Yes we are. The sense that China is on a road which is very difficult to reverse is quite strong. The bureaucrats I mentioned who are of a very high calibre are quite clear not only in what they say professionally in espousal of the market economy, but they also clearly believe it themselves. So there is little evidence that there is any pressure against continuing reform now they have opened the doors to foreigners. On top of that, for nearly two decades the Chinese have benefited from the reforms, so they won't allow any drawback from them now.

From your perspective as a investment banker, which areas would you say need further reform as a priority?

I think the savings market, the banking market and the investment market are all areas where continuing reform is needed. There is only the most basic investment infrastructure available within China, and yet there are huge sums of money around in the cash economy which either sit in bank deposits or sit under the mattress. So harnessing those savings and creating an effective recycling and regeneration of cash investments is one of the keys, and that requires broadening the financial markets to make them more attractive to foreign investors, so there's a good market mechanism by which people can spread their risk and liquidate and invest as they see fit individually. With that comes the risk of less ability to control the market, which is what always causes the Chinese concern.

In mutual funds, again there is not really a sensible structure, certainly not a robust structure for managing investment for individuals. Given the large amounts of money around, that's obviously an absolute key to channelling the money more effectively into the economy.

I think in terms of the law, more transparency in certain areas of the legal framework would be useful, more codification of laws which is certainly going on all the time, but one can only encourage it to continue and not to slow down. Because a transparent and readily understood logical legal system is the bedrock of a market economy.

Physical infrastructure is another key issue. Large amounts of money have been spent and need to be spent in the future on developing infrastructure, to help distribution, improve the velocity of the economy, and so on.

Clearly we want a continuation of the stable political environment, which is the balancing act which the Chinese have to achieve. To ensure that the wealth of the country develops a broader base so that, for example, you move away the concentration of wealth from the special economic zones in the East more into the West. The Chinese are very alert to this and anxious to promote investment further West in the country, for example in Sichuan. Evidence of their keenness to do this is in making Chongqing a city state on its own standing on a level with Shanghai and Beijing.

Why is Flemings spending money on training for Chinese officials?

The main purpose of doing this is we feel we've got, in a humble way, a role to play in the actual process of developing training in response to the very laudable intentions of the Chinese to broaden the experience and professionalism of their employees within various organisations. We also want to make sure that the Chinese officials understand the international practice is very important for doing business in China.

Clearly it also helps to form closer bonds between us and individuals. I think we're particularly keen to do that in China because of the cultural differences I mentioned earlier. The more we can contribute to broadening the education base of, albeit, a very small number of Chinese and create a better aura of understanding between us, the more beneficial it will be for all us.

Does the unusually high proportion of bad loans in the Chinese banking system raise the threat of a financial crisis?

I think the concerns lie within China's ability to manage the very significant problem of the bankrupt state enterprises. That will require a great deal of management. It will require continuing confidence in the Chinese ability and will to continue modernising. Inevitably there will be some uncomfortable moments because of the strains put on the banking systems and the demands made on the population in terms of 'sacrifice'.

What from Fleming's perspective are the biggest problems threatening business in China?

A key indication we are looking for in the next two years will be the pace of reform with state-owned enterprises (SOEs). If that process slows and puts a further drag on the economy because profits are still being absorbed and losses are still being made within the SOEs to the extent that it is having an impact on the economy, then that would obviously be a great cause for concern.

Returning to your previous question, there's also the bank debt issue, where the SOEs owe each other substantial sums of money and the bank has no real hope of getting the money back in the short term. If that were to spiral out of control then we would be very concerned.

And clearly any indications of a reversal of the Government's policy favouring investment and foreigners would have a severe effect on confidence. You can corroborate that by looking at the case of India where confidence has ebbed and flowed quite significantly with political fluctuations. The democratic system is of course more susceptible to political changes than a more centrally controlled body politic like China. I think we would be concerned if there was evidence that that was going to occur in China.