STRENGTHEN INTERNATIONAL EXCHANGE AND COOPERATION, PROMOTE INTERBANK MARKET INNOVATION

The China Foreign Exchange Trade System (CFETS) and the Chicago Mercantile Exchange (CME ) held a signing ceremony for a memorandum of understanding (MOU) on June 8 in Chicago. Present at the ceremony were officials from Chinese and the US governments including Mr. Su Ning, Deputy Governor of the People's Bank of China, the Honorable John W. Snow, US Secretary of the Treasury, the officials from the Central Banks and Consulates of the two countries, and our friends from the media. I am grateful for their attendance of this ceremony, for the importance they have attached to us two institutions and our cooperation, and for their keen concern and goodwill to the development of China's financial market.

On the signing ceremony, Secretary John Snow and Deputy Governor Su Ning applauded the positive impact of CFETS-CME cooperation on the development of China's interbank market. With the full opening of the banking industry in 2006, according to Su Ning, only by accelerating financial system development and innovation in RMB products, can China meet the demands of financial opening and economic growth. Mr. Su hoped that the cooperation between the CFETS and the CME would contribute to the development of China's economy and its financial reform.

Treasury Secretary John Snow held that realizing RMB convertibility is a long-term process, and China is taking steps toward the goal. The current task for China, according to Snow, is to improve market infrastructure, with a key step being the construction of derivative markets. He believes that the cooperation between the CFETS and the CME will promote the development of China's financial market, and the interbank market in particular.

The CME is one of the preeminent futures exchanges in the world and a leader in financial product and technology innovation in the global financial markets. The friendship between the CFETS and the CME has been many years. We have sent many a delegation to the CME ever since our establishment in 1994;and Dr. Paul Shang of the CME has conveyed the intent to develop renminbi futures with the CFETS back in 1996. Senior officials of the CME including Mr. Donohue, the CEO, and Mr. Melamed, Chairman Emeritus, have visited the CFETS, and the CME board has sent Mr. McNulty to attend our Seminar on China's Forex Market Development in December last year. The sincerity to and understanding of each other has laid a solid foundation for our cooperation, and common objectives lead to our closer and deeper cooperative relationship. We trust that this ceremony will help the CFETS learn from international experience, and help the CME to better understand China's financial market and to expand market reach. We also believe that the cooperation between us will start with product development, system construction, and training, etc.

The CME Chairman Terry Duffy said, "This memorandum of understanding will provide our exchange the opportunity over the long-term to work in conjunction with the CFETS to develop China's foreign exchange markets and increase awareness in the People's Republic of China about the design and use of derivatives products." Craig Donohue, CEO of the CME pointed out that "expanding global distribution of our products and adding new customers in Asia is part of the CME's long-term growth strategy. In the years ahead, we believe this agreement will build upon the business relationships we have established in Australia, Hong Kong, Japan, Shanghai and Singapore, and provide an important foundation for the development of financial markets in the People's Republic of China and American-Chinese financial exchanges."

Under the terms of the MOU, the CFETS will provide the CME with insights and information on the money and FX market in China, including regulations and policies, market specifications and development conditions in order to assist the CME in gaining a better understanding of China's financial marketplace. In turn, the CME will help the CFETS become more familiar with the international FX derivatives markets practices, products and regulations, and will also provide assistance on the design of derivatives products, business development, marketing and training.

Founded in April 1994, the business of the CFETS involves interbank FX dealing, renminbi lending and bond trading, and we also introduced interbank commercial paper quoting system last year. Through years of efforts, the CFETS has built a national unified multi-layered trading platform and service system for interbank money market and FX market facing all financial institutions in China. The development of China's economy and opening up has brought about unprecedented opportunities and challenges to China's financial industry. And China's interbank market fortunately seized the opportunity, with expanding membership and record annual growth. During the first five months of this year, the interbank FX market and money market saw a turnover of US$ 64.686 billion and RMB 5.531 trillion yuan, and boasted the market participant of 349 and 963 respectively.

Needless to say, China's financial market is but at its initial development stage; and compared with the century-aged CME, the CFETS is still quite young. We just celebrated our tenth anniversary on April 18. We are fully aware that China's interbank market, with limited instruments and homogeneous participants, must make market-oriented business and technical innovation, and improve its organizational system and operational mechanism. To keep pace with market development and financial liberalization, we have to learn from others. Therefore, the CFETS is quite ready to exchange and cooperate with international institutions of our trade.

I firmly believe that with time going, China's interbank market will certainly be able of joining the international financial market, and grow with it.