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SYMPOSIUM ON BUILDING THE

FINANCIAL SYSTEM OF THE 21ST CENTURY:

AN AGENDA FOR CHINA AND THE UNITED STATES

SHANGRI-LA HOTEL GUANGZHOU, CHINA

JUNE 6-8, 2018

AGENDA

WEDNESDAY, JUNE 6

6:00 - 6:30 p.m. C O C K T A I L R E C E P T I O N F 3 F O Y E R

6:30 - 6:40 p.m. G R E E T I N G S A N D W E L C O M E M A N J I A N G H O N G H A L L , F 3

LU Mai, Vice Chairman and Secretary General, China Development Research Foundation (CDRF)

Hal Scott, Director, Program on International Financial Systems (PIFS); Professor, Harvard Law School

6:40 - 7:30 p.m. K E Y N O T E A D D R E S S M A N J I A N G H O N G H A L L , F 3

LI Jiange, Vice Chairman, Central HUIJIN Investment, Ltd., China; Chairman, Board of Trustees, Sun

Yefang Foundation

Peter Fisher, Former Undersecretary for Domestic Finance, U.S. Department of the Treasury; Senior

Fellow, Center for Business, Government & Society, Tuck School of Business at Dartmouth

7:30 - 8: 50 p.m. D I N N E R M A N J I A N G H O N G H A L L , F 3

THURSDAY, JUNE 7

7:30 - 8:15 a.m. B R E A K F A S T B U F F E T W O K T O O C A F É , F 1

8:15 - 8:45 a.m. P A N E L D I S C U S S I O N B U B U G A O H A L L , F 3

Topic: Opening up China’s financial sector and the impact of trade disputes Stefan Gavell, Executive Vice President and Global Head of Regulatory, Industry, and Government

Affairs, State Street

ZHANG Zhaoxing, Chairman, Yuexiu Group

8:50 - 10:20 a.m. S M A L L G R O U P S E S S I O N S F L O O R 3

Topic: Opening up China’s financial sector and the impact of trade disputes

GR ROOM FACILITATORS REPORTER

1 BUBUGAO, F3 SUN Jie, Linda Zhang ZHANG Chun

2 TIANLU, F3 GONG Minghua, Diana Choyleva CAI Juntao

3 LIANHUA, F3 GE Jun, Simon Gleave Yu YE

4 GUIFENG, F3 ZHANG Zhizhou, Chuck Scully Bill Grimes

5 XIQIAO, F3 Sherry HAO, Paul Speltz Fabiana Fedeli

6 DINGHU, F3 Tony NEOH, Mark Barnes Dan Senger

10:20 - 10:35 a.m. R E F R E S H M E N T B R E A K

10:35 - 11:10 a.m. P A N E L S E S S I O N B U B U G A O H A L L , F 3

Topic: New Trends in Financial Regulation YU Xuejun, Chairman, Supervisory Board of State Key Financial Institutions

Ann LI, COO, China, JPMorgan Chase & Co.

Wang Xian, Associate Dean, National Institute of Financial Research, Tsinghua University PBC School

of Finance




GUANGZHOU, CHINA • JUNE 6-8, 2018

11:15 - 12:45 p.m. S M A L L G R O U P S E S S I O N S F L O O R 3

Topic: New Trends in Financial Regulation

GR ROOM FACILITATORS REPORTER

1 BUBUGAO, F3 SUN Jie, Haifeng Xue ZHANG Chun

2 TIANLU, F3 GONG Minghua, Iris Chan CAI Juntao

3 LIANHUA, F3 GE Jun, Don Kanak Yu YE

4 GUIFENG, F3 ZHANG Zhizhou, Nick Lardy Bill Grimes

5 XIQIAO, F3 Sherry HAO, Paul Lynch Fabiana Fedeli

6 DINGHU, F3 Tony NEOH, Stephen Berger Dan Senger

12:50 - 1:50 p.m. B U F F E T L U N C H N O R T H R I V E R H A L L , F 1

2:00 - 2:30 p.m. K E Y N O T E A D D R E S S B U B U G A O H A L L , F 3

Ning TANG, Founder & CEO, CreditEase

--Introduced by: ZHANG Yueguo, Head of the Party Committee & President of Guangzhou Academy

of Social Sciences (GZASS)

2:30 - 4:00 p.m. P L E N A R Y P A N E L S E S S I O N B U B U G A O H A L L , F 3

Topic: Retail Mobile Payments – Opportunities and Challenges in China and the US

YU Shengfa, Chief Risk Officer, Ant Financial

Lina Choi, Vice President-Senior Credit Officer, Moody’s (moderator)

PENG Qian, Vice President, Meituan-Dianping Group

Nicholas Lardy, Senior Fellow, Peterson Institute for International Economics

4:00 - 6:30 p.m. F R E E T I M E / R A P P O R T E U R S M E E T I N G D I N G H U H A L L , F 3

P A R A L L E L S E S S I O N S M A N J I A N G H O N G H A L L , F 3

2:30 – 4:00p.m. Green Finance

Chair: WEI Gejun, President, China Financial Publishing House, People’s Bank of China

Speakers:

CHEN Zhiying, Member, Standing Committee of CPC Guangzhou Municipal; Vice Mayor, Guangzhou

Municipal People's Government

LIU Shijin, Vice Chairman, Economy Committee, Chinese People’s Political Consultative Conference

(CPPCC); Vice Chairman, CDRF

Panelists:

ZHOU Chengyue, Chairman, China Public-Private Partnership Fund

Peter Reynolds, Partner, Oliver Wyman

BAI Bo, CEO, U.S.-China Green Fund

4:15 – 6:15 p.m. Financial Innovation and Industry Finance Chair: ZHANG Yueguo, Head of the Party Committee & President of Guangzhou Academy of Social

Sciences (GZASS)

Speakers:

SUN Shuming, Chairman of the Board, GF Securities

Dave Jones, President, SPD Silicon Valley Bank





Tony NEOH, Main Board Independent Director (Chairman of Risk Committee), ICBC

Panelists:

Lisa LOU, China Country Head of Global Service & General Manager of Beijing Branch, State Street

Bank and Trust Company

MA Zhengyong, Secretary of the CPC Committee,Haizhu District, Guangzhou

DAI Xu, Chairman of the China Culture and Technology Innovation Alliance, Executive Director of the

Board of Directors of Leyard Corporation

LI Fangjin, Chairman of the Guangzhou Finance Holdings Group Co., LTD

LIU Huasheng, Vice General Manager of the Guangdong Provincial Branch and General Manager of the

Guangzhou City Branch of the Postal Savings Bank of China

ZHAO Quanhou, Director of Center for Financial Studies, Chinese Academy of Fiscal Sciences

6:30 - 7:00 p.m. C O C K T A I L R E C E P T I O N F 3 F O Y E R

7:10 - 7:50 p.m. K E Y N O T E A D D R E S S E S B U B U G A O H A L L , F 3

LI Wei, Minister, Development Research Center of the State Council, China

Timothy Massad, Former Chairman, U.S. Commodity Futures Trading Commission; Former Assistant

Secretary for Financial Stability, U.S. Treasury Department; and Senior Fellow, John F. Kennedy School

of Government, Harvard University

7:50 - 9:20 p.m. D I N N E R B U B U G A O H A L L , F 3

FRIDAY, JUNE 8

7:30 - 8:15 a.m. B R E A K F A S T B U F F E T W O K T O O C A F É , F 1

8:15 - 9:00 a.m. K E Y N O T E A D D R E S S E S B U B U G A O H A L L , F 3

LU Lei, Deputy Administrator of the State Administration of Foreign Exchange (SAFE)

Shirley Yu, Group Country Manager, Visa Greater China

9:00 - 10:25 a.m. P L E N A R Y P A N E L S E S S I O N B U B U G A O H A L L , F 3

Topic: Importance of the US-China Relationship

Huo Jianguo, Vice Chairman, China Society, WTO Studies

Charles Bennett, Consul General, Guangzhou, U.S. State Department

Catherine Simmons, Head of Government Affairs, Asia Pacific, Citi

SHEN Jianguang, Chief Economist, Mizuho Securities Asia Limited

Bob Dohner, Former Deputy Assistant Secretary, International Economics Analysis and Senior Asia

Advisor; Fellow, Atlantic Council (moderator)

10:25 - 10:35 a.m. R E F R E S H M E N T B R E A K B U B U G A O H A L L , F 3

10:35 - 11:30 a.m. P R E S E N T A T I O N & D I S C U S S I O N B U B U G A O H A L L , F 3

Opening up China’s financial sector and the impact of trade disputes

ZHAN Yuyin, Chairman, E Fund Management Co., Ltd.

Paul Speltz, CEO, Global Strategic Associates, LLC





11:30 - 12:25 p.m. P R E S E N T A T I O N & D I S C U S S I O N B U B U G A O H A L L , F 3

New Trends in Financial Regulation

ZHOU Yanli, Former Vice Chairman, CIRC

Stephen Berger, Managing Director, Government & Regulatory Policy, Citadel

12:25 - 1:15 p.m. C L O S I N G B U F F E T L U N C H L I A N H U A H A L L , F L O O R 3

The Program on International Financial Systems China Development Research Foundation

Symposium on Building the Financial System of the 21st Century:

An Agenda for China and the United States

Guangzhou, China | June 6-8, 2018

Final Report

PIFSChinaSymposium2018,p. 1

SYMPOSIUMONBUILDINGTHEFINANCIALSYSTEMOFTHETWENTY-FIRSTCENTURY:

ANAGENDAFORCHINAANDTHEUNITEDSTATES

GUANGZHOU,CHINA,JUNE6-8,2018

ThefifteenthannualChina-U.S.SymposiumwasheldattheShangri-LaHotelinGuangzhou,ChinafromJune6-8,2018.SessionsaddressedtheopeningupofChina’sfinancialsectorandtheimpactoftradedisputes,newtrendsinfinancialregulation,theopportunitiesandchallengesofretailmobilepaymentsinChinaandtheU.S.,andtheimportanceofChina-U.S.relations.ParticipantsofferedpositiveassessmentsofeconomicgrowthinChinaandtheU.S.,butexpressedconcernoverthepossibilityofmoreserioustradeconflictbetweentheU.S.andmanyofitstradingpartners,includingChina.Theyurgedleaderstocontinuetoworktopromotefairandopenmarketaccesstogoods,services,andinvestment.


SESSION1:OPENINGUPCHINA’SFINANCIALSECTORANDTHEIMPACTOFTRADEDISPUTES

InSession1,participantsdiscussedtheopeningupofChina’sfinancialsectorandtheimpactoftradedisputes.Manyparticipantsexpressedoptimismaboutfinancialopening,basedonthestatedcommitmentsoftheChinesegovernment,includingPresidentXiJinping.Theyalsodiscussedopportunitiesforforeignfinancialfirms.However,concernsoverthepotentialforescalationoftradedisputesdominatedmuchofthediscussioninSession1,andparticipantsofferedmixedopinionsonthelikelihoodofamicableresolution.

OpeningupChina’sFinancialSectorAsinpreviousSymposiums,foreignaccesstoChina’sfinancialsectorwasamajortopicofdiscussion.Participantsagreedthatsignificantstrideshadbeenmadeovertheyearsinopeningupthesector,butalsonotedunevenpatternsofsuccessforforeignfinancialinstitutions.Lookingforward,theyconsideredhowtheChineseleadership’srecentavowalsofcommitmenttofinancialreformandopeningmightshapethesectoroverthecomingyears.

ChallengesforForeignFinancialInstitutionsDespiteincreasedopennessinavarietyoffinancialservices,someparticipantspointedoutthatinsomeareas,includingcommercialbankingandinsurance,foreignmarketsharehadactuallydecreasedinrecentyears.Thisledtoadiscussionofwhythatwasoccurring.Onesetofexplanationsrevolvedaroundregulationandimplementation.Perhapsthebiggestconcernwasaboutwhatmanyparticipantssawasexcessivelicensingrequirements.Threeissueswereconsideredparticularlyimportant.First,itwasnotedthatobtainingalicensetooperateasafinancialinstitutionwasonlyafirststeptodoingbusinessinChina.Financialinstitutionshadtoapplyforauthorizationtocarryoutavarietyofbusinessactivitiesortosellparticularproducts.Second,anumberofparticipantsexpressedfrustrationwithbranchlicensing.Theynotedthatinmanycases,iftheywantedtoopenabranchinaparticularcity,theywouldalsoberequiredtoopenabranchinalesseconomicallydesiredlocation,aspartofthegovernment’seffortstoexpandfinancialservicesprovisionacrossthecountry.Third,anumberofparticipantsspokeofalackofclarity,bothintherulesthemselvesand(perhapsmoreimportantly)implementation.Theyfeltthatthiscreatedconsiderableuncertainty,especiallyforforeignfinancialinstitutions,whichreducedinvestment.Thatsaid,anumberofparticipantspointedoutthattheseissuesalsoaffecteddomesticfinancialinstitutions,particularlythoserelatedtoproductandbranchlicensing.Somealsocomparedthebranchlicensingissuestowhattheysawassimilarruleselsewhere,including“redlining”rulesintheU.S.toensurebankingservicesforunderservedcommunities.

Someparticipantsnotedthatforeigninstitutionswerefindingthattheyhadstructuraldisadvantagesinsomefinancialservices.Forexample,participantsagreedthatretail


bankingwasnotofinteresttoforeignfinancialinstitutionsduetothedominanceofbankswithnationwidebranches,aswellasthelowmargins.Incommercialbanking,theprevalenceofrelationshipbanking,particularlywithstate-ownedenterprises,wasseenaslimitingthegrowthprospectsofforeignbanks.GiventhesaturatednatureofChina’scommercialbankingsector,anumberofparticipantsfeltthatotherfinancialservicesofferedmoreopportunities.

Anothersetofexplanationshadtodowithcharacteristicsoftheforeignfinancialinstitutionsthemselves.Someparticipantspointedtolocalizationchallenges.Oneofthesewaswhatsometermed“culturalchallenges”—i.e.,misunderstandingsbetweenthehomeofficeandoperationsinChina.Theseparticipantsarguedthat,becausehomeofficesdidnotreallyunderstandtheprocessesandchallengesofgettingestablishedanddoingbusiness,theywereoftenimpatientandtooquicktopulltheplugwhenoveroptimisticexpectationsdidnotmaterialize.Otherssuggestedthattheremaybecasesinwhichforeignfinancialinstitutionsweredeliberatelymovingslowlywhentheyenterednewmarketsasastrategicchoicetotrytolearnbeforeexpanding.

Finally,anumberofparticipantsarguedthatforeignfinancialinstitutionsoftenhaddifferentassessmentsof,andtolerancefor,riskintheChinesemarket.Oneissuehadtodowiththequalityandcompletenessofinformationavailableinmakingfinancialjudgments.Somesaidthatlackofconfidenceinthereliabilityofinformation,aswellasalackofsomeimportantdata,reducedtheirabilitytoassesstheriskofinvestments,credits,andcounterparties.WhileChinesefinancialinstitutionsfacedthesameinformationenvironment,participantsfeltthatforeignerswerelesswillingtorelyonincompleteorinformalinformationinassessingrisk.AnumberofparticipantsalsofeltthatforeignandChinesefirmsoftenhaddifferentdegreesofrisktolerance,andthatrisksweregrowingintheChineseeconomyasgrowthslowedanddebtlevelsincreased.Thus,someforeignfinancialinstitutionshadconsciouslyreducedtheirholdingsinChina,eventhoughtheysaidthattheyremainedcommittedtothemarket.(Oneexamplewasforeigninsurancecompanies,someofwhichwerereducinginvestmentswhilestilltryingtoexpandtheirpolicyholderbase.)

Participantsalsodiscussedwhetherincreasedopportunitiesforforeignfinancialinstitutionstoenterthemarketaswholly-ownedentities(WFOEs)wassignificantlyimprovingtheirprospects.Theynotedthatacrossmoreandmorebusinessactivities,rulesrequiringforeignfinancialinstitutionstooperateasjointventureswithdomesticfirmswerebeinglifted.Thiswasnottrueinallcases—forexample,maximumforeignownershipofsecuritiesfirmsremainedcappedat51%—butinmuchoftheChinesefinancialsector,foreignershadtheoptionofoperatingasWFOEsandwereincreasinglychoosingtodoso.Participantsexpressedinterestinseeinghowthiswouldworkoutovertime.ManyagreedthattheshiftfromthejointventuremodeltotheWFOEmodelwasalreadyunderwayacrossmanyfinancialsubsectors,whetherintheformofnewentries,buyingoutcurrentjointventurepartners,oracquisitionoflocalfirms.However,questionsremainedaboutwhetheritwouldnecessarilyleadtobetterprofitabilityforforeignfinancialfirms.Indeed,somecautionedinthatinsomemarketsandproducts,foreigncompanieswouldstillbebetteroffpartneringwithdomesticfirmsthatbetterunderstoodlocalbusinessand


regulatoryconditions.InordertosucceedasWFOEs,theyemphasizedtheimportanceoflearningeffectivecommunicationwithcustomersandregulators,aswellasensuringthefinancialliteracyofcustomerstopreventmisunderstandingsthatcouldleadtoreputationalorlegalrisks.

LookingForwardParticipantsdiscussedatlengththeprospectsforfurtheropeningandliberalizationoftheChinesefinancialsystem.DespiteenormouschangesoverthepreviousdecadesintheopennessandqualityofChina’sfinancialsystem,questionshadremainedaboutthepaceandextentoffurtherliberalization.Atthisyear’sSymposium,therewasconsiderableoptimismthatopeningupandliberalizationwouldproceed,andatanincreasingpace.

Tomanyparticipants,PresidentXi’sspeechattheBoaoForuminAprilmarkedamilestone,committingChinafirmlytothepathofopeningandliberalizingthecountry’sfinancialsector.Inparticular,theysawthefactthatthespeechwasdeliveredforaninternationalaudienceandexplicitlymentionedfinanceasapriorityfor“bringingin”and“goingglobal”asprovidinganimportantsignalthatpreviouslyannouncedintentionswouldbecarriedout,andindeedaccelerated.Someparticipantswerelessconvincedthatthiscommitmentwasagame-changer.WhiletheyagreedthatthecommitmentsbyXiandotherssignaledastrongintentiontomoveforwardwithreforms,theyarguedthatactualimplementationwouldbecontingentonhowreformsworkedoutinpractice.Therewasalsosomeskepticismthatthestatewouldbewillingtofullydisengagefromguidingdecisionsmadebyfinancialinstitutionsandinfinancialmarkets—forexample,intheeventofrenewedmarketturbulenceorcapitaloutflows,orifimportantSOEswereonthevergeoffailure.

Akeyreasonthatmanyparticipantsfeltconfidentthatfurtherfinancialopeningwouldproceedwasthattheyagreedthatthepotentialbenefitswereconsiderable—notjustforforeignfirms,butfortheChineseeconomyasawhole.Thus,theyemphasizedthatrecentliberalizationswerenotsimplyconcessionstoplacatetheU.S.inthemidstofcontentioustradenegotiations.OpeningupwasseenasessentialtoaddressanumberofchallengesfacingtheChineseeconomy.ParticipantsagreedthatmoreforeignentrantscouldimproveChina’sfinancialsysteminseveralways:byincreasingcompetition,improvingprofessionalismbyintroducinginternationalbestpracticesandnewtechnologies,expandinginternationallinkstosupportChinesefirmsgrowingglobalpresence,andofferingopportunitiesfordiversification.Boththematuringeconomyandtheagingpopulationwereseenasmakingthistaskmoreurgent.Inthefaceofdeclininggrowthandrisingdebt,competitionandprofessionalizationcouldimproveallocationofresourcesandriskmanagement—and,hopefully,betterreturns.Moreover,participantspointedtotheneedformorevaried,professionallymanagedfinancialservices,includingthemanagementofpensionsandsavingsforChina’sgrowingelderlypopulation.

Anumberofparticipantsalsomadethecasethatfinancialopeningwouldbeawin-winpropositionforbothChineseandforeignfinancialfirms,whichcouldbeparticularlyvaluableinaneraoftradefrictions.TheyarguedthatChineseandU.S.financialinstitutionshadcomplementary,ratherthancompeting,advantages.Forexample,Chinesefinancialinstitutionshadparticularstrengthsinretailservices,whileU.S.financialinstitutionshad


expertiseinriskassessmentandportfoliomanagement,aswellasservicessuchasinsuranceandventurecapitalthatwereas-yetunderdevelopedinChina.Moreover,someparticipantsarguedthatoneofthemostimportantelementstoreducevolatilityandimproveChinesefinancialmarketswouldbetoincreasetheroleofinstitutionalinvestors,giventheprevalenceof(ofteninexperienced)retailinvestorsinChinesemarkets.

ParticipantsagreedthatthebenefitstoU.S.financialinstitutionsoftheopeningofChinesefinancialserviceswouldnotbeevenlyspread;rather,theyanticipatedsignificantdifferentiationacrosssectorsandmarkets.Thus,theydidnotseebignewopportunitiesforforeignersincommercialbanking(whichwasalreadysaturated)orinretailfintech(whereChineseserviceslikeAlipaywerealreadyfaraheadofpotentialforeigncompetitors).However,theysawsignificantupsideinotherareas,includingassetmanagement(bothforpensionsandmutualfunds),insurance,investmentbanking,riskmanagement,wholesalefintech,andtradingplatforms.SeveralurgedforeignfinancialfirmstomakeorincreasetheircommitmenttotheChinesemarket,astheypredictedthatchangewouldhappenquicklyandarguedthatensuringastrongbasenowwouldputtheminagoodpositiontobenefitfromopening.

Participantsalsospentsometimediscussingtheprocessofopeningup.Whilemanywereeagertoseequickprogress,theyalsocautionedthatliberalizationshouldhappenstepbystep,followingarationalsequenceadjustingpoliciesasnecessaryaccordingtotheactualexperience.Equallyimportant,theyrecommendedthattheauthoritiescontinuetomakeinvestmentsinpersonnel,training,andITinordertokeeppacewithregulatorychangesandtobettermonitoremergingrisks.Finally,participantsurgedtheauthoritiestofocusoncommunication.Theysawconsultationwithforeignfinancialinstitutionsanddomesticactorsasessentialtogoodpolicies.Moreover,clearcommunicationandinvestoreducationwouldhelptoensuremaximumpositiveimpactofopeningupandliberalization.

TradeDisputesParticipantsexpressedconsiderableconcernoverthepossibilitythattradedisputesbetweenChinaandtheU.S.wouldescalate,andsomefearedafull-blowntradewar.Theyworriedthatthecomplexityofglobalsupplychainswouldmagnifytheeffectsofprotectionistpoliciesinmajoreconomies,andthattit-for-tatreactionscouldeasilyanupwardspiraloftradebarrierswouldhaveprofoundlynegativeeffectsonworldtradeandeconomicgrowth.Manyparticipantsemphasizedthattradewarshavenowinnersandurgedpolicymakerstoresolvetheirdifferencesthroughcooperationratherthanconfrontation.

Participantsweresplitintheirassessmentofthelikelihoodofescalation.Anumberofparticipantsarguedthataglobaltradewarwasunlikely.Theynotedthatallsideswereawareofhowcostlysuchadisputecouldbecome.Theyalsopointedoutthatthehistoryofthepost-wartradingsystemwasrepletewithseveredisputesthatwereresolvedthroughnegotiationandcompromise.(Inparticular,manyparticipantspointedtotheU.S.-Japantradedisputesofthe1970sand1980saskeyhistoricalexamplesthatshowedthatevenveryheateddisputesdidnotleadtosystemictradewars.)Otherparticipantsweremore


lessoptimistic.Theywonderedwhetherhistorywasagoodguidetothecontemporaryglobalsystem.TheynotedthatintheU.S.-Japantradedisputesofthe1980s,arguablythemostpitchedtradebattlesofthepost-warera,conditionswereverydifferentthantoday.Then,theU.S.presidentswerecommittedtopromotingopennessintheglobaltradingsystem,andthemaintargetofU.S.tradepressurewasamuchsmallereconomythatwasdependentontheU.S.foritssecurity.Incontrast,manyoftheseparticipantssawChinaasapeercompetitortotheU.S.,andexpressedfundamentaldoubtsabouttheTrumpadministration’scommitmenttotheglobaltradingsystem.

CausesofTradeFrictionIndiscussingthepotentialresolutionoftradedisputes,participantsdelvedintowhattheysawasthefundamentalcausesofChina-U.S.tradefrictions.Inthisregard,theydiscussedChinesetradepolicies,U.S.domesticpolitics,andtheparticularcharacteristicsoftheTrumpadministration.

ParticipantsweredividedwithrespecttotheimportanceofChinesetradeandindustrialpoliciesindrivingtradedisputes.Ontheonehand,anumberofparticipantswereskepticalofclaimsthatChinesepolicieswereunfairorwereharmingtheU.S.economy.TheyarguedthatthesheerscaleofChina’sengagementininternationaltradeandinvestments(includingimportsandinwardinvestment)demonstratedChina’sopenness.TheyalsostatedthatChinahadfulfilledallofitscommitmentsfromitsWTOaccessionagreementandhadbeenanactiveparticipantinWTOdisputesettlement.Whiletheyacknowledgedthatsomesectorsremainedclosedtoinwardinvestment,theymaintainedthattheserestrictionswereconsistentwithChina’sWTOcommitmentsandChina’spoliticalsystem,andthatitsindustrialpolicieswereappropriateforacountrythatwasstillinitsdevelopmentalphase.

OtherparticipantsfeltthatChinesepolicieshadcontributedtotheriseoffrictions,pointingtoinvestmentrestrictions,appropriationofintellectualproperty,andovercapacityintheproductionofbasicmaterials.Someexpressedconcernthatsectoralrestrictionsweresetupasinfantindustryprotectionthatalloweddomesticfirmseithertobuildupcapabilityandmarketsharesoastodisadvantagelaterforeignentrantsortoforceforeignpartnerstoprovideproprietaryknowledgeandsystemsinordertoparticipateasjuniorpartners.Therewasparticularconcernoverintellectualpropertyrights.Somesawpiratingandinconsistentenforcementasthekeyconcern,whileotherstookissuewithChineseindustrialpoliciessuchasMadeinChina2025thattheyworriedwereintendedtodisplacetechnologicallyadvancedU.S.companiesandappropriatetheirintellectualproperty.Thischaracterizationwasdisputedbyanumberofparticipants,whoarguedthatMadeinChina2025wasacommoninitiativeforacountryseekingtomoveupthetechnologyladder.TheycitedGermany(includingthecurrent“Germany4.0”),India(“MakeinIndia”),andJapanasexamplesofothermajorcountriesthathadproactiveindustrialpolicies.Evenwithsuchindustrialpolicy,moreover,numberofparticipantsexpressedskepticismthatChinawouldsurpasstheU.S.inleadingtechnologies,despitetheambitionoftheChina2025agenda.ParticipantsalsobrieflydiscussedtheproblemofChineseovercapacityinbasicmaterialssuchassteel,whichhadbeenaccusedofdrivingdownglobalpricesand


damagingproducersintheU.S.andothercountries.ManyagreedthatpoliciestosupportregionalSOEshadcontributedtoovercapacity,whichtheysawasamajorproblemfortheChineseeconomyaswellasforforeigncompetitors.

TherewasconsiderablediscussionoftheroleofdomesticU.S.politics,whichmanyagreedbestexplainedthetimingandintensityofU.S.claimsandtradeactions.TheysawtheoriginsofheightenedU.S.frustrationwithglobaltradeinthetwintrendsofdeindustrializationandinequality.Mostattributeddecliningworking-classjobopportunitiesinindustryintheU.S.primarilytotechnologicalchangeandsecondarilytogrowingcompetitionfromothercountriesincludingChina.However,theyidentifiedthemainproblemnotasdisplacement(whichtheysawasanaturaloutcomeofcompetition,inthespiritof“creativedestruction”)butaslackofadjustment.Thisphenomenonwaslinkedtothegrowthininequality,whichincludednotonlydecliningopportunitiesintraditionalindustriesandjobcategories,butalsodecliningreturnstolaborandincreasingreturnstoownersofcapitalandintellectualproperty.Heretoo,technologicaladvancesandincreasedtradecompetitionwereseenasmajorfactors.

Meanwhile,manyparticipantsassignedtheblameforbothofthesetrendstopolicies,includingindustrialandeducationalpolicies,taxandwelfarepolicies,andregulatorypolicies.(Someexplanationswerecomplementary,whileotherswerecontradictory.)Thoseparticipantswhoconsideredinadequateadjustmentasthecentralproblemidentifiedtwotypesofproblems.Somesawgovernmentinactionasaproblem,eitherbecausetheU.S.educationsystemwasnotproducingworkerswiththerightskillsetforarapidlychanging,tech-drivensociety,orbecausetherewasnocoherentsetofindustrialpoliciestoencouragecompaniestomakenecessarychanges.Othersfeltthatexcessivegovernmentinvolvementwaspreventingthebirthanddevelopmentofnewcompaniesandsectors,dueeithertoexcessiveregulationorexcessivetaxation.Theyarguedthatslowergrowthhaddevelopedinrecentyears,particularlyundertheObamaadministration,becauseofthesesupply-sidefactors;thus,theyexpressedhopethattheTrumpadministration’staxreformandsomeofitsdomesticderegulatoryactionswouldhelp.Analternativeviewfocusedontheissueofdistributionofeconomicgains.Thus,anumberofparticipantsarguedthattheU.S.workingandmiddleclassesweredisadvantagedbytaxpoliciesandbyaweakandnarrowingsocialsafetynetandsuiteofpublicservices.Althoughthepolicyprescriptionsdifferedamongparticipants,mostagreedthatdomesticU.S.politicshadledtoincreasingfrustrationandevendespairamongmuchofthepopulation,andthatavarietyofpoliticalgroupshaddirectedthefrustrationtowardforeignersingeneralandChinesefirmsandpoliciesinparticular.

Finally,participantsdiscussedtheparticularitiesoftheTrumpadministrationitself.AlthoughtherewaswidespreadagreementthatthesalienceofPresidentTrump’santi-trademessagewasaresultofthebroadersocietalandeconomicissuesalreadynoted,anumberofparticipantsarguedthatTrump’sparticularbeliefswereessentialtounderstandingthepatternsoftradedisputesandpracticespursuedbyhisadministration.Oneofthesewastheassumption—oftenstatedbythepresidentandkeymembersofhisadministration—thattradedeficitsrepresentedalosstotheU.S.economy,thatreducingbilateraltradedeficitswouldbeeffectiveinempoweringU.S.producers,andthatbilateral


tradedealsweresuperiortomultilateralones.Therewassomedisputeaswhetherthesewereactuallythemotivationfortheadministration’stradepolicyorprimarilyameansofextractingconcessionsfromtradepartners.Inaddition,somequestionedwhetherTrump’spersonalbeliefswereadrivingforcebehindtheadministration’sTrump’spositions,orwhethertheysimplyreflectedthepreferencesofhisvoterbase.

ManagingChina-U.S.TradeFrictionsParticipantsdiscussedatlengthhowtomanageChina-U.S.tradedisputes,particularlyinthewakeofaggressivenewpoliciesbytheTrumpadministrationincludingnationalsecurity-basedimpositionoftariffs(thefirstroundofwhichmostlyhitU.S.tradepartnersotherthanChina)andtheimminentthreatofnewtariffsandinvestmentrestrictionsspecificallytargetingChina.Participants’viewsonthelikelycourseofeventsvaried,basedlargelyondifferinginterpretationsoftheTrumpadministration’sgoals.

OnegroupofparticipantsarguedthatTrump’sfocusonbilateraldeficitsanditspreferenceforbilateralagreementsweredrivingtradeactions.Theytookseriouslytheadministration’sclaimthattradewarsare“easytowin”andthatbilateraldeficitreductionwouldnecessarilybenefittheU.S.Theseparticipantsworriedthatescalationwasalmostinevitable,atleastuntilnegativeeconomicimpactsbecameevidenttotheadministration’ssupporters.Otherparticipantsarguedthattheadministration’saggressivedemandsandrhetoricwerereflectiveofPresidentTrump’sapproachtonegotiation,orthe“artofthetradedeal.”TheseparticipantsarguedthatTrump’snormalnegotiatingpatternbeganwithmaximalistdemandsandthreatsoractionsthatwereseenascostlytonegotiatingpartnersinordertodrivethehardestbargainpossible,butthatintheendhewouldacceptagooddealfortheU.S.evenifhehadpreviouslyruledoutparticularcompromises.Theywerethusoptimisticthatmutuallyacceptabledealscouldbereached,althoughthepaththeremightbecontentious.Afinalinterpretationwasthatthepresidentwasfocusedprimarilyonelections.Theseparticipantsexpectedthatthepresidentwantedtoappealtohisvoterbaseandhadastrongdesiretoclaim“victories”intradedisputes,butwouldnotalloweconomicgrowthtobederailedbyatradewar.

TurningtoChina,manyparticipantsfeltthatChinawaswillingtotakesubstantiveactionstoavoidatradewar,butnotattheexpenseofitsoveralleconomicstrategy.Forexample,manywereoptimisticthatChinawouldcontinuetodismantlebarrierstoinvestmentinservicessectors(includingfinance),whichwouldnotonlybeattractivetotheU.S.butalsowouldbringbenefitstoChineseconsumersandwouldadvancethestrategyofimprovingservicesectorcompetitiveness.TherewasalsogeneralagreementthattheChinesegovernmentwouldbewillingtocarryoutsymbolicactionsthatwouldsatisfyU.S.demandsbutthatwouldhavelittleeffectonChineseproducersorconsumers—forexample,agreeingtopurchasemoresoybeansfromtheU.S.However,virtuallynoparticipantswerewillingtopredictthatChinawouldacceptanagreementthatcontradicteditseconomicstrategy,suchasabandoningitstechnologicalupgradinggoalsdetailedinMadeinChina2025.AfewalsoarguedthatChinawouldbehurtlessthantheU.S.byatradewar,soitcouldbeconfidentinstandingitsground.Still,anumberofparticipantsbroachedthequestionofwhetheritwastimeforChinatoaccelerateitsmoveawayfromprotectionist


industrialpolicies,bothforthelonger-termbenefitoftheChineseeconomy(whichtheyfeltwouldbenefitfrommorecompetitionandlessdirectionfromthecenter)andoutofrecognitionthatthemassivesizeofChina’seconomymeantthatdevelopmentalistpoliciescouldhavenegativeimpactsontradingpartners.

ThesediscussionsraisedthequestionofwhetheraChina-U.S.dealwaspossibleandwhatitmightlooklike.Onepointofagreementwasthattherewerenoplausiblepolicychoicesthatwouldeliminatethebilateraldeficit,evenwithsignificanttradediversion.Thus,ifeliminationoftheU.S.bilateraldeficitwithChina—orevennarrowingittoalevelsimilartothosewithJapanorGermany—wereessentialtotheTrumpadministration,continuedfrictionwouldbeguaranteed.Someparticipantsarguedthattherewouldbemoreopportunitiesformutually-acceptabledealsiftheU.S.sideweretobroadenitsfocusontradeingoodstoencompasstradeinservices,astheysawconsiderablepotentialforincreasedU.S.servicesexportstoChina,particularlyincludinghealthservicesandfinance.Still,itwasunderstoodthatevenavastincreaseinU.S.servicesexportstoChinacouldnotfillthegap.SomeparticipantsarguedthatoneofthemostmutuallybeneficialwaystoreducethebilateraldeficitwouldbefortheU.S.toallowmoretechnologyexportstoChina,sincetherewasenormousappetitewithinChinaforaccesstoavarietyofhigh-techproductsandservices.WiththeTrumpadministrationdeclaringconcernsoverChina’stechnologypoliciesandimposingnewrestrictionsonChineseinvestmentintechcompanies,however,fewparticipantssawtechnologyexportsasalikelyavenueforpreventingatradewar.

Intheend,manyparticipantsacceptedthattradefrictionswouldlikelybeanongoingfactorinChina-U.S.relations,justastheywerewithotherU.S.tradepartners.Theyexpressedhopethatconflictcouldbeminimizedandthatbothcountrieswouldtakeactionsthatcouldloweranimosityandbenefittheireconomies—suchascontinuedopeningofservicesectorsandbetterprotectionofintellectualpropertyrightsinChina,andpro-business,pro-investmentpoliciesintheU.S.Tofacilitatecompromisesonissuesofcoreimportancetobothsides,participantsmadeanumberofsuggestionstoimprovecommunicationandtoclarifyrulesofengagement.ManyparticipantsfeltthatcooperationwouldbeeasiertoachieveiftheU.S.tampeddownitsconfrontationalrhetoric(includingonthepresident’sTwitteraccount),clarifieditsactualobjectivesintradenegotiations,andincreasedlinesofcommunicationwithChina.Inaddition,somearguedthattheadministrationshouldpaymoreattentiontothedomesticissuesassociatedwiththechallengesofdeindustrializationandinequality.TheyalsourgedChinatoimprovecommunicationwiththeU.S.andtomakegreatereffortstounderstandtheU.S.pointofviewoncontentiousissues.Finally,althoughmostparticipantsagreedthattheglobaltradingsystemshouldoperateonthebasisofmultilateralrulesandproceduresratherthanbilateralagreements,anumberofparticipantsmadetheargumentthatonereasonthatbilateralismhadbecomeattractivetosomeplayerswasthatmultilateralruleshadnotkeptpacewithchangesintheglobaleconomy.Theycalledforbetterrulestoaddressaworldofglobalsupplychains,information-drivenservices,andgrowingSOEparticipationininternationaltradeandfinance.Somealsoarguedforglobalrulesontransparencyandtheneedtoaddresslaborandenvironmentalprotection.

PIFSChinaSymposium2018,p.10

SESSION2:NEWTRENDSINFINANCIALREGULATION

InSession2,participantsdiscussednewtrendsinfinancialregulation,bothgloballyandwithinChina.TheyassessedtheeffectsoftheG20agendaaswellasindicationsofashiftinregulatoryemphasisfromstabilitytogrowth.WithregardtoChina,theydiscussednewregulatorychallengesinavarietyofactivities,includingdatamanagement,shadowbanking,SMElending,fintech,aswellashowtodealwithfinancialinstitutionsthatmightbetoobigtofail.

GlobalTrendsAtthegloballevel,participantsobservedthatwidespreadadoptionoftheG20agendahadparadoxicallynotledtouniformityofregulation.Rather,localeconomicandpoliticalconditionshaddrivensomesignificantdivergencesamongmajoreconomies.Severalparticipantsmadethecasethatthegreatestdivergencesfromtheglobalagendahadoccurredinthelargestjurisdictions—i.e.theU.S.andEU,whichwereironicallyattheforefrontoftheG20efforts.

DivergentmajorreformsincludedbothprovisionsthatincreasedthescaleoftheG20standardsandonesthatwerenotpartoftheagendainthefirstplace.IntheU.S.,theDodd-FrankActofferedexamplesofboth.It“gold-plated”bankcapitalrequirementsrelativetoBaselstandardsbyrequiringhighercapitaladequacyandahighercapitalpremiumforsystemicallyimportantfinancialinstitutions(SIFIs).Atthesametime,itintroducednewelementsofbankingregulationandsupervisionthatwerenotmandatedbytheG20,includingtheVolckerRuleandstresstestingforSIFIs.Whiletheconceptofstresstestinghasbeenadoptedelsewhere,theimplementationintheU.S.wasseenasbeingmuchstricterandmoreonerousthanequivalentsinEuropeandelsewhere.Europe,whoseregulatoryreformscamelaterthanDodd-Frank,alsoshowedanumberofidiosyncrasiesinimplementationoftheG20standards—includingvariousformsofringfencing(alsoafeatureofU.S.bankingsupervision),anddomicilerequirementsforcentralclearingparties(CCPs).Inaddition,subsequentregulationsnotdirectlyrelatedtotheG20agenda,suchastheEU’sGeneralDataPrivacyregulationandtheMiFIDIIresearchunbundlingrule,hadincreaseddivergencewithotherjurisdictionsandinsomecasescreatedextraterritorialrequirementsfornon-EUfinancialinstitutions.Meanwhile,Brexitfurthercomplicatedthepicture,asitpotentiallythreatenedEUequivalenceagreementswithpartnersthathadbeendesignedtobridgeregulatorydifferences.

AnumberofparticipantsremarkedthattheglobaladoptionoftheG20agendahadmadecompliancenotonlymorecostlybutalsosignificantlymorecomplicatedformultinationalfinancialinstitutions.Insomecases,financialinstitutionsoperatinginmultiplejurisdictionsfacedcontradictoryrequirementsthatcouldonlyberesolvedthroughcoordinationbetweentheregulators.Meanwhile,financialinstitutionsweregenerallychoosingtoapplythehigheststandardforeachactivity(e.g.,capitalbuffers,margining)acrosstheirentireoperationsratherthantryingtotailoroperationsandproceduresto


eachjurisdiction;whilethisreducedcomplexity,itincreasedcosts.Themanagementofmultinationalfinancialinstitutionswasfurthercomplicatedbythewidespreadpracticeofringfencing,whichpreventedcentralizedmanagementofcapitalandliquidity.

Anumberofparticipantsobservedthatthefocusofregulatorswasshiftingawayfromthepost-crisisobsessionwithstabilitytoincreasingconcernsabouteconomicgrowth.U.S.examplesoflooseningregulationincludedrecenteffortstoreduceregulatoryburdenonnon-systemicallyimportantbanks,toraisethethresholdforSIFIdesignation(andtodeclassifyexistingones),andtomaketheVolckerRulelessburdensome.ParticipantsnotedEUexamplesaswell.Manyparticipantshopedthatthiswouldimprovetheglobalenvironmentforfinancialinstitutions;however,thechallengesofdivergingandsometimescontradictoryregulationsremained.

Finally,therewassomediscussionofglobaltrendsinthinkingaboutwhatconstitutedgoodregulation.Inparticular,someparticipantspointedtoagrowingconsensusinfavorofevidence-basedregulation.Whileparticipantsgenerallyapprovedoftheaimsofpost-crisisregulation,manyarguedthatithadledtoexcessivecosts(bothtofinancialinstitutionsandtotheeconomiestheyserviced)andunintendedconsequences.Theyarguedthatthekeytomakingeffective,cost-efficientregulationwasthecollectionofuniform,high-qualitydataandthedevelopmentofmoreaccurateeconomicmodels.Drawingonthese,agenciesshouldcarryoutrigorouscost-benefitanalysistotheextentpossiblebeforeintroducingnewrulesandperiodicallyreviewtheimpactofrules.Someparticipantsalsoarguedthatdatashouldinformdebatesonfairnessandequity—theynotedthatmanypost-crisispolicydebateshadfocusedonpunishingandrestrictingfinancialinstitutions,withoutalwaysrealizingthatrestrictionsonfinancialinstitutionscouldparticularlyharmSMEsandlower-incomehouseholdsinneedofcredit.

FinancialReforminChinaTurningtofinancialreforminChina,participantsdiscussedbothgeneralissuesandspecificchallenges.AsnotedinSession1,manyparticipantsagreedthattherewasarealcommitmenttoopennessandliberalization,eventhoughimplementationwouldnecessarilybeincremental.Indiscussingdevelopmentsinfinancialregulationandsupervision,severalkeyissuesemerged.

Onewasthestructureofregulationandsupervision.ParticipantsnotedthatChina’sregulatoryandsupervisorymodelhadlongbeenbasedontheprincipleofsegmentation,butthatnewfinancialinstrumentsandgrayareasofregulationhadincreasinglybeenallowingfinancialinstitutionstoofferproductsthatfelloutsideoftheexpertiseandauthorityofparticularregulators.Whileanumberofeffortshadbeenmadeinrecentyearstocoordinateacrosstheregulatorycommissions,participantsagreedthatthegrowthofshadowbankingandfintechhadpossiblymadetheoldmodelofregulationbytypeofinstitutionobsolete.Thus,manyparticipantswelcomedtheMarchannouncementofthemergeroftheChinaBankingRegulatoryCommissionandChinaInsuranceRegulatoryCommission,whichtheysawasalogicalprogressionofaseriesofpoliciestoregulategray-areaactivitieslikewealthmanagementproductsandtoincreasethemacroprudential


responsibilitiesofthePeople’sBankofChina.Someparticipantsraisedthequestionofwhetherthesemovespresageda“twinpeaks”approachtofinancialregulation.Mostparticipantsseemedskepticalthatwouldoccur,eitherbecauseofthepoliticaldifficultyofmergingallthreeregulatorycommissionsorbecausetheybelievedthatChineseauthoritieshadpurposelychosentoleavemarketregulationseparatefromsupervisionofbanks.Thequestionwasalsoraisedastowhethertherecently-createdFinancialSupervisionandDevelopmentCommitteecouldbeaneffectivecoordinatorofthevarioussupervisoryagencies;anumberofparticipantswereskepticalthatasmallcoordinativebodywouldbeinapositiontodoso,givenbureaucraticpoliticsandtheverydifferentcapabilitiesandmissionsofthevariousagencies.SomeparticipantsalsopredictedthatthePBOCwouldincreasinglytakeonaleadingrole,basedonitsmacroprudentialauthority.Overall,mostparticipantspraisedeffortstoaddressthechallengesofregulatorygapsandarbitrage,andtomovetowardasystemfocusedonregulatingproductsandactivitiesratherthanonjustregulatinginstitutionsperse.

Asecondtopicofdiscussionwasregulatoryprocess.AnumberofparticipantsarguedthatChina’sregulatorsneededtoimprovetheirplanningprocessesinordertoincorporatecost-benefitanalysis,avoidunforeseenconsequences,andensurecoordinationwithotherpolicies.Inparticular,theyurgedregulatoryagenciestoadoptamoresystematicapproachtoconsultationwithfinancialinstitutions.SeveralarguedthatpubliccommentperiodsintheU.S.andelsewherehadbeenverybeneficialinensuringthelegitimacyandefficacyofnewrulesandregulation;whilesuchaformalpubliccommentperiodmightnotbefeasibleintheChinesepoliticalsystem,theysuggestedthatsomeoftheprinciplescouldbeadapted.Inparticular,participantspointedtotheneedtoconsultwithabroadrangeofaffectedparties(includingusersoffinancialservices)ratherthanjustafewmajorfinancialinstitutions,andtoprovideenoughtimetoallowforconsideredresponses.Anumberofparticipantsemphasizedthatitwouldbeimportanttosolicitcommentsfromforeignfinancialinstitutionsaswellasdomesticones—partlybecauseofChina’scommitmenttoopeningupitsfinancialsystemandpartlybecauseforeignfinancialinstitutionsoftenhadexperiencesinotherjurisdictionsthatweredirectlyrelevanttoapolicyunderconsiderationinChina.Finally,someparticipantsurgedChineseregulatorstomakeuseofaregulatorysandboxapproachforemergingareasoffinance.SeveralnotedthatthiswasnotreallyanalienconceptinChina,giventhehistoricuseofSpecialEconomicZonesandFreeTradeZones.Theyfeltthatinsomecases,suchasinternetfinance,asandboxapproachcouldhaveavoidedsomeoftheproblemsthatemerged,whilestillencouraginginnovation.

Athirdtopicofdiscussionwasimplementation.Manyparticipantsagreedthat,despitethesignificantprofessionalizationofChinesefinancialregulationandsupervision,implementationoftenlackedconsistency,transparency,andpredictability,especiallyforforeignfinancialinstitutionsandothernewentrants.Theyworriedthatthiscouldhaveanumberofnegativeconsequences.Forexample,severalarguedthatthesometimeslonganduncertainprocessofgettinglicenses,includingforbranchingorprovisionofspecificproducts,hadtheeffectofdiscouragingentry.Similarly,thedifficultyofensuringthatparticularnewproductswouldbeconsideredinconformancewithChineseregulationcouldslowfinancialinnovation.Anotherconcernthatsomeparticipantscitedwasalackof


cleardistinctionsbetweensupervisionandenforcement.Theyarguedthatsupervisionwasideallyaconsultativeprocess,meantnotonlytoensurecompliancewithrulesbutalsotosupportdevelopmentofthesector.Thus,supervisorsshouldinprincipleencouragefinancialinstitutionstoreportchallengesandproblemsinordertomanagesolutions;however,theseparticipantsarguedthatinChina,suchconsultationsoverevenhonestmistakescouldleadtoenforcementactions.Theyworriedthatthissituationhurtthedevelopmentofthefinancialsectoranddevelopmentofeffectiveregulation.

ParticipantsalsoproposedafewotherrecommendationsthattheythoughtcouldcontributetothequalityofChinesefinancialregulationandsupervision.Oneofthesewastouseregulationtoinjectmoreaccountabilityintothefinancialsystemsothatinvestorswouldknowtheriskstheyaretakingandtolimittheriskstakenbygovernment-insuredbanks..Asanexample,anumberofparticipantspraisedtherecently-enactedruletorequireassetmanagerstoremoveguaranteesforinvestorsoninvestmentproducts,anddisclosethistoinvestor(althoughimplementationoftherulewasdelayeduntil2020).

China’sRegulatoryChallengesLookingforward,participantsdiscussedanumberofchallengesfacingtheChinesefinancialsystemandregulators.Theseincludedissuesrelatedtobothfinancialstabilityandtoemergingtechnologyissues.

EnsuringFinancialStabilityOneissuethatanumberofparticipantsraisedwaswhetherChinafaceda“toobigtofail”problemwithrespecttoitsfinancialinstitutions.Opinionsonthequestionweremixed.Someexpressedconfidence,notingthatthemajorbankswerealreadyrigorouslyregulatedunderSIFIrulesthatincludedcapitalrequirementsandlivingwills.Moreover,unlikemanyofthemorecomplexSIFIsintheU.S.andEU,Chinesebanksandotherfinancialinstitutionswererelativelysimpleinboththeirorganizationandtheirbusinesspractices.Otherparticipantsfocusedonsize,andarguedthatifafailureofoneofthemajorbanksweretooccurduetopoorlendingdecisionsoroverleverage,itwouldnecessarilyhaveprofoundlynegativeeffectsthroughouttheeconomy.Mostparticipants,however,werenotworriedabouttheprospectofamassivebankingfailure,sincetheonlybankslargeenoughtoclearlyposeasystemicrisktothefinancialsystemwerestate-owned;thus,theyfeltconfidentthatfiscalresourceswouldbeusedtobailoutdepositorsandkeepthebanksoperatingasgoingconcerns.(SeveralcitedthefailureofAnbangasinstructiveofhowthegovernmentwoulddealwithfailures—ensuringdepositorsorpolicyholdersweremadewholetosupportfinancialstability,butbeingwillingtowipeouttheshareholderstopreventmoralhazard.Thiswasseenasapositiveprecedentbyparticipants.)Moreover,centrally-ownedSOEbankswouldbeinapositiontosupporttheeconomyintheeventofwidespreadfailuresofsmallerbanks.Thus,participantsagreedthatiftherewerethreatposedby“toobigtofail”banks,itwasprobablynotfinancialcrisis,butmisallocationofcredit,distortionofcompetition,anddiversionofstateresources.Indeed,thegovernment’sdesiretoensurefinancialstability(definedaspreventingcrises)wasseenasactuallyexacerbatingtheproblemoftoobigtofailinstitutionsbysupportingthecontinueddominanceofSOEbanks.Thus,manyparticipantshadseriousconcernsaboutthetoobigto


failproblemamongSOEbanks,evenifitwereunlikelytocreatearunonthebankingsystem.

Whileparticipantsweregenerallyconfidentaboutthewillandabilityofthegovernmenttopreventfinancialinstabilityarisingfromthefailureofatraditionalfinancialinstitution,someexpressedconcernthattheremaybeother“toobigtofail”institutionsthatcreateseriousproblemsforChina.Inparticular,manyparticipantsidentifiedthebiggestthreataslyingininternetfinance,whereafewmassivenon-financialcompaniesaccountedformuchofthecountry’svibrantmobilepaymentssystem.Theyurgedregulatorstokeepaneyeonhowthemajorinternetfinancecompaniesweremanagingtheiraffairsandtoconsiderimposingadditionalsupervisiononthemifdeemednecessary.

AnumberofparticipantssuggestedthatanotherpotentialsourceoffinancialinstabilitycouldbefoundinChina’svastshadowbankingsector.(Whiletheterm“shadowbanking”isoftenusedlooselyinthemedia,thePBOC’sdefinitionis“creditintermediationinvolvingentitiesandactivitiesoutsidetheregularbankingsystem”thatareinvolvedin“liquidityandcredittransformation.”)Thelackoftransparency,concentrationofriskinsectorssuchasrealestateandstockmarketinvestment,andexpectationsofguaranteedreturnsbyinvestorsraisedconcerns.Onewasthepossibilitythatafinancialcrisiscouldstartintheshadowbankingifabubbleweretoburstinassetslikerealestate—indeed,severalpointedoutthatthestockmarketbubbleandcrashof2015-16hadbeenfueledbyshadowbankingandthenrippledacrosscreditmarketsingeneral.Someparticipantsalsosuggestedthatthelackoftransparencyandthemanifoldlinkagesbetweenshadowbankingentitiesandotherfinancialinstitutionscouldbeapowerfultransmissionchannelforfinancialinstability—forexample,incaseswherebankswereofferingwealthmanagementprojectsthatwereformallyoff-balancesheetbuthadhiddenguaranteesfrombanks.

IndiscussingChineseshadowbanking,manyparticipantsweredisconcertedbythelackofunderstandingofitssize,riskprofile,andinterconnectionswithregulatedfinancialinstitutions.Indeed,therewasadebateastowhatshadowbankingwasandwhethershadowbanklendingwasgrowingorshrinking.Someparticipantsnotedevidenceofdeleveraging,asshadowbankinginstitutionslostaccesstokeyfundingmechanismssuchasinterbanklendingmarkets.Othersarguedthatongoingrealestatepricerisessuggestedthatshadowbanklendingwasnotindecline.Anumberofparticipantsalsoexpressedconcernthatifshadowbankingweretobesqueezed,creditavailabilitytoSMEsandhouseholdswouldbeconstricted.Somesuggestedthatthebestwaytoaddressallofthecontradictoryconcernsaboutshadowbankingwasbyimprovingdataandtransparency,ensuringthatinvestorsunderstoodthattheycouldlosemoneyratherthanbeingbailedoutincaseofloss,andusingmacroprudentialmeasurestoaddressproblematiclending.SeveralparticipantspointedtorecenteffortsbythePBOCtorestrictlendingonrealestateinregionswherepriceriseswererapidasanexampleofthetypeofmacroprudentialapproachthatmightreducesomeoftheexcessesofshadowbankingwithoutunnecessarilyconstrictingcredittoSMEsandhouseholds.Othersmadethecasethat,inordertoimprovefinancingoptionsforSMEsoverthelongterm,itwasessentialtobuildamorediversefinancialecosystemthatincludedventurecapitalandprivateequity,ratherthanrelyingonshadowbankingtofillthegapsleftbybanks.


Participantsalsodiscussedalesswell-knownthreattofinancialstability:theshareholdingandgovernancestructuresofthecountry’smajoreconomicgroups,bothprivateandstate-owned.Chineseeconomicgroups,manyofwhichhadfinancialinstitutionsassubsidiaries,werecontrolledbyasmallnumberofshareholderswhoknitthegroupstogetherthoughcomplexwebsofcross-shareholdingrelations.Becauseofthelackoftransparency,itwasarguedthatstudiestodateshowedonlythetipoftheiceberg.Thiswasseenasraisingseveralchallengestofinancialstability.Oneconcernwasthat,inadditiontoopaqueshareholdingrelationships,companieswithineachgroupalsoengagedinlendingandprovidingloanguaranteestoeachother.Thisnotonlyweakenedtheimpactofmarketdiscipline,butalsocreatedsignificantrisksofcontagionassomecompaniesorfinancialinstitutionswithinthegroupcouldbehighlyleveragedwithouttheknowledgeofexternallendersorregulators.AsinthecaseofKorea’schaebolcross-loanguaranteesinthe1990s,theserelationshipscouldbeanavenueofcontagion,causingasinglefailurewithinthegrouptoleadtoacascadeoffailures.Therewouldalsobestrongintra-groupincentivestoincreasetheriskheldbyfinancialinstitutionswithinthegroup,soastoextendtheprotectionsofChina’sfinancialsafetynettoothergroupcompaniesinordertoreducecostsofcapital.Participantsagreedthatgreatertransparencywithregardtoownership,corporategovernance,intra-grouplendingwouldbeessentialtoreducingthepotentialdangers.Somenotedthattherewerealreadyrestrictionsoninclusionoffinancialinstitutionswithincorporategroups—forexample,the“oneparticipation,onecontrol”principleonlyallowedcorporategroupstocontrolasinglefinancialinstitutionandtoholdaminoritypositioninonemore.However,participantsagreedthattheseruleswerenotconsistentlyenforced.Participantsofferedacoupleofmodelsforaddressingtheissues.SomesuggestedthatChinashoulddrawlessonsfromtheU.S.,byregulatingtheentiregroupasafinancialinstitutionandrequiringsimplificationofownershipstructure.OtherssuggestedthatJapaneseandKoreanmodelsthatemphasizedreductionofcross-shareholdingandeliminationofcross-lendingandloanguaranteeswouldbemoreappropriate.

EmergingIssuesParticipantsalsodiscussedsometechnology-drivenemergingissues.Oneofthesewasfinancialtechnology(generallyknownas“internetfinance”inChinaand“fintech”intheU.S.).TheynotedthatChinahaddevelopedthelargestretailfintechsectorintheworld,withmobilepaymentshavingbecomeavehicleforarangeofperson-to-person,business-to-business,andretailtransactions.Thespreadofinternetfinancehadsignificantlyimprovedfinancialinclusionandsupportedbusinessesacrossthecountry.Atthesametime,theverysuccessoffinancialtechnologyhadspawnedanumberofchallenges.Oneofthese,asnotedabove,wasthepossibilitythatthemostsuccessfulinternetfinancecompanieshadbecometoobigtofail.Butevenbeyondthatpossibility,questionsaboundedastohow—andevenwhether—toregulateinternetfinancefirmsasfinancialinstitutions.Whilemanyparticipantsreferredtothemas“fintechs,”somepreferredtocallthem“techfins”orevenjust“tech”firms.Thedistinctionbetweenbeingprimarilyafinancialinstitutionandbeingprimarilyatechfirmwasofconsiderableimportancetothosefirms.Astechfirms,theycouldavoidthestricterregulationsimposedonfinancialinstitutions.However,manyparticipantsexpressedconcernaboutthissortofregulation


shopping.Theynotedthatinternetfinancefirmsbenefitedfromlighterregulationoftheirfinancialactivitiesandtheiruseofcustomerdata,evenwhentheywereengagedinsimilarfunctions.Moreover,therewereconcernsexpressedaboutthelackofinformationabouthowtheyweremodelingtheirfinancialrisks,andthustheirpotentialforsparkingoramplifyingfinancialshocks.

Participantsalsodiscussedthebroaderissueofhowtoregulatedatainthefinancialsystem.Oneaspectofthiswaswhatwouldbeappropriatestandardsfordataprivacyandsecurity,andhowtoenforcethemacrossthefullrangeoffinancialinstitutions.Moregenerally,therewerequestionsabouthowdatashouldbeusedtoassessandmanagerisk,bothwithinfinancial(andfintech)firmsandattheregulatorylevel.ManyparticipantsagreedthatBigDatahadthepotentialtotransformfinancialinstitutionsandmarkets,forexamplebymonitoringalmostinrealtimethespendinghabitsofclients.ParticularlygiventhelackofcreditdataonthemajorityofChineseresidents,thiswasunderstoodtobeanessentialresourceforgaugingcreditrisks.However,anumberofparticipantscautionedagainsttrustingthatBigDataandnewassessmentalgorithmswereapanacea.Theynotedthattheriskmodelsremaineduntestedinconditionsofstress,andthustheycalledforcontinuedeffortstodevelophigh-quality,standardizeddatathatcouldbeusedbyregulatorstomonitorrisksinthefinancialsystem.

Finally,participantsrecognizedthatcross-bordercooperationwasanongoingchallenge.Mostfeltthatdatalocalizationruleswouldimpedecross-borderfinancialtransactions,andtheycalledonauthoritiesaroundtheworldtocometoclearagreementsonwhatinformationcouldandcouldnotbesharedorstoredacrossvariouslocations.SomeparticipantsalsoraisedaparticularconcernthatChineseregulatorswererefusingtosharesomekeyfinancialdatawiththeirinternationalcounterparts;theyurgedChina’sregulatorstostartdoingsotoimproveregulatoryandsupervisorycooperation.


SESSION3:RETAILMOBILEPAYMENTS—OPPORTUNITIESANDCHALLENGESINCHINAANDTHEUS

InSession3,participantsdiscussedretailmobilepayments.MostofthediscussionwasfocusedonChina,buttherewasalsosomediscussionofregionalexpansionopportunitiesforChinesemobilepaymentsproviders.ParticipantsagreedthattherapidgrowthofretailmobilepaymentsinChinaresultedbothfromthepragmaticapproachofregulatorstothenewtechnologiesandfromthelowpenetrationoftraditionalbankingandcreditcardservices.

DevelopmentofRetailMobilePaymentsinChinaParticipantsremarkedontheextremelyrapidgrowthofretailmobilepaymentsinChinaoverthelastdecade,makingittheworld’sleader.With700millionusers(including20millionSMEs)andacumulativetotalof$10trillionpaymentsbymobilephone,China’sretailmobilepaymentsindustrywasthelargestintheworld.Mobilepaymentshadbecomeubiquitous,andChinesepeoplehadembracedthembecausetheywerebelievedtobesafe,secure,convenient,andeasy.

SomeparticipantscomparedChina’sexperiencewiththatoftheU.S.WhiletheU.S.hadbecomealeaderintheuseofelectronicpayments,theynotedthattheU.S.systemhadbuiltontheexisting,well-developedinfrastructureofbankingandcreditcards.ThenearlyuniversalaccesstobankingservicesandcreditcardsintheU.S.meantthatitwaseasiertobuilduponthatbaseratherthantobuildanewsystem.Incontrast,Chinahadmuchlowerlevelsoffinancialinclusion(andparticularlypenetrationofcreditcards).Therefore,electronicandmobilepaymentsoperatorshadtobuilduptheirownsystems,whichattheretaillevellargelybypassedbanks.ThismeantthatwhenChinesehouseholdsandSMEspluggedintomobilepaymentssystems,itwastheirfirstforayintotheformalfinancialsystem,andtheonlyalternativetomobilemoneyformostwascash.IntheU.S.,incontrast,economicactorshadmultiplepaymentoptionsrangingfromcashtocheckstocreditanddebitcards.Newserviceswouldhaveneededtodisplacethesewell-establishedsystems.

AnothercontrastbetweenChinaandtheU.S.couldbeseeninregulation.DespitetraditionsofstrictregulationoffinancialservicesinChinaandrelativelylaissez-faireattitudesintheU.S.,theoppositewaslargelytrueinmobilepayments.IntheU.S.,mobilepaymentsprovidersandotherfintechswereregulatedasfinancialinstitutions,creatingcompliancecostsandrestrictionsthatledmostparticipantstooperatewithinexistingmodels.InChina,incontrast,mobilepaymentsprovidersinitiallyoperatedinalargelyunregulatedspace,otherthanhavingtomeetthegeneralrequirementsofcompanylaw.Indeed,thefirste-paymentslawwasonlypassedin2010,andregulatorstookalargelyhands-offapproachtotheindustry—valuinginnovationandexperimentationoverprescriptiveprudentialandconductrules—atleastuntil2015,whenproblemssuchasfraudandmismanagementbegantoariseamongsomeinternetfinanceproviders.Bythen,however,theleadingfirmshadalreadyemergedandthebasiccontoursofChinesedigitalfinancial


inclusionande-commercewerealreadyinplace.Eveninthepresentday,retailmobilepaymentsremainedaremarkablylightly-regulatedcornerofChina’sfinancialsystem.

RemainingChallengesParticipantsconsideredtwomainchallengesfortheChinesemobilepaymentsindustry.OnewashowtokeepgrowingastheChinesemarketbecamesaturated.Someparticipantsindicatedthattherewerestillanumberofdomesticopportunities.Forexample,itwasnotedthatpenetrationwasuneven,withopportunitiesremainingtoextendintopoorerareasthatwerelesswell-served.Eveninthemorewell-to-doregionswherenearlyallhouseholdsmadeuseofmobilepayments,itwasarguedthatbusinessexpansionwasstillpossiblebyofferingnewfinancialservices,suchasassetmanagementandbrokerageservices,inadditiontopayments.Todoso,however,wouldrequirenewbusinessmodels,newlicenses,andincreasedscrutinybyregulatorsandsupervisors.

WhilemuchofthediscussionofChinesemobilepaymentsfocusedonChineseproviders,anumberofparticipantspointedoutthatthegovernmenthadcommittedtoopeningthecreditcardmarkettoforeignentrants.Thisraisedthequestionofwhattheprospectswereforthoseforeignentrantsif/whentheywereabletoobtainlicensestooperate.Thequestionwaswhatthecomparativeadvantagewouldbeforcreditcardcompanies,giventheapparentsaturationofmobilepaymentsbyasmallnumberofdominantdomesticcompanies.ParticipantssuggestedseveralpossibilitiesforgrowingthecreditcardbusinessinChina.OneofthesewastoserviceChina’sincreasinglyinternationallymobilepopulation,bothofbusinesspeopleandtourists,whoneededauniversallyacceptedmeansofpaymentswhentravelingabroad.Otherspointedtoemergingtechnologicaldevelopments,whichcreatedtheirownsetofneeds;forexample,itwasnotedthatVISAwasworkingtocreateadigitalplatformthatcouldmanagepaymentsacrossthe“internetofthings”asbusinessesandhouseholdsincreasinglysoughttomaketransactionsbasedoninternet-connectedappliances,sensors,anddevices.

MostparticipantssawbiggerexpansionopportunitiesoutsideChina.TheynotedthatAlipayandAntFinancialhadbeenseekingtoenteravarietyofmarkets.WhileAntFinancial’sthwartedacquisitionofMoneyGramintheU.S.hadreceivedparticularattention,participantsnotedthatChinesefirmsweremuchmoreactiveinnearbyemergingmarkets.ThemostattractivemarketswereseentobethosemostsimilartoChina’sfinancialmarketsintheearlydaysofitsmobilepaymentsindustry—i.e.,lowdegreeoffinancialinclusion,lowpenetrationofcreditcardsanddebitcards,andhighpenetrationofsmartphones.Inthesemarkets,Chinesefirmscouldapplythelessonstheyhadlearnedathome,whileencounteringlimitedcompetitionfromglobalfinancialfirmsandserviceproviderslikeVISA.Regionalandglobalexpansionwereseentopresentnewchallengesforfirmsandregulators,particularlytotheextentthatChinesefirmswerelookingtomanagecross-bordertransactions.Insuchcases,technicalissuesofinteroperabilitycombinedwitheconomicandregulatorychallengesassociatedwithexchangeraterisk,provisioning,andcurrencycontrols.Still,participantswereoptimisticabouttheprospectsofChinesemobilepaymentsprovidersastheylookedtonewmarkets.


Theothermajorchallengewasthatofregulation.Pragmatic,light-touchregulationhadbeeninstrumentalinthedevelopmentofChina’selectronicandmobilepaymentsindustry.However,therapidgrowthofmobilepaymentsandthehighdegreeofconcentrationraisedsignificantchallenges.Akeyquestionwashowtohandledataprivacyandprotection—sincemobilepaymentsandinternetfinancecompanieswerebuiltontheirabilitytocollect,manage,andanalyzedata,anynewregulationsthataffectedthosefunctionswereclearlyofgreatimportancetothem.Ontheotherhand,participantsagreedthatthesheerscaleofdatameantthatitwasimportanttocomeupwithclearrulesonhowitcouldbecollectedandused,anditwasarguedthatthemajorplayerswouldactuallywelcomeaprocessthatwouldresultinrulesthatbothprotectedconsumersandallowedforinnovation.

Competitionpolicywasanothermajorconcern,giventhesizeanddominanceofthemajorplayers.Participantsrecognizedthattherewereclearadvantagestoscaleinmobilepayments,includingnetworkeffects,lowertransactioncosts,andtheabilitytoinvestinthesystemsthatwouldbenecessarytoensurefastandsecuretransactionsandtocollect,analyze,manage,andprotectusers’data.However,theyalsoexpressedconcernthatmobilemoneyproviderscouldusetheirmarketpowertoforceoutcompetitors,raiseprices,ordrivetransactionstotheirownbusinesses.SomeparticipantsalsoquestionedwhethertheChinesegovernmentwouldcontinuetobewillingtoallowprivatelyownedcompaniessuchasAlibabaandTencenttoamasssucheconomicpowerandtocontrolsuchanimportantpartoftheChinesepaymentssystem.

Anumberofparticipantsraisedthequestionofhowmobilepaymentsprovidersweredealingwiththeproblemoffraudulentorerroneoustransactions,aswellaswhethertheywerepreparedforfuturedevelopments.ItwasnotedthatintheU.S.,lawslimitingtheliabilityforcardholdershadbeencrucialtothesuccessofcreditcards.Creditcardcompanies,fortheirpart,haddedicatedsignificantresourcestomonitoringaccountsforfraudulentactivityinordertostemlosses.InChina,digitalpaymentsproviderswerenotsimilarlybound.Whilesomeparticipantsconsideredthisamajorproblemforthedigitalpaymentsgoingforward,otherswereunconcerned.TheypointedoutthatproviderssuchasAntFinancialwereproactivelyaddressingthepotentialforfraudulentactivities,bothbyconstantlymonitoringpaymentsbehaviorandbyindemnifyingconsumersthroughinsuranceoffraudulenttransactionsuptoacapof1millionRMB.Nonetheless,someparticipantsfeltthatfirmerandclearerlegalprotectionsforconsumerswouldbeanimportantstepinensuringthesafetyandgrowthofChinesedigitalfinancialservices.

Finally,theriseofmobilepaymentsprovidersandotherfintechslaidbaretheflawsofChina’slongstandingsystemoffinanialregulationbytypeofinstitution.Thedominantmobilepaymentsproviderswereeithercommercialorcommunicationsfirmsratherthantraditionalfinancialinstitutions.Thishadcontributedtotheshift(describedabove)awayfromregulationbyinstitutiontowardregulationbyfunction.Already,mobileserviceproviderswererequiredtobelicensedtoprovidepayments.Also,morerecently,ruleshadbeenpromulgatedregardingP2PlendingandupperlimitsonmobilepaymentsusingQRcodes(two-dimensionalbarcodes),inordertopreventevasionof“knowyourcustomer”rules.Similarly,AntFinancial’sdecisiontolimitconsumerlendingtoRMB8000showeda


desirenottoberegulatedasabank.Itwasanticipatedthatregulatorsandproviderswouldcontinuetofacechoicesabouthowtomanagerisksandcompetitionintheindustry.

SESSION4:IMPORTANCEOFTHEU.S.-CHINARELATIONSHIP

InSession4,participantsdiscussedtheimportanceoftheU.S.-Chinarelationship,bothtothetwocountriesthemselvesandtoglobalorder.Theyconsideredboththestrengthsoftherelationshipandsomeofthethreatsthatcouldweakenorunravelmutually-beneficialrelations.

ParticipantsstronglyagreedthatpositiveU.S.-Chinarelationswereofgreatimportancetobothcountriesandtotheworld.Oneaspectwasthelargeandrobusttradeandinvestmentrelationship,whichhadprovidedbenefitstofirmsandconsumersinbothcountries.Moreover,duetotheextentofglobalsupplychainsformostmanufacturedgoods—whichformanygoodsincludedfinalassemblyinChinaoutofcomponentssourcedfromChina,theU.S.,andotherAsia-Pacificeconomies—itwasnotedthatmanyothereconomies,particularlyintheAsia-PacificbenefitedeconomicallyfromgoodU.S.-Chinatradeandinvestmentrelations.However,tradewasalsoseenasonefunctioninwhichdisruptionoftherelationshipcouldhavedireconsequencesforthetwocountries,whichreliedheavilyoneachotherforparticulargoodsandservicesandintheaggregate.

Astheworld’stwolargesteconomiesandaspermanentmembersoftheUNSecurityCouncil,itwasalsoagreedthatU.S.-Chinacooperationcouldcontributesignificantlytothemanagementorresolutionofavarietyofglobalchallenges,includingtransnationalcrimeandterrorism,environmentalprotection,nuclearproliferation,andconflictresolution.Withoutsuchcooperation,solutionstoglobalproblemswouldbelesslikely.

ParticipantsdescribedanumberofthreatstoU.S.-Chinacooperation.Oneofthesewastrade,asnoted.GrowingfrictionsbetweenU.S.prioritiesandChineseeconomicpoliciesandambitionshadsetthestageformoreconflict.Meanwhile,tradefrictionshadbecomemoredifficulttomanageasnewissuesemergedthatwerenotadequatelycoveredunderWTOrules,mostofwhichwereagreedinthe1990s.Technologypolicywasanotherpointofcontention,whichsomeparticipantssawasmoreintractablethanothertradefrictions.LongstandingresentmentonthepartoftheU.S.(andothercountriessuchasJapan,Korea,andvariousEUmembers)regardingwhattheysawastheftofintellectualpropertywasbecomingmorepitchedasChinamovedupthetechnologyladder—increasingly,thosecountrieswerenotonlyirritatedbylossofprofitsfromintellectualpropertytheft,butalsofearedthatChinesefirmswoulddisplacetheirownfirmsininternationaltechnologycompetition.Finally,geopoliticscreatedperhapsthemostintractableissues.Rivalryovergloballeadershipandregionalorder,includingcompetitionovermilitarycapabilitieswasseenascomplicatingcooperationinareasofcommoninterest.

Despitethereemergenceofthreatsandtheincreasingbellicosityofthreatssurroundingthetraderelationship,participantsalsonotedavarietyoffactorsthatcontributedtomaintainingastableandpositiverelationship.Theypointedtoanumberofcommon


interestsasnotedabove,andarguedthatsuccessfulcooperationonthoseissuescreatedincentivesforresolutionofdifferencesofopinion.Therewasalsoastrongconsensusthatthemultiplicityofongoing,multilayeredcommunication,travel,andpersonalrelationshipshadbeeneffectiveinreducingmisunderstandingsandsuspicionsbetweenAmericansandChineseatalllevelsofsociety,increasingthedesireandscopeformutuallybeneficialresolutionofissues.Inthissense,anumberofparticipantssawinthenearly15-yearhistoryoftheSymposiumandthecooperationbetweenPIFSandCDRFimportantlessonsinhowtoworktogethertowardcommoninterests,eveninthefaceofoccasionaldisagreementsordifferingpointsofview.

Finally,participantsdiscussedwhatasuccessfulU.S.-Chinarelationshipwouldlooklikeinthefuture.Theymadethreemainpoints.First,therewasstrongsupportforrule-basedtradeandinvestmentrelations.Whereexistingrulesoragreementswerenotadequate,participantsagreedthatnewrulesshouldbedevisedthroughnegotiation;theworstoutcomewouldberesortstounilateralism,threats,andpressure.Second,participantsagreedthatissue-by-issuecooperationshouldbepursuedwherepossible,andencouragedtheChineseandU.S.governmentstoactivelylookforopportunitieswhereChineseandU.S.interestsconverged.Finally,anumberofparticipantsarguedthatthetwogovernmentsmustrecognizethefundamentaldifferencesintheirpoliticalandeconomicsystems,acceptthatthesewouldpersist,andcooperatedespitethosedifferences.AsoneU.S.participantputit,“Aglobalsystemthatdependsoncommonideologywillfail.Chinawillnotbecomejustlikeus.”Thus,participantscalledforanunderstandingthatthereweremanyapproachestocapitalismandstateparticipation,andurgedmutualrespectdespitesuchdifferences.

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