"King of Retail" Zhao Industry Performance Meeting Transcript of 10,000 Words, Confident to Maintain "Stable and Improving" in the Second Half of the Year

On September 1st, China Merchants Bank held a performance press conference. President Wang Liang, Vice President Wang Ying, Vice President and Chief Financial Officer and Board Secretary Peng Jiawen, Vice President Lei Caihua, Chief Information Officer Zhou Tianhong, and independent directors attended the meeting. This is another round of communication between the senior management and investors of this "retail giant" in mid-2025. What is the management's view on the operating situation in the second half of the year? What is the outlook for interest margins? How is the international business layout? Will retail loans and fee income improve? Are there phenomena such as deposit migration? Regarding market concerns. Seeking Progress While Maintaining Stability in the Second Half of the Year Regarding whether China Merchants Bank can continue to maintain the momentum of achieving positive net profit in the first half of the year in the second half, Wang Liang stated that based on the operating situation in the first half of the year, the first quarter faced enormous pressure, mainly due to loan repricing, which further widened the decline in interest margins and brought significant pressure on revenue growth. However, the operating situation in the second quarter showed improvement compared to the first quarter. They are confident that the overall situation in the third quarter and the second half of the year will achieve progress while maintaining stability and show a positive trend quarter by quarter. In the second half of the year, by implementing various development strategies and fulfilling the board's work deployment and requirements, especially in the current context of declining interest rates and narrowing interest margins, accelerating the strategic transformation of China Merchants Bank to achieve balanced and coordinated development across the four major sectors. Wang Liang clearly stated that in the second half of the year, the bank will further strengthen cost and expense management and control the expenditure. They will enhance the marketing of non-interest income and wealth management income. They will strengthen asset quality management and, through multiple measures, are confident in continuing to maintain a stable and positive development trend in the second half of this year, successfully achieving the budget goals set at the beginning of the year, and providing investors with a satisfactory answer. What is the Trend of ROE? Since the bank's ROE (Return on Equity) is clearly linked to stock price and valuation, what is the future trend of China Merchants Bank's ROE level? Wang Liang stated that China Merchants Bank's ROE level has always been maintained above 15%, which is relatively high. Last year, it dropped to 14.85%, and in the first half of this year, it continued to decline by 1.59 percentage points, now standing at 13.85%, which has raised concerns among many investors. He explained that the level of ROE is closely related to profit growth rate, net asset growth rate, and cash dividends. Due to the slowdown in net profit growth over the past two years, ROE has declined, so the management is also highly attentive to investors' concerns. On one hand, they have established a financial management system guided by the ROE indicator. This system aims to ensure that China Merchants Bank's ROE level remains leading in the domestic banking industry. Currently, China Merchants Bank's ROE level is still about 4 percentage points higher than the average ROE level of domestic banks. Maintaining this leading position is a requirement. The second requirement is that the ROE level must also meet investors' expectations for a reasonable return on investment. If the ROE is too low, investors may choose not to invest in this bank due to high opportunity costs. Therefore, it is essential to meet market expectations for investors in China Merchants Bank's stock, ensuring that the returns on investment align with market expectations while maintaining such levels Between these two goals, how to maintain the level of ROE and form a reasonable balance among profit growth, net asset accumulation, and dividends. Therefore, for the management, maintaining a relatively high level of ROE and providing shareholders with relatively high returns is an important operational goal. Thus, China Merchants Bank will continue to strive to maintain its leading advantage. Regarding the expectation of ROE in the next 3 to 5 years, he stated that it depends on whether profitability will further rebound. Many investors are also concerned about whether the dividend payout ratio will be further increased. By increasing dividends, the net asset denominator decreases, which is also a way to maintain a relatively high level of ROE. He indicated that from the management's perspective, a comprehensive balance will be made considering China Merchants Bank's capital strength, business development, regulatory policies in the operating environment, and investors' opinions. Future Trend of Interest Margin is Controllable Peng Jiawen described the current characteristics of China Merchants Bank's interest margin in three sentences: the first is absolute level leading, the second is relative changes under pressure, and the third is future trend is controllable. From the overall absolute level, China Merchants Bank's interest margin in the first half of the year is 1.88%, which is 46 basis points higher than the average interest margin level of national banks published by regulators, showing a very obvious leading advantage. Regarding relative changes under pressure, common factors in the banking industry include repricing, downward loan pricing, and declining asset yields. The personalized factors for China Merchants Bank are: First, on the deposit cost side, since the deposit cost is lower than the industry average, the space for further reduction will be smaller. The high proportion of demand deposits also means that the space for reduction is narrower. China Merchants Bank has always maintained strict control over high-cost, high-priced deposits, and their proportion is relatively low, so the space for further reduction will also be smaller. The absolute leading level also means that relative changes will face further pressure. The second factor from the loan perspective is that personal housing mortgage loans will start to be repriced this year, with a one-time reduction in the stock interest rate, which has the greatest impact on China Merchants Bank because the proportion of housing mortgage loans is also the highest. The third is that China Merchants Bank's asset structure is further under pressure. Historically, the proportion of retail loans at China Merchants Bank has reached over 50%, and the yield on retail loans is relatively higher, especially for credit card loans. The impact of the yield brought by the asset structure will be greater. For example, this year, credit card loans have decreased by 23.3 billion since the beginning of the year, but the market share of credit card loans is still increasing. Due to the impact of demand, the overall growth of credit loans in the banking industry is not good. These personalized factors need to be further analyzed to see how to overcome the impact of the external environment and maintain a reasonably good interest margin level. Regarding the judgment of the next step in interest margin, he believes that the future trend is controllable. Overall, although under pressure, there are still favorable factors, such as the increasing certainty of economic growth, which will support credit demand; measures introduced at various levels by the state to boost consumption will also play a good role in promoting credit card consumption and retail loans. For example, the central bank's attention to the interest margin of commercial banks is also increasing. Currently, the interest rates on assets and liabilities are basically linked, and the adjustment of deposits and loans is interconnected, which will help mitigate the decline in interest margins in response to interest rate cuts The banking industry is also experiencing a reversal of involution, which can avoid disordered vicious competition, making bank quotations more rational and helping to stabilize interest margin levels. For China Merchants Bank itself, many measures need to be taken, such as further increasing high-quality demand deposits and the growth of low-cost liabilities. Currently, there is a diversion of deposits in the capital market, and the pressure for the growth of demand deposits is also increasing. However, interbank deposits are growing rapidly, mainly due to the growth of entrusted deposits and deposits related to the capital market. The average daily balance of interbank deposits has reached 750 billion, with a growth rate of 33% compared to last year, indicating that although deposits are being diverted, funds are not flowing out. Through the capital market, they ultimately remain within the bank. Therefore, there is now an internal management concept called broad deposits, which not only focuses on self-operated deposits but also monitors the interest rates of interbank deposits, which is currently at 1.09, lower than that of self-operated deposits, and the proportion of interbank demand deposits has reached 97%. So, regardless of the type of deposit, as long as it is low-cost and high-quality liability funds, they should be captured. In terms of asset organization, efforts will also be further increased, whether for corporate loans or retail loans, both need to be strengthened simultaneously. Retail loans may be the focus going forward. Currently, the bank is also increasing efforts in credit card loans, retail micro-consumer loans, and housing loans, which are also important measures for asset organization in the future. Another measure is to continuously improve risk pricing capabilities, which is also a significant challenge and focus. The fourth is asset-liability management, which needs to further enhance the management of major asset allocation and liability combinations, improving interest margin levels through effective asset-liability management methods. Overall, currently, China Merchants Bank's interest margin leads with an average level of 46 basis points, maintaining a decline that is basically in line with the average decline of large banks, which is quite challenging. Going forward, through these measures, it aims to gradually improve. Interest margin analysis and calculations indicate that there should still be downward pressure on a quarterly basis, but compared to last year, it is hoped that the decline in interest margin will narrow, and efforts will be made to stabilize the interest margin as soon as possible. Retail development cannot only focus on quarterly changes Wang Ying stated that retail development has encountered some difficulties in recent years, but since the beginning of this year, China Merchants Bank's retail business development has been relatively good, with a significant increase in customer base, and AUM has reached 16 trillion, the highest growth in recent years, and wealth management income has achieved a positive growth of 6%. In recent years, China Merchants Bank has mainly done three things, and these three things are still ongoing. The first is to return to the essence of banking's deposit and loan services. Based on the previous emphasis on wealth management and credit business, it has increased the focus on payment and settlement. China Merchants Bank uses the dual-card linkage of debit and credit cards as a starting point, aiming to create a main account for customer payment and settlement, continuously promoting innovation and iteration of payment and settlement products, building a richer card usage ecosystem, and enhancing customers' willingness to use cards, making China Merchants Bank cards more user-friendly. Because remittance is a more fundamental financial service than wealth management and retail credit, residents should have a safer and more convenient bank account, which is the first thing we are doing In the past two years, we have also done a second thing in response to the current situation, which is to spend a year and a half basically completing the iteration and upgrade of the new digital retail service model. This includes the restructuring of customer segmentation, optimization of team configuration, upgrading of team capabilities, construction of remote centralized services, and empowerment through technology. To build new production relationships that adapt to new productive forces, China Merchants Bank's "Renjia" digital new model involves readjusting and recombining all the resource elements invested in retail business to meet the development requirements of the new stage. The "Renjia" digitalization at China Merchants Bank is not a future goal and direction under discussion, but a concrete action and practice that has already been implemented. While maintaining continuous business growth, we have completed a comprehensive and smooth transition. Since the beginning of this year, whether it is customer growth, middle-income growth, or AUM growth, the effects have already begun to show, and future dividends will be further released. The third thing that China Merchants Bank needs to do is to decisively build and apply AI for the future. Retail business is the most suitable scenario for exploring and applying AI. The construction and application of AI mainly focus on AI XiaoZhao and XiaoZhu, and these applications have already achieved certain results, with AI XiaoZhao serving over 20 million customers monthly, and XiaoZhu covering all positions. Of course, this is currently just the beginning of human-machine collaboration, which will rebuild workflows, equip each employee with an AI assistant, and improve work efficiency and quality. It will also reshape the organizational structure, allowing AI entities to join as digital colleagues, forming a human-machine collaborative team. China Merchants Bank will cultivate a team with new skills for the AI era, expanding employees' responsibilities to include training AI, building agent systems, optimizing processes, and other related fields, forming an ideal human-led execution model for intelligent agents. Looking back at the development of China Merchants Bank and retail, there are three important underlying supports: the first is technological capability, the second important underlying support is the team, and the third is values. She emphasized the importance of determination. The external market has been changing continuously, from the rise of third-party payments in earlier years, which brought a huge impact on payments; to the fee reductions and benefits in recent years, which caused a significant impact on wealth management due to a sluggish capital market; to the current consumption downgrade and adjustments in the real estate market, which pose significant challenges to credit card transactions and personal loans. The retail business has continued to grow amidst these challenges, reflected in the operational results, where there are pressure indicators every quarter, but we have not given up on any segment. Instead, we seize opportunities in favorable conditions and strengthen our internal capabilities in adverse conditions. Retail is a system, and every line is very important, including every level of customer group and every segment, from credit cards to personal loans to wealth management to payments to private banking, maintaining strategic firmness and tactical clarity, and continuously engaging in self-reflection. She hopes that investors will focus not on the quarterly performance fluctuations but on whether the underlying fundamentals of China Merchants Bank are stable, whether the risk bottom line is maintained, whether the market mechanism is still effective, and whether the spirit of innovation, prudent style, and technological gene are still present Five Aspects to Enhance Wealth Management Capability Wang Ying introduced that since the beginning of this year, the risk appetite of retail clients has undergone some changes, but stability remains the main tone, with a marginal improvement in aggressive preferences. Clients' preference for equity assets has increased, and combined with the low interest rates and the recovery of the capital market, it is expected that clients' risk appetite will continue to improve, although the specific pace still needs to be observed based on the overall situation of economic fundamentals. In response to such changes in the external environment, as a wealth management institution, the simple summary is to do two things well. One is to grasp the major market trends, and the other is to adapt to clients' needs. In the current market environment, low interest rates and uncertainty are not a cycle but a long-term trend that needs to be addressed. From the regulatory guidance perspective, the self-discipline requirements displayed by cash management, the rectification of stable valuation in wealth management, the continuous reduction of insurance booking rates, and the high-quality development action plan for public funds, etc., are all returning finance to its essence, which is to ensure that real assets, real returns, and volatility can be transmitted to clients. Clients hope to experience comprehensive wealth management at China Merchants Bank, which she summarized as long-term, stable, continuous, and good. CM Bank is also striving in this direction. How to achieve this increasingly tests the professional capabilities of a wealth management institution. CM Bank will continuously enhance its capabilities in five aspects. The first capability is to adhere to the service method of asset allocation. The asset allocation service system includes insights into client needs, recommendations for major asset classes, recommendations for sub-asset classes, product selection adaptation, and review and rebalancing, etc. Each link in this process is very professional and important. In the future, review and rebalancing will need to be further strengthened under the demand for advisory services. The second capability is to insist on product diversification. Behind product diversification is the diversification of client needs. The wealth management platform of China Merchants Bank is equivalent to a comprehensive supermarket, with both carefully selected and customized options. Clients' allocations include stocks, bonds, domestic, foreign, active, passive, assets, and tools. The bank will continue to promote product exploration and innovation, building a product matrix that covers different risk appetites, life cycle stages, and segmented client needs, providing sufficient and complete product supply for precise matching of client needs. The third capability is to enhance global allocation capabilities. The demand for global allocation from clients is increasing. It is necessary to enrich the product line for global allocation, continuously enhancing products and tools in areas such as global broad-based tools, industry resource allocation, and bond commodities. For example, the cross-border investment zone that has already been launched and is continuously improving combines foreign currency wealth management, QDII funds, mutual recognition funds, cross-border wealth management, etc. Both the stock and proportion of global allocation have seen significant increases this year. The fourth capability is to accelerate the transformation of protection. The continuous reduction of insurance booking rates, under the new circumstances, is both a protection of investors' interests and a regulation of the insurance industry, returning to the essence of risk transfer and economic compensation functions. CM Bank needs to further understand clients' true protection needs. Whether clients are concerned about health, worried about accidents and personal safety, or hope to have a dedicated fund to ensure their children's education and the inheritance of their retirement assets, only then can the distinction between investment and protection be truly made, and only then can the issues under low interest and low booking rates be addressed Why do customers choose insurance? The fifth capability is to integrate AI into professional services. Evolving from the general stage to the industry application stage, wealth management is an important professional scenario that has integrated AI technology into various business services for both clients and internal operations. In summary, after experiencing immense pressure in wealth management and the sluggish capital markets in recent years, there is now a glimmer of hope. From the perspective of future income, the revenue in wealth management is expected to gradually recover. The changes observed this year also reflect this evolution. Moreover, with the continuous growth of AUM (Assets Under Management) and the expansion of client base, there is strong support for the growth of middle-income, and the income structure is also improving. As advisory service capabilities enhance, the income from retained assets will continue to increase. From the product structure perspective, the stable primary demand of clients will maintain the growth potential of wealth management insurance income. At the same time, clients' risk preferences have undergone marginal changes. If the capital market continues to warm up, the scale of rights-containing products will continue to rise, which will further benefit the income growth of public funds, private funds, and fixed-income wealth management products. Anti-involution is beneficial for bank development Wang Liang stated that currently, according to the requirements of the central meeting, various industries are carrying out anti-involution work. Many industries are experiencing supply-demand mismatches, and some enterprises are causing market disorder through price competition, which is detrimental to the sustainable and healthy development of industries and enterprises, and disrupts the competitive environment. Some national regulatory departments are organizing efforts to reverse this vicious competition and transform it into a positive interactive market. This anti-involution effort is both similar to and different from the supply-side structural reform in 2015. That time mainly focused on addressing overcapacity in certain industries, while this time, the anti-involution largely involves new economies, especially in the new three categories of industries, where the forms of involution are more severe and price competition is more intense, leading to serious overcapacity in some new economies. Thus, the structure has changed. Additionally, the nature of enterprises is different; in the past, there were mainly zombie enterprises, but now there are many private enterprises with significant innovative vitality. Therefore, this policy adjustment differs from the previous administrative approach, as it is more focused on legal and market-based methods. However, he believes that the effects will be positive, leading to a more orderly market and a relatively healthy market environment. This is beneficial for the healthy development of these enterprises and also provides a better environment for banks to manage asset quality risks. At the same time, the banking industry is also carrying out anti-involution work under the guidance of regulatory departments. On one hand, there has been excessive and vicious competition among banks in the past. This includes competition in loan pricing, deposit pricing, and some bond investment rates, which may not adhere to the principle of risk-based pricing, leading to increased risks and violating the principles of commercial sustainability. China Merchants Bank firmly supports the requirements put forward by relevant departments, earnestly implements industry self-discipline, organizes deployments and requirements, and aims to work with other peers to jointly maintain a disciplined environment for the healthy development of the financial industry, which is conducive to risk prevention and achieving the principles of commercial sustainability There is also a sense of awareness and initiative to implement the requirements against competition. From this perspective, the stability of bank pricing and control of deposit costs are beneficial for improving asset quality. Characteristics of Differentiated Development in Corporate Banking Lei Caihua introduced that China Merchants Bank's wholesale business has always adhered to a differentiated development positioning, forming several characteristics. First, compared to peers, it has formed a certain scale and relatively high-quality customer base. For example, the total number of customers has reached 3.36 million, with 300,000 new accounts opened this year. Among these customers, the technological content is relatively high; the cooperation coverage rate of all technology enterprises in the market with China Merchants Bank exceeds 20%. For demonstration enterprises in technological innovation and single champions in manufacturing, the cooperation coverage rate exceeds 80%. For specialized, refined, and innovative small giants, the cooperation coverage rate is 38%. For specialized and innovative small and medium-sized enterprises, the cooperation coverage rate is 37.8%. Particularly, for listed companies with capital market attributes, there are currently more than 5,270, with a cooperation coverage rate of 86%. The cooperation coverage rate for listed tier enterprises is 80%. Especially for all market private equity invested enterprises, there are approximately 190,000, and China Merchants Bank has selected the top 30%, about 55,000 customers, with a cooperation coverage rate of 59.9%. The second major characteristic is providing comprehensive financing for customers from the perspective of total customer financing. This has been done for nearly 15 years, leading to a change in business philosophy, focusing on diversified financing centered around customers. Additionally, it has derived and jointly promoted product service methods and product diversification with partners. The third is relying on digital technology to provide a series of transaction banking product services, maintaining a relative market lead. The fourth is continuously enhancing cross-border financial service capabilities, serving Chinese enterprises going abroad and multinational companies. In the first half of this year, loans to non-resident enterprises exceeded 200 billion, a year-on-year increase of 20%. The trading volume of foreign exchange derivative products increased by 36% year-on-year. At the same time, it has connected more than 100 banks for enterprises with cross-border needs, achieving private fund management overseas. The fifth characteristic is continuously improving the integrated service capability of investment and commercial banking. There are three conditions for this. The first condition is that there must be a customer group with integrated investment and commercial banking needs. The second is that China Merchants Bank must have the corresponding capabilities to establish an ecosystem to jointly serve. The third is to have corresponding product services. However, the wholesale business also faces pricing issues under the background of competition. China Merchants Bank has always adhered to the principle of balancing volume and price, and promoting credit business under controllable risk, objectively resulting in a relatively low non-performing rate. The non-performing generation rate for corporate banking in the first half of this year was less than 0.2%. Moving forward, based on market changes, organizing assets for corporate banking will become an important task, comprehensively enhancing asset organization capabilities, focusing on approximately four directions. One direction is technology enterprises, including fixed asset and project financing opportunities brought by traditional industry upgrades and new infrastructure. The second is financing opportunities brought by industrial integration and capital market mergers and acquisitions. In the first half of this year, there has also been acceleration, and the bank has been relatively active in market mergers and acquisitions Third, closely integrate with the enterprise's transaction scenarios to provide supply chain financing, which has also seen over 20% growth in the first half of this year. Fourth, how to combine digital process transformation under strong scenarios to promote inclusive finance business, appropriately introducing guarantees and collateral. From the perspective of the entire industry data in the first half of this year, the investment regions are roughly in three places: one is the Pearl River Delta and Haixi, the second is the Yangtze River Delta, and the third is the Bohai Rim. These three regions account for 80% of the new investments. The industry's investments are mainly in manufacturing, leasing, commercial services, and electric heat fuel water production industries, with an incremental share of 54%. Looking at the trends in the second half of the year, there is still confidence in achieving a quarter-on-quarter improvement in fee income. Peng Jiawen introduced that regarding fee income, the biggest highlight in the first half of this year is the wealth management income, which has achieved its first positive growth in three years, with a growth rate close to 12%. The main highlights here include the rapid growth of income from agency sales of wealth management products, rapid growth of income from agency sales of trusts, and rapid growth of income from agency sales of funds, but the growth rate of income from agency sales of insurance has declined. The main reason is the insurance structure; this year, a large portion of the agency-sold insurance consists of commercial pension insurance, and the realization of this income is annual, not current, so the fee rate for the current year is not high, but it can continuously contribute to income, which is a very important reason. Overall, the volume of insurance is increasing, so there is a solid expectation for future income contributions, which is the biggest highlight of wealth management income. Other income, including custody income, is also showing positive growth, all of which are positive contributions. However, this year's fee income is still under pressure, with the biggest pressure coming from credit card income. In the first half of the year, the transaction volume of credit cards actually exceeded 20 trillion, which is a negative growth of 8.3% compared to last year, but the market share of credit card transactions increased by 0.3 percentage points. This means that the overall credit card transactions, the current consumption growth rate has not recovered, which is closely related to this, resulting in a negative growth of 16% in credit card income. However, while the transaction volume of credit cards is experiencing negative growth, the number of credit card customers is increasing, which means that the average consumption per customer and the average transaction amount per transaction are declining, which is the main reason for the negative growth in credit card income. This is the biggest pressure point for fee income this year, mainly due to the negative growth of credit card income. At the same time, credit card income accounts for a relatively high proportion of income at China Merchants Bank, so the impact is relatively significant. From the perspective of non-interest income, there is actually another area under pressure, with other non-interest net income showing a negative growth of over 12%. This mainly comes from the financial market trading sector, caused by the divergence in market interest rates compared to last year's trends. Last year, the bond market was a bull market; in the first quarter of this year, interest rates rebounded, and although long-term interest rates declined in the second quarter, short-term interest rates remained high. Therefore, the divergence in interest rate trends also determined the negative growth of other non-interest income, which is the main reason These two factors are the main pressure points in the first half of the year. From the trend in the second half of the year, there is still confidence in achieving a quarter-on-quarter improvement in fee income, with a positive trend. Regarding other non-interest net income, it is closely related to current market interest rates. After all, based on the interest rates in recent days, there has been a significant rebound, so the trend in the second half of the year needs further observation. Internationalization will become a new growth point for China Merchants Bank Wang Liang stated that this year, in response to the low interest rate and low interest margin environment, four transformation strategies have been proposed. The first is internationalization. Why strengthen and accelerate the internationalization transformation of China Merchants Bank? Firstly, it is an inevitable trend. On one hand, the overseas investment and development layout of Chinese enterprises is continuously accelerating, which requires Chinese financial institutions to provide financial services. On the other hand, as China has become the world's second-largest economy, the Chinese economy has integrated into the world, mainly based on various countries and regions, and it is also necessary for China's financial industry to integrate into various countries and regions around the world. With the construction of the Belt and Road Initiative and the internationalization of the Renminbi, it is necessary for China's banking industry to accelerate its international development. This is an inevitable trend. Secondly, it is a situation-driven necessity. In the Chinese market, the development of major Chinese banks is highly concentrated on domestic business and domestic assets. Faced with declining interest rates and narrowing interest margins, they have entered a bottleneck period for growth. How to break through? Achieving an international layout and development, increasing the proportion of international business, is essential to truly meet the needs of building a strong financial country and a powerful financial institution. Large banks in major economies around the world have grown into international banks with economic development. For China's banking industry, this is a situation-driven necessity, and it should take proactive measures. For China Merchants Bank, although various operational indicators show good financial performance, the focus is mainly on the Chinese market. It needs to align with the development of the world's second-largest economy and the needs of Chinese enterprises going global, thus proposing an international development strategy. China Merchants Bank also has such a foundation. For instance, in overseas markets like Hong Kong, there are platforms such as China Merchants Yonglong Bank, the Hong Kong branch, and China Merchants Bank International, which leverage the advantages of these overseas institutions in major global financial centers to serve Chinese enterprises going global and enhance the service capabilities of overseas institutions. On the other hand, through international development, it further promotes and enhances the product and international service level of China Merchants Bank. By improving service capabilities and learning from the experiences of advanced international peers, it aims to enhance service levels while serving Chinese enterprises going global, and also cultivate and build an international talent team for China Merchants Bank. Therefore, the development of internationalization is not only about the internationalization of the network but also about the internationalization of service capabilities, management, and talent teams. It is a system. Only with such international capabilities can it better adapt to the future needs of China's economic globalization, serve the needs of Chinese enterprises going global, and also adapt to the low interest rate cycle, addressing the needs for sustainable development in the future At the beginning of this year, China Merchants Bank proposed a transformation towards four modernizations, especially internationalization. However, over the past two years, it has been focusing on strengthening investments in this area and enhancing the capabilities of its overseas institutions. In the first half of this year, there have been initial results in terms of asset growth rate, profitability, and contributions to the entire bank. However, this is not an overnight success; it requires perseverance and may take 3 to 5 years or even longer to build this capability. It is believed that this will become a new growth point for China Merchants Bank. Bonds Must Maintain Absolute Returns While Also Generating Spread Income Peng Jiawen stated that the overall bond market trend since the first half of this year can be described as wide fluctuations. Taking the 10-year government bond as an example, the fluctuation range has reached nearly 30 basis points. In this environment of wide fluctuations, the difficulty of bank bond investments has increased, especially compared to last year's unilateral trend, which has raised the bar. Recently, bond market interest rates have rebounded again, almost reaching 1.8. From the trading transactions of new bonds, some have already exceeded 1.8. He analyzed that there are several main factors contributing to the current rise in bond rates. The first is the seesaw effect between stocks and bonds. A bullish stock market at certain stages brings about a rebound in bond market rates. The second is the regulatory attitude towards curbing excessive competition, which has also guided market interest rates to rise. The third factor may be related to the recent reinstatement of value-added tax on three types of bonds: government bonds, local government bonds, and financial bonds, which banks invest in. However, in the long run, he believes that the overall trend of bonds will still show a gradual downward trend in interest rates. The central bank is also increasing its efforts for counter-cyclical adjustments and continues to promote the implementation of moderately loose monetary policy. Therefore, from a broader perspective, it should still be optimistic in the long term. At this stage, we will still generally present a trend of wide fluctuations. The market generally expects the 10-year government bond to be in the range of 1.5 to 1.9. Based on this situation, there are several operational strategies moving forward. The first is to maintain an appropriate and reasonable proportion of bond investments from the perspective of overall asset allocation. Currently, the proportion of bond investments is about 30%, which should be a relatively appropriate level and has increased in recent years. The second is to grasp high points for allocation under the large asset allocation strategy to maintain a relatively high yield level for the entire portfolio. The third is to seize market fluctuations and perform well in wave operations to obtain trading income, which requires testing investment research capabilities and professionalism, and this work must be done well. The fourth is to maintain a reasonable duration, as interest rate risk management is also a very important aspect of risk management, so the duration of bonds should be kept at a reasonable level. From the current perspective, he believes that the current bond duration is also relatively appropriate and should not be extended further, so the duration of bonds should be well controlled. Additionally, it is important to appropriately increase the use of derivative instruments to hedge risks. This is also a very important risk management tool Overall, we hope to maintain the absolute portfolio return level of bonds through a comprehensive, diversified, and professional investment strategy, while also seeking to obtain more spread income. Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk