Following is a presentation by Dr Guocang Huan, CEO of Primus Pacific Partners and Director of the QFC Authority, during the Asian Banker Annual Achievement Awards 2009 held in Beijing.

Ladies and Gentlemen:

Right until this afternoon, I was thinking about if there really are any heroes at all in this historical economic and financial moment.  If there are heroes, who are they and what have they done.  

First, let’s look at the crisis that we are facing:

• As you all know, the current global financial crisis has led to a global recession, especially in OECD nations and some emerging economies that have failed to manage their external debts, the stability of their currencies, their banking industry and financial markets, and the last, but not least, their domestic saving.
• The backbone of the global economy - the financial industry and its regulatory system - is broken and needs to be urgently repaired, and restructured.  In this regard, to change the accounting rules, such as not to mark to the market, and simply injecting more capital, will not resolve the basic problems we are facing, but a fundamental reform on both regulatory and business fronts are necessary.
• Many major financial institutions - formerly thought of as unmovable cornerstones of the international financial services sector - have failed due to lack of discipline and effective internal control, corporate governance, and risk management.  At the same time, many corporations around the world are facing exceedingly difficult credit conditions and operational environment that threaten their stability and even viability.
• There has been a huge loss of wealth and jobs globally.  Social welfare, health care, and pension systems in many countries have been severely damaged.
• Social instability and political tensions have resurfaced in many countries
• Many governments’ fiscal positions have deteriorated significantly, further weakening their capabilities to fight the crisis.
• Global liquidity and international trade have been seriously damaged.  Worse, global financial markets have lost their direction.
• The global economic order has come under a very tough new challenge: we are facing a redistribution of wealth and economic power that can potentially raise international political tensions.

Second, not all the news is negative.  In spite of the depth and reach of the current global economic/financial crisis, not every region or country has been affected in the same way. Let’s look at some of the bright spots in the global economy: some countries in Asia and MENA region, for example, have been spared the worst of the crisis as their financial industries are less developed but more separated from Western financial markets.

The integrity of the financial industries in these newly emerging economies has not been severely compromised.  Some of these countries, such as China, had reformed and cleaned up their banking industry right before this crisis, and owe much to the great efforts made by their governments and regulators. Furthermore, financial market practices in these countries have been more carefully managed.

The domestic savings in these countries have not been jeopardized: in many Asian and MENA countries, domestic savings rates have been kept above 20%, with some of them even reaching as high as 40%.

Their external debts have also been carefully controlled and managed, which have contributed to the stability of their currencies and banking systems.  In this regard, central banks in these countries have learned a great lesson from the last Asian financial crisis ten years ago.

Their monetary and fiscal policies have not been abused.  In other words, governments in these countries have not been held hostage by their own macroeconomic, monetary, and fiscal policies.

By and large these economies have enjoyed relatively strong growth just before the current crisis.  Their financial capabilities were strengthened, which was needed to fight the current crisis.

Nevertheless, the current crisis has hurt these countries in a different manner: their export-driven growth strategy has been challenged, while foreign investment into these countries has dried up. The crisis has also destabilized their domestic financial markets.  These trends have been slowing down their growth and will continue to do so in the coming months.

Third, let’s spend a couple of minutes discussing the reasons behind the current crisis.

The crisis has been caused by regulators in major markets failing to do their jobs.  In particular, they have failed to supervise new development of financial engineering products and their trading in major markets.

More fundamentally, however, the governments in these countries lack fiscal discipline.  Central banks have misused monetary policies to spur growth and stimulate their financial markets.

Financial industries in these countries, especially major banks, insurance companies, and other market participants have failed across multiple levels, including corporate governance, risk management and internal control, and over-development of financial engineering products without appropriate and effective supervision and regulation.  In short, there was a clear lack of basic discipline.

On a broader scale, the economic structures in those countries are facing some fundamental challenges: low saving rates, high labor costs, high levels of governmental, corporate, and personal debts, and declining international competitiveness.  Unless these structural shortcomings are improved, the foundation of new crisis remains.

Fourth, let’s talk about the challenges we are facing and heroes we admire.  I define those who have the determination and ability to meet the challenges in this global financial and economic crisis as the heroes of our era.

An extraordinary crisis requires extraordinary leadership by government - the government leaders who have defined and implemented their development and growth strategies without jeopardizing the long term health of their countries’ economic foundations are the heroes, and so are the government leaders who have demonstrated their determination and ability to manage crisis situations by acting swiftly and decisively. The current crisis has changed and will continue to change the balance of power in the global economy, as well as relationships between various countries. As such, government leaders in major countries have the responsibility to reform and improve the existing global economic order or even to build a new one, to circumvent future crises.

Those central bankers, who have defined and implemented effective, sensible, and well balanced monetary policies, who have protected the economic growth and stability of their countries before and during this crisis, are also the heroes - their efforts in maintaining economic discipline have not only reduced the pain caused by the crisis on their economies, but also contributed to the flight against this crisis at the global level.

Those regulators, who have demonstrated their discipline, determination, and capability in overseeing and reforming the financial industries under their supervision, are more heroes.  Their efforts have helped their countries escape from the worst of the current global crisis.  It will be necessary for them to communicate and cooperate with their counter-parties around the world to improve the financial regulatory systems.

Those business leaders and managers in finance and other industries, who have demonstrated discipline in managing their businesses and risks, are heroes.  Their efforts have protected  their businesses and employees, as well as the economies in which they operate.

As mentioned earlier, this crisis is so deep-rooted that many ordinary people around the world - people with families to raise, children to feed - have been victimized and lost their wealth and jobs as a result.  Many of them are struggling in a very difficult environment in the months if not years ahead.  They will have to readjust their lifestyles, their consumption and savings behavior, and perhaps even change their professions.  We are talking about workers in Mexico, China, the Asian Subcontinent, and the Middle West of America.  In my opinion, those who are able to do all that should also be recognized as heroes.

Finally, this crisis is not the first global financial and economic crisis and will certainly not be the last one.  Let‘s work together to overcome the great difficulties caused by the crisis, draw some lessons from it, and re-build the global financial industry.