Chairman Bernard Dewit,

Distinguished Governor of Limburg,

Ladies and Gentlemen,

I am glad to be back in Belgium and among friends. While still in China in the middle of a working vacation, I was given a task to talk about China's economic situation and, in particular, the newly announced flexibility in China’s exchange rate system.

Frankly speaking, one of the things I enjoy doing best as China’s ambassador is to regularly meet Belgian friends in business groups such as yours who are following China with great interest and are always ready to work with us for stronger ties rain or shine. Let me solute you, Mr. Chairman, once again for all the efforts you and your BCECC colleagues have made in all these years to promote China-Belgium relations.

As said, I was in China on a working vacation. I went to Shanghai Expo twice. The first time was to accompany Prince Philips on the occasion of Belgian national day at the Expo. Another time was with my colleagues of diplomatic service during which I managed to visit more than 50 pavilions. I also visited other parts of China such as Qinghai where, as you remember, was struck by a deadly earthquake in April. I sat in some conferences and meetings which taught me a lot about the state of the country in various aspects. This experience, I think, allowed me to form some perspectives on the subjects of this event. I therefore welcome the opportunity to share some of my findings and views with you.

The first finding is that China's overall situation remains quite sound. Thanks to resolute and effective measures we adopted in response to a volatile financial and economic situation around the globe, China's economy continues to thrive. In the first half of 2010, China's GDP grew by 11.1%，export by some 40%, and domestic consumption turnover by 18%. The good news is that much of that growth was driven by market demand with consumer spending increasing substantially and the role played by government-led investment such as the stimulus package we saw last year shrinking from 86% last year to only 10% now. The government remains powerful, sticking to its role as macroeconomic planner and market regulator. The tightening of property sales in recent months to rein in price hikes is such a good example. Inside China, public discussion is dominated more by such topics as raising wages and salaries forth workforce, introducing universal health care and full coverage of social services, and changing laws to bring farmer-workers in their hundreds of millions into cities.

The World Expo in Shanghai needs a special mention here. With its theme "better city, better life", the Expo could not have come to China at a better time since, at the current pace of development, China will see in the next few years more than half of its population become urban dwellers. The people of China are learning through the Expo what they need to know about not only city living and modern living but also environment friendly living. Everyday in the past three months, an average of 380,000 visitors descended on the Expo's more than one hundred pavilions with a total tally of 34.85 million by the end of July. Whether it will eventually receive the targeted 70 or 80 million is no longer important, since it will surely go down as one the most popular and most talked-about World Expo in history.

The second finding is that our world is still full of perils. At home, this has been a year of extreme weathers and natural disasters and, unfortunately, a year of too many industrial accidents. Failed crops, decimated properties, human casualties that run into alarming numbers, just to mention a few. Internationally, the financial storm is but completely subsided. Economic recovery, though gaining ground, is hardly stable. The emergence of sovereign debt crisis in Europe keeps people nervous and fears of a double-dip recession are evident everywhere.

For China, the perils may come in three areas, an export downturn some time down the road, rising and widespread protectionism, and weakening competitiveness of Chinese products caused by RMB appreciation. The three, of course, are closely related.

With respect to the first, China's better-than-expected export performance was mainly due to unexpected inventory replenishment by China's trade partners and against an extremely poor showing this time last year. Some increases, however, were worrisome. Like certain steel products and coking coal went up 13 times and 5 times respectively. Such energy consuming and heavily polluting products, in my view, should not be exported any more. Many experts now agree that with higher prices of Chinese products and slower growth in China’s three largest export markets, China may not be able to maintain the current level of export but is likely to see a big drop in as early as the fourth quarter this year.

With respect to the second, trade complaints against Chinese products are at all-time high, and are no longer limited to toy, footwear, clothing and other traditional items. Most recently, some leading multinationals are loudly criticizing China on investment climate despite the fact that many of them have been star beneficiaries of China’s openness. Our minister of commerce rightly defended China's record in an article on the Financial Times. Here in Belgium, we also saw applications filed by companies and government for EU Commission anti-dumping and safeguard investigations on an electronic product manufactured by Chinese technology firms.

With respect to the third, since China launched its foreign exchange rate reform in July 2005, RMB has appreciated 22% against the US dollar. It has appreciated 15% against the Euro since the beginning of the year. With RMB appreciating smooch and so fast, China may risk losing an important trade advantage. Certain sectors of ours, such as textile, have a very thin profit margin. Another five percent appreciation may make them no longer viable economically. According to a study in China, if Euro depreciates by 1%，China's export to Europe will decrease by 0.7%. More terrifying will be lack of growth in Europe. As the same study reveals, if the European economy contracts by 1%，China's export to Europe will drop by 6%. You are China's No. one trade partner. We have a big stake in healthy and growing European economy. Despite numerous problems and difficulties, China is committed to a strong economic partnership with Europe.

Ladies and gentlemen, our world is far from extricating itself from the crisis triggered by Wall Street. The road to a full recovery is by no means smooth sailing, as more and even tougher challenges lie ahead. It is against this backdrop that China announced its decision on June 19 to go forward with its currency exchange rate reform. On the technical level, the movies no more than a continuation of the reform on RMB exchange rate forming mechanism launched in July 2005. As one of the world’s largest economies and a major country, China is entitled to an independent monetary policy of its own. And as a country that has embraced market economy and pursued market-oriented reforms for more than three decades, having a market-based, properly managed floating exchange rate regime is a natural and perhaps the best choice for China. China made its decision to go for full convertibility of RMB in 1993. It remains our goal. The Yuan has been convertible in the current account since 1996, and will in due course become convertible in capital account too. It may have taken longer for China to complete the transition because of its sheer size and complex circumstances, including financial crises now and then. What is more, since China is committed to internationalization of its currency, market-driven exchange rate and wider use of the currency are inevitable. It is not coincident that three days after the announced flexibility, more provinces and cities in China, swell as all countries and regions around the world, were added to the list of Cross-border RMB Trade Settlement Centers by China’s central bank. I am sure that we are going to hear a lot about RMB. I just hope that as the value of RMB goes up or down vis-à-vis other currencies, as does everyone else, many onus won't get as easily alarmed.

As is often said, Rome is not built in a day. China's reform needs time to mature and to realize its full potential. There rebound to be flaws and imperfections. When describing complex weather, the weatherman likes to use the word "mixed bag". In a way, China is just like that---you can find anything you love and maybe anything you don't. Some time ago when a university president addressed a commencement gathering in China, he said, "An Alma Mater is what you would curse eight times a day but you would not tolerate the smallest slight against her by others." His remarks brought tears and cheers from the graduating crowd. But I prefer to see well-meaning criticism in healthy discussions on issues that are contentious but important, because a lot more people can benefit from it.

Before concluding, let me just say a few words about China-Belgium relations. In the first five months of the year, bilateral trade went up by 42.9%. China's trade surplus was narrowed as Belgium's export to China increased faster. But Belgium’s investment in China came down by 11%. More Chinese investors are looking at Europe and traveling this way. The recent acquisition of Volvo by China's Geely was good news for autoworkers in Belgium. With a rising RMB, we may see more Chinese investment in Europe at least in theory. The European governments need to make sure that the investment environment inside their countries is good enough to attract Chinese firms of different sizes, different ownership backgrounds and different levels of technological sophistication.

For businessmen trying to succeed in China, I encourage them to look to China's west and regions where development is lacking. Having just returned from China, I can testify that the country has changed tremendously. But horizons for visionary and talented businessmen from Belgium and Europe remain broad. So, study the business environment carefully before taking the plunge. Be prepared to be surprised by how much you still don't know about China. And guard against complacency and taking Western stereotypes about China for granted. In about two months, two important business events will take place here in Belgium. The first, on 22 September, Tianjin will be featured in a business forum in Antwerp. The second, in early October, the China-Europe Business Summit will be held in Brussels where political and business leaders will address large crowd of Chinese and European businessmen. I invite your attention to these events.

Thank you very much and wish you all a pleasant summer.