bank. at the same time, the major reason why the bank can provide ample liquidity without facing under - subscription in open market operations is that there is demand from foreign banks for excess reserves, and this itself is not expected to lead to a revitalization of economic activity. of course, we still cannot deny the possibility that the demand for excess reserves will lead to a change in the portfolio of economic entities and ultimately stimulate economic activity in the long run. the bank is now closely examining this possibility while continuing the current massive provision of liquidity. b. the npl problem the second reason why japan ’ s economy is unable to exit from the ongoing deflation is the npl problem. it is not the case that once the npls are disposed of, the deflation will end, and the economy will recover right away. i think that it is now widely understood that the disposal of the npls will rather be associated with short - term pain. it is also true, however, that once the economy recovers, the npls will decrease. sustainable economic growth cannot be expected in a situation where a large amount of the npls remain and credit intermediation does not function fully, for the following reasons. first of all, in such a case, financial institutions are facing the risk of their capital being impaired by external factors such as a decline in stock prices and emergence of new npls following a downturn in the economy. capital is the last line of defense against unexpected risks and losses. it is difficult for the management of the financial institutions to take risks when they are concerned about their capital position. from a macroeconomic point of view, sustainable economic growth may only be achieved with continuously favorable external conditions which will require delicate policy management. secondly, until the npl disposal is completed, it is difficult to adjust lending rates to levels adequately reflecting risk and return. currently japanese banks are competing with one another to lend to blue - chip companies and credit spreads have become extremely narrow. on the other hand, the japanese banks are cautious about extending new loans to firms with low credit ratings and the banks have not increased credit spreads adequately on their lending to existing less creditworthy borrowers. in the current situation, if the banks drastically increase credit spreads, their borrowers are likely to go bankrupt and the banks will have to pay the price in the end. however, from the long - term perspective, unless the lending rates are set in an economically rational manner, the lending attitude of financial institutions

countries. macao is the only city in china to maintain such special relationship with these countries. the central government attaches much importance to it. as early as 2003, the standing secretariat of the “ forum for cooperation and development between china and portuguese speaking countries ” was set up in macao. it carries the function of enhancing economic and trade relation between china and portuguese speaking countries ( including angola, brazil, cape verde, east timor, guinea bissau, mozambique and portugal ). premier wen jiabao was present in macao in november 2010 for its third ministerial conference and made an important speech. he raised a series of policy measures which would promote macao to be the platform for economic and trade cooperation between china and portuguese speaking countries. vice premier wang qishan met with delegates of macao financial sector in october last year. he had high regard of macao for its function as bridge and hub belt servicing liaison between china and portuguese speaking countries. he also hoped that macao would play a pivotal role in promoting trade settlement denominated in rmb with portuguese speaking countries. at the same time, macao and europe has rather long relationship. the linkage of macao and europe can be traced back to the 16th century. at that time, religious practices, culture, technology and manufactured products of europe were imported into macao from south asia, and then were transmitted to other regions of east asia. before the 19th century, macao played an important role in communication in economic and cultural aspects between civilians of the mainland and european countries. after the establishment of the sar, the chief executive visited a number of member states of the european union which has further strengthened linkage in a number of realms of the european union. in addition, the sar government has established the office to the european union, which would further reinforce relationship between macao and the european union. fourth, the financial supervision of macao has achieved international standard. in 2008, imf conducted an appraisal of financial supervision of macao. out of the 25 core principles for effective banking supervision, 21 were compliant, 4 were largely compliant. financial institutions in macao have fine risk management. the regulator carries out effective supervision in a consistent manner. this creates a solid ground work for the rmb to “ reach out ”. fifth, as aforementioned, macao was designated, as early as 2004, one of the testing grounds for offshore rmb business. banks of macao have accumulated ample experience related to rmb business operation