New York Times:
I'm from New York Times. A question for chairman Guo and also a question for Mr. Song, please. Chairman Guo, some people argue that fintech companies have so much information on their customers that they don't need in the medium or long-term to make the same capital adequacy standard as banks. Do you agree with that or is your medium-term goal here or over next several years to push the fintech sector directly or indirectly towards the same capital adequacy standard as banks? And second, Mr. Song, you mentioned near the end of your remarks a 32% jump in compensation last year for Sinosure's payout, and we've all seen there have been tremendous difficulties in many commodity-rich developing countries that have borrowed a lot through Sinosure. So where does the money come from for that 32% increase in compensation? Did Sinosure need some kind of additional injection of money from the Finance Ministry or others, or was that mandatorily through big jumps in the premiums that you charge exporters? Thank you.
Guo Shuqing:
Your question is a very good one. As I mentioned above, if a company's financial operations are carried out through the internet platforms, whether it be banks, micro-loan companies, or consumer financing companies, we do require them to have adequate capital like other financial institutions. At a thematic meeting held by the National Committee of the Chinese People's Political Consultative Conference in May 2018, Vice Premier Liu He made some remarks, which I think are very informative for all sectors of society. First, he said you need capital to do business. You need even more capital in the financial sector. China's financial sector ran well as early as more than two thousand years ago, and back then people had capital. How do you promote finance without capital? The same is true of other industrial and commercial businesses. Second, Liu stated that money borrowed needs to be repaid. You lend money and you must get repayment, otherwise business is unsustainable. The same applies to banks. Why are there many illegal fundraising cases? Many people tricked into fundraising happily think that the profits are high, say 8%, 10%, and 12%. When explaining why the earnings from banks are so low, those behind the illegal fundraising say that banks face high costs due to a large number of employees and property, so they can't provide high returns. This is not true and the main reason is actually because of capital constraints. Banks are more cautious and they must get back what they have lent, otherwise, they would collapse. Third, Liu noted that investment involves risk. Whether it be for individuals, institutions, or enterprises, investment can be risky and we must be aware of this. Fourth, Liu remarked that you will pay a price for bad doings. Therefore, we require internet platforms to have the same capital adequacy ratio as long as they have the same financial business. However, for historical reasons, we have given them a transitional period, some until the end of this year and some until the end of next year, and we may do some research and make the period even longer for some platforms. In the past, some financial institutions served small and micro enterprises, especially low-end clients, and we had relatively low requirements for these institutions. They offered 2% or 3% of loans as intermediaries between lenders and borrowers. We don't want to affect these clients so that they can continue to receive loans steadily. The transitional period can be longer, for them and that depends, but the maximum is two years, after which all the institutions should move back on track and are subject to capital constraints.
Song Shuguang:
I'm happy to answer this question. Sinosure is a policy-backed insurance company but it also operates based on the market and following commercial principles, which forms both the backdrop and premise.
You mentioned the increase in compensation last year and wonder where the money came from. Well, we operate completely as a commercial company and we set aside reserves every year based on reported losses, settled yet-to-be-paid losses, and losses that have been compensated and paid. The accumulated reserves set aside over the years support our compensation and payment. Risks were on the rise last year but manageable on the whole. Thank you.
