The year 2008 was, in recent years, relatively tough for Shanghai's economic development. In the face of the global financial tsunami, Shanghai implemented decisively the economic policies of the central government under the correct leadership of the Communist Party of China Central Committee and the State Council. With the guidance of the Scientific Outlook on Development, it responded actively to the impact of the international financial crisis on its financial sector and real economy.

Part l Overview

1. 1 Enhanced stability of Shanghai's financial system

1.1.1 The economy maintained stable growth

1.1.2 The financial industry performed stably

1.1.3 Financial infrastructure was further improved

1.2 Issues of concern in the maintenance of Shanghai's financial stability

1.2.1 Issues of concern in Shanghai's economic growth

1.2.2 Issues of concern in the performance of Shanghai's financial industry

Part II Economic and Financial Conditions

2.1 Steady economic and financial performance in Shanghai

2.1.1 Continuous and steady economic development

2.1.2 Optimized economic structure featured by coordinated development between the secondary and tertiary industry

2.1.3 Effective utilization of foreign investment despite dampened import and export

2.1.4 Continuous rise of fiscal revenue and household disposable income

2.1.5 Optimized fixed asset investment structure

2.1.6 Enhanced concentration of financial institutions

2.1.7 Differentiated financial markets turnover

2.2 Noteworthy issues in economic and financial performance

2.2.1 Attention to economic development

2.2.2 Attention to short-term capital flows

2.2.3 Attention to equity changes of foreign-funded institutions

2.2.4 Attention to private investment growth

Part III Banking Sector

3.1 Performance of Shanghai's banking sector

3.1.1 Growing number of banking institutions

3.1.2 Assets and liabilities moderately rose

3.2 Soundness assessment of Shanghai's banking sector

3.2.1 Both non-performing loans (NPLs) ratio and outstanding

NPLs declined for 7 consecutive years

3.2.2 Capital adequacy ratio (CAR) and provision coverage ratio continued increasing

3.2.3 Optimized profitability structure & continued growth in profit

3.2.4 Relatively fast growth rate of deposits featured by

higher proportion of term deposits

3.3 Noteworthy issues in the development of Shanghai banking sector

3.3.1 Improve risk management and pay attention to risk exposure in downward cycle of the economy

3.3.1.1 Pay close attention to real estate credit risk

3.3.1.2 Pay attention to risks of land reserve loans

3.3.2 Focus on high loan concentration

3.3.3 Focus on possible operational risk in Shanghai banking sector

3.3.4 Focus on the succeeding profit growth under macro-control conditions

3.3.5 Challenges confronting Shanghai foreign banks

3.3.6 Focus on market risks brought about by international

financial risks to Shanghai banking sector

Part IV Securities Sector

4.1 Overview of Shanghai's securities sector

4.1.1 Sound performance of securities and futures institutions amid market corrections

4.1.2 Strengthened corporate governance and internal control of securities and futures companies

4.1.3 Opening-up of securities and futures sector continuously

promoted, and business innovation developed rapidly

4.1.4 Securities market became more financially functional

4.2 Soundness assessment of Shanghai's securities institutions

4.2.1 Asset and liability features of Shanghai's securities institutions

4.2.1.1 Overall asset liquidity was obviously improved, and client trading margins got safer institutional protection

4.2.1.2 Securities institutions increased their net capital

steadily, and their anti-risk ability enhanced greatly

4.2.1.3 Capital leverage multiplier fell sharply, and the risk bearing ability got strengthened

4.2.1.4 Financial structure became more flexible, and the long term liability

to total debt ratio remarkably lowered

4.2.2 Earning models features of Shanghai's securities institutions

4.2.2.1 Profit gained from brokerage business declined

significantly, while still being the major income

4.2.2.2 Securities underwriting income decreased, however the

corresponding share of total income was bigger

4.2.2.3 Net investment income and net asset management income dropped sharply

4.2.2.4 Net profit declined significantly with one securities company suffering net loss

4.8 Noteworthy issues in the development of Shanghai's securities sector

4.3.1 Attention on protection of securities investors' rights

4.3.2 Emphasis on redemption risk of open-ended securities fund

4.3.3 Concerns about trading risks of futures market

Part V Insurance Sector

5.1 Performance of Shanghai insurance sector

5.1.1 Insurance sector developed steadily and played a role of

safeguarding social and economic stability

5.1.2 The number of market participants increased steadily and market

share of foreign-funded insurance companies declined

5.1.3 Agricultural insurance developed rapidly

5.1.4 The management system of "issuing policy upon payment" came into effect

for auto insurance and the market was standardized

5.2 Soundness assessment of insurance institutions incorporated in Shanghai

5.2.1 Total asset size grew slightly; property insurance companies suffered great loss

5.2.2 Premium income grew steadily; business structures of domestic and

foreign-funded insurance companies had big difference

5.2.3 Return on insurance fund investment declined considerably

5.2.4 Solvency adequacy ratio declined somewhat but still at high level

5.3 Concerned issues for the development of Shanghai insurance industry

5.3.1 Focus on the problem of "interest spread loss" that might occur

to life insurance companies due to the continuous interest rate cuts

5.3.2 Focus on the loss of'property insurance companies caused by excessively high comprehensive cost rate

5.3.3 Focus on the impact of economic and financial scenario changes on return of insurance fund investment

5.3.4 Focus on the impact ofimbalanced development of insurance business channels

on the development of insurance sector

5.3.5 Focus on surrenders of investment-linked insurance

5.3.6 Focus on the impact of international financial crisis on Shanghai insurance industry

Part Vl Financial Infrastructure Construction

6.1 Continuous improvement in payment system construction

6.1.1 Coordinated development of regional economy and finance enhanced

6.1.1.1 Launching the reform of bank acceptance draft among the three provinces and one municipality in East China

6.1.1.2 Actively conducting the credit-based check writing business on a pilot basis

6.1.1.3 Writing the requirement proposal of electronic commercial bill of exchange system

6.1.2 Financial infrastructure construction in Yangtze River Delta region effectively boosted

6.1.2.1 Establishing a close-collaborative joint mechanism of payment and settlement in Yangtze River Delta region

6.1.2.2 Joint enhancement of the check image exchange system in Yangtze River Delta region

6.1.2.3 Actively involved in the pilot work of cross-border RMB trade settlement

6.1.2.4 Making investigations into financial infrastructure construction in Yangtze River Delta region

6.1.3 Promoting the construction of payment environments for the Olympic Games and the World Expo

6.1.3.1 Strengthening the collaboration in industrial management of bank card in Yangtze River Delta region

6.1.3.2 Taking the opportunities of'the Olympic Games and the World Expo and meeting the growing social demand for a safe, efficient and stable payment environment'

6.1.3.3 Taking the lead in improving the payment environment for the World Expo

6.1.4 New progress in payment and settlement system construction

6.1.5 Surveillance and capacities of'the payment and settlement system boosted

6.1.5.1 Overall enhancement of the system's daily management and capacities

6.1.5.2 Training programs of the payment and settlement system advanced

6.1.5.3 RMB bank accounts inspected

6.1.5.4 Responsibilities of administrative permission and administrative sanction fulfilled

6.2 Continuous improvement in credit information system construction

6.2.1 Progress in the construction of corporate and individual credit information system

6.2.1.1 Overall enhancement of data quality of the credit information system

6.2.1.2 Functions of the credit information system greatly expanded

6.2.1.3 Steady expansion of the data collection scope of non-banking institutions

6.2.1.4 Construction of credit information system of SMEs stepped up

6.2.2 Marketization of credit rating system pushed forward based on innovation and regulation

6.2.2.1 Further explorations into the training and assessment system of rating practitioners in Shanghai

6.2.2.2 Launching the pilot work of rating of commercial acceptance drafts

6.2.2.3 Launching credit rating of debtors, business groups and guarantee agencies step-by-step

6.2.2.4 Management of credit rating services strengthened and the credit rating market regulated

6.3 Monitoring of AML enhanced

6.3.1 Strengthening counter-terrorist financing in an all-round manner and enhancing its efficiency

6.3.2 Cooperative mechanism of AML work improved and joint-ministerial efforts in AML stepped up

6.3.3 Administrative investigation of AML deepened and a bunch of important crime clues uncovered

6.3.4 AML work in financial system further enhanced

6.3.5 Enhancing offsite inspection and heightening AML monitoring and analysis

6.3.6 Careful preparations made to facilitate the FATF assessment work in Shanghai

Appendix I Statistics

Appendix II Financial Institutions in Shanghai

Box

Box 3-1 Impacts of continuous interest rate cuts on banks' income '

Table

Table 3-1 Loans' Industry Direction Denominated in Domestic and

Foreign Currencies of Shanghai Domestic Banks

Table 4-1 Performance of 15 Securities Companies in Shanghai in 2008

Table 4-2 Capital Market Financing of Listed Companies in Shanghai in 2008

Table 4-3 Balance Sheet of 8 Large-and-medium Sized Securities Companies in Shanghai

Table 4 4 Income Structure of 8 Large-and-medium Sized Securities Companies in Shanghai

Table 5-1 Premium Income, Insurance Density and Penetration in Shanghai

Table 5-2 Expenditure of All Insurance Claims and Payments in Shanghai

Table 5-3 Utilization of Insurance Fund

Figure

Figure 2-1 GDP Growth in Shanghai from 2001 to 2008

Figure 2-2 Import & Export Volume in Shanghai from 2003 to 2008

Figure 3-1 Total Assets and Growth Rate of Shanghai Banking Institutions

Figure 3-2 Outstanding Deposits Denominated in Domestic and Foreign Currencies and Growth

Rate of Shanghai Domestic and Foreign Banks

Figure 3-3 New Loans 1)enominated in Domestic and Foreign Currencies of Shanghai Domestic

and Foreign Banks

Figure 3-4 NPL Ratio of Shanghai Domestic Banks (Domestic and Foreign Currencies Included)

Figure 3-5 Pre-Tax Profit and Growth Rate of Domestic Commercial Banks in Shanghai (Domestic and Foreign Currencies Included)

Figure 3-6 Industry Distribution of Loans Denominated in Domestic and Foreign Currencies of Shanghai Domestic Banks in 20(i)6-2008

Figure 4-1 Net Capitals of 8 Large-and-medium Sized Securities Companies in Shanghai

Figure 5-1 Premium Revenues of Domestic and Foreign-funded Insurance Companies and

Market Shares of Foreign-funded Insurance Companies

Figure 5-2 Comparison of Net Profits of Insurance Companies Incorporated in Shanghai

Figure 5-3 Comparison of Business Structures of Life Insurance Companies Incorporated in Shanghai