stockpile of nonperforming loans. fourth, before the state council called for a stop in commercial activities by the army and public security forces several years ago, some military units had engaged in such activities and even infiltrated into business operations of the financial institutions. this meant some delinquent borrowers, protected by such special forces, could turn a blind eye to the regulatory pressures and refuse to honor their debt obligations. although it is no longer the case right now, the associated nonperforming assets have yet to be completely disposed of. fifth, in the past, the commercial banks adopted a credit quota system under which credit funds were allocated to each province and municipality according to a specified quota. in this case, the commercial banks found it very difficult to move fund from one province to another, for the local governments would oppose to such a fund movement. therefore, fund outflow was not a concern for governments in those areas with high financial risks. moreover, china ’ s banking regulatory architecture in the past was also built along the administrative structures, which to some extent has obstructed free fund movement within the country. the reasons behind the regional disparities in financial risks that i listed above may not be complete. with the deepening of the reform, some positive changes are taking place in terms of the overall financial environment. for example, internal control and risk management of the commercial banks are being steadily improved, some banks have started to introduce the internal rating system to assess their credit risks on a pilot basis, and financial resources are starting to flow from the high - risk areas to those areas with low risks. i believe such positive changes will attract the attention of the local governments in china. as we all know, quite a number of commercial banks have their own internal risk ratings for each province and municipality in china, but they are usually not willing to disclose them to the public. some rating agencies and credit information companies are trying to peep into these internal rating results. i think such efforts could finally lead to a total or semi transparency of the risk ratings set by commercial banks for different regions. this will further create a pressure on those high - risk areas to improve their financial environment or their “ regional financial ecological environment ” as some people call it. in order to secure more financial resources from the commercial banks to support regional economic development, many local governments have vowed to further improve their regional financial environment, and some even view the enhancement of local financial environment of the same importance as improving

to deal with the problems of instability and volatility in exchange rates and capital flows which have characterized international financial markets in the 90s. let each country take measures to build its own safety walls by providing for higher reserves, more realistic policies to regulate capital flows, and careful monitoring of exchange rates. finally, let the international institutions play a supportive role through higher and more automatic access, subject to annual performance review. these institutions must also be made less ideological and less political with greater voice for all member countries rather than for a handful of industrial countries. [ i believe that what i have said is also in line with the “ middle way ” prescription of mervyn king and is capable of being built into the present architecture. ]