures of village banks，loan companies，and rural mutual credit cooperatives. On March 1，2007，Sichuan Yilong Huimin Village Bank was officially opened，marking the birth of a new type of rural banking institution in China. On September 29，2007，China Investment Corporation was established as a major solution to China's large foreign exchange reserves. As a state-owned investment company specializing in foreign exchange investment business，China Investment Corporation was expected to reduce the pressure on the supply of RMB from the growth of foreign exchange reserves and alleviate excess liquidity；it would also help improve the return on investment of foreign exchange assets. As of the end of 2007，a total of 31 new rural financial institutions opened for business，including 19 village banks，four loan companies，and eight rural mutual credit cooperatives，further expanding the channels for all types of funds to flow into rural areas. This represented a major breakthrough in solving the issue of rural financial services. The reform model of setting up provincial unions of rural mutual credit cooperatives was steadily pushed forward，and the pilot cross-regional development of rural credit cooperatives started well. By the end of 2007，130 banking institutions，1，818 unified legal person entities at the county（municipal）level and seven unified legal person entities at the prefecture（municipal）level had been set up.

In 2008，breakthroughs were made in the reform of policy banks. On December 7，2008，China Development Bank was approved to reform its system by setting up a new entity—China Development Bank Co.，Ltd.，which was established with a registered capital of 300 billion yuan. The company was jointly funded by the Ministry of Finance and Central Huijin Investment Co.，Ltd. with a respective share of 51.3% and 48.7%. China Development Bank Co.，Ltd. was fully included into the regulation of commercial banks，and a capital constraint mechanism was preliminarily established，with a capital adequacy ratio of 11.3%. The establishment of Postal Savings Bank of China branches was basically completed. As of the end of 2008，all 36 first-tier branches，312 second-tier branches，and 19，564 sub-branches had been approved to open for business. These branches had basically separated operations from postal enterprises，implemented separate accounting and retrospective adjustment of costs，set up a financial accounting budget and accounting system，and begun to operate independently in accordance with the requirements of commercial banks. Urban commercial banks strengthened efforts to promote cross-regional development. By the end of 2008，33 urban commercial banks across the country had set up 54 nonlocal branches（including those that were in operation and that had received approval for establishment）and 29 nonlocal sub-branches. The reform of rural financial cooperatives entered a new stage，and the reform of the management system and property rights system was accelerated. Chongqing Rural Credit Union and Ningxia Hui Autonomous Region Rural Credit Union were transformed into Rural Commercial Bank. By the end of 2008，185 banking institutions had been restructured，including 22 rural commercial banks and 163 rural cooperative banks. A total of 1，966 unified legal person entities at the county level and seven prefecture-level（municipal）unified legal person entities were set up.A major breakthrough was achieved in cross-regional investment and development. Rural commercial banks and rural cooperative banks in Jiangsu，Zhejiang and other provinces made strategic investment in nonlocal rural cooperative financial institutions. Ningbo Yinzhou Rural Cooperative Bank became a shareholder of Qinhuangdao Urban Commercial Bank. Three rural commercial banks in Changshu，Zhangjiagang and Binhai，Tianjin established nonlocal sub-branches，and a number of rural cooperative financial institutions began to set up new rural financial institutions.

In 2009，the reform of policy banks and China Development Bank continued to deepen，and the commercialization of China Development Bank progressed steadily. In accordance with the requirements of the modern financial corporate system and the operation and management requirements of commercial banks，the corporate governance mechanism and the effectiveness of corporate governance was continuously improved. China Development Bank invested 35 billion yuan to set up China Development Bank Finance Co.，Ltd.，acquired all the equity of Aviation Securities Co.，Ltd.，and initially established a capital constraint mechanism and regulation model for its subsidiaries，as well as a mechanism for risk isolation between itself and its subsidiaries，and between the banking and non-banking business. The positioning and function of Export-Import Bank of China as a policy bank remained unchanged，and it established and improved a sound corporate governance mechanism and risk constraint mechanism through amendments to its constitution and capital supplement，to further strengthen its function of providing policy-based financial services. In 2009，the reform of large commercial banks continued to deepen. Large commercial banks further shifted to flat and divisional organizational structure，and strove to develop into “process banks”；improved the corporate governance mechanism，and enhanced the independence and professionalism of the board of directors；strengthened efforts to develop the internal rating-based approach，actively prepared for the implementation of the new Basel Capital Accord，and steadily improved the risk management capability；focused on learning from the international financial crisis，further enhanced the understanding of the importance of capital constraints，and continuously improved capital quality；prudently explored overseas markets，and continued to advance internationalization. In 2009，financial asset management companies actively implemented strategic transformation. Great Wall Asset Management acquired 50% of the shares of Nissay-SVA Life Insurance，and established Nissay-Greatwall Life Insurance Co.，Ltd jointly with Nissay-SVA Life Insurance Co.，Ltd.. Cinda Asset Management Company invested in Xi'an Commercial Bank，and Orient Asset Management Company became a shareholder of Golden Credit Rating International Co.，Ltd.

China's insurance industry also developed rapidly，with remarkably improved comprehensive strength，significantly enhanced service capability，and greatly improved social status and influence. A unified，open，and vibrant insurance market with orderly competition was basically established. From 2006 to 2010，the number of Chinese insurance companies increased from 93 to 146，the premium income rose from 493.1 billion yuan to 1.47 trillion yuan，and the total assets expanded from 1.5 trillion yuan to 5 trillion yuan. The Chinese insurance market featured coordination between insurance companies，reinsurance companies，insurance intermediaries，and insurance asset management companies，as well as mutual development of Chinese and foreign insurance companies. In the meantime，a group of modern insurance companies with sufficient capital，strict internal control，high-quality services，and strong profitability grew rapidly. In early 2006，there were three insurance companies whose asset value exceeded 100 billion yuan. In 2010，after several years of development，seven insurance companies reported more than 100 billion yuan in asset value，two more than 500 billion yuan，and one more than one trillion yuan. The influence and competitiveness of insurance companies in China's financial market and the international insurance market continued to be enhanced.

China's capital market also achieved remarkable development and breakthroughs. Its ability to serve economic and social development was significantly enhanced，and its overall operation was improved greatly. Especially after the outbreak of the US financial crisis，regulators and participants of Chinese securities and futures markets maintained a firm grasp of the overall market trend，seized opportunities，overcame difficulties，and steadily promoted reform and innovation，while strengthening infrastructure construction，cultivating and improving market mechanisms，and enhancing regulatory effectiveness. As a result，the capital market generally maintained smooth and healthy operation，making contributions to the stable and rapid economic development. China's capital market became one of the most important capital markets in the world. As of the end of January 2011，the total market value of the Shanghai Stock Exchange and Shenzhen Stock Exchange had reached 26.13 trillion yuan，boosting their rankings from the 13th in 2005 to the 2nd；and the number of companies listed on the two exchanges had reached 2，094.The Chinese futures market reported a turnover of 3.133 billion lots and a trading volume of 309 trillion yuan in 2010，respectively 8.7 times and 22 times that of 2005.The trading volume of commodity futures had ranked first in the world for two consecutive years.