It gives me a great pleasure to speak to you about the China's growth model and its prospects for reinventing itself in the future. It is a matter of great concern for Japan too, and it may be important for all of us to start recognizing the real picture of China's phenomenal growth that we are observing.

We all know that economic scale measured by simple nominal GDP calculation tells us that China might catch up Japan as early as within the next decade. Also, China's foreign reserves are now nearing US$ 1 trillion that already exceed that of Japan. Our question here is how this growth model of China is, will and shall be managed?

Looking back to a history, thanks to the reform and opening door policy adopted by Deng Xiaoping, China's GDP increased four times from 1980 to 2000. Since Chinese political leaders had to prove the authenticity of "the socialistic market economy theory," they set the planned political goals that the GDP will increase again four times from 2000 to 2020, which means 7.2% annual GDP growth has been set. In this sense, we must feel that there is crucial uncertainty regarding the viability of "the socialistic market economy theory."

We may have to focus on this "planned nature" of China's growth model as long as we care about sustainable and sound economic growth of China in long term. Of course, Japan has long supported prosperity of China through our ODA coupled with substantial private sector investments during the past three decades. I can assure you that Japan's next administration which starts on September 26 will share the basic recognition that the rise of China to be an opportunity for all of us rather than a threat against us.

Having said that, I see many economic risks in China seem to be closely associated with the above political configuration. Let me show you some examples.

First, current tools of macro economic control should be strengthened. More independence of monetary policy by People's Bank of China should be established. Also Renminbi control in foreign exchange market has to be more flexible and transparent. If you intervene in foreign exchange market, it would be a normal practice of global central banking to absorb domestic excessive money supply by selling central bank bills, given the China's balance of payments situation. But so far, they have not done so, for some reasons, which leave inflated money supply and excessive real estate investments. In addition, administrative guidance, which had also been used in Japan rather nicely, is said to be largely overlooked by local operational level, since local officials are believed to be evaluated by generating growth rather than effectuating enforcement of administrative guidances. Thus, bank lending tends to increase without effective soundness measures, such as strict risk management system. There is less incentive mechanism in place in order to observe the rules of law and rule of market economics in our textbook.

Second, governance system should also be improved. In the market, nominations of top commercial banks' management are believed to be approved by the government, which insinuates weak corporate governance structure in the banks and industries, meaning that shareholders may not have enough voices. Also, corruption seems to be still a concern, which implies that administrative enforcement continue to be unpredictable, even though many modern type of legal infrastructures are being established in the areas of bankruptcy laws, intellectual property rights and environmental policy.

Third, a need for more transparency. Some international bank analyst seems to have a different view on how big the non performing losns is in China. Interestingly enough, many other international financial institutions and rating agencies agree to the views of the bank analyst. By the way, similar need for more transparency could be found in the areas of Chinese defense spending.

Lastly, a need for more social stability. There seems to be a huge disparity between urban area and rural area, where many social unrests are reported. Social infrastructure and safety net, such as pension system and income redistribution system, is limited. These factors indicate possible social unrest and instability, thus market participants should have some reservations if we try to portray a bright future of sound and stable growth of China. In sum, these above points show how many difficult challenges China must face to reinvent itself to attain long-term sustainable and sound prosperity.

I strongly support China to become a responsible and reliable global player in multi-polar world with the background of its growing economic power. In that sense, global encouragement, such as accession of WTO, was helpful for China to commit to change itself. Of course, along with these economic, trade, environment, and other issues, we must observe our shared fundamental values of democracy, human rights, freedom of speech, rule of law and distribution of wealth, so that China could reinvent its domestic society and economy towards free, advanced, and consumption-led economy.

Thank you.