Nov. 18 (Bloomberg) -- Japanese Prime Minister Yasuo Fukuda said China's military buildup would pose a future threat if the Chinese government decides to exercise its potential power.

``I believe their military capability today is not really that great, but if at the current pace they continue to build up their military, then in the future they could become a major threat,'' he said in a recorded interview on CNN's ``Late Edition'' program.

Fukuda, 71, said China didn't appear to have aggressive intentions, saying the issue ``is not whether you have a capability; whether the country has the will to use it, that's the crux of the matter,'' he said. ``I am quite optimistic about that'' in the case of China, he said.

Fukuda, who met with U.S. President George W. Bush in Washington Nov. 16 on his first overseas trip since taking office in September, also said that the U.S. housing slump so far hasn't had ``a major impact on the Japanese economy.'' Fukuda said that Bush ``feels that it can be resolved, although it may have a lingering effect.''

``I believe at the end of the day this problem will disappear. I hope,'' Fukuda said, according to the transcript. ``We certainly have to watch very carefully and we hope that the United States will manage its kind of policy correctly.''

North Korea

Fukuda said North Korea would have difficulty surviving as an independent country unless it gives up nuclear weapons and frees its economy.

``I don't think they can really become truly independent with their current stance as a very closed, hermit country. The people will be very unhappy, miserable,'' Fukuda said. ``The way they are, their country will sort of taper off and perhaps at the end of the day will disappear.''

The Japanese prime minister defended Japan's contribution to global security, saying that the country's prohibition on the use of military force did not prevent it from playing a constructive role by, for example, providing humanitarian assistance and reconstruction help in Iraq.

``Conflicts are not just a matter of fighting war, they are also a matter of reconstruction, improvement in welfare,'' Fukuda said. ``We would like to consider various ways of supporting U.S. activities.''

U.S. Defense Secretary Robert Gates, in a speech earlier this month at Tokyo's Sophia University, challenged Japan to step up its participation in international security efforts, including peacekeeping operations, as well as reconstruction and humanitarian relief efforts.

To contact the reporter on this story: Christopher Swann in Washington at Cswann1@bloomberg.net.

Last Updated: November 18, 2007 12:13 EST