as a payment and settlement service provider, supervisor and operator of a modern payment and settlement system, the pbc has made great efforts in guiding and promoting the modernization of china ’ s payment and settlement system. as an important component of financial infrastructures, the payment system demands the participation and cooperation of commercial banks and other financial institutions, despite their different roles in financial service in terms of establishment, development and operation. the mainland initiated the construction of payment system later than hong kong did. in mainland, computer network and communication infrastructures indispensable to financial infrastructure are at different levels due to regional economic imbalances, given china has a large population and wide territory. therefore, the mainland must consider various elements such as business, technology and regional economic situation when constructing financial infrastructure. currently, we focused on the construction of a payment system. the large value payment system has been extended nationwide in june 2005, and the layout of a modern payment system will be adjusted in accordance with technology advancement, the development of commercial banking business and data concentration level. the retail payment system is under construction and will be extended nationwide at end - june, 2006. at current stage, our priority is still on constructing a disaster back - up system, optimizing system functions and building a bill exchange system nationwide based on image technology. ii. closer economic and trade ties between the mainland and hong kong will provide much broader room for cooperation in financial infrastructure, especially the payment and settlement system. the mainland and hong kong have maintained good cooperation in economic and financial field for a long period of time. particularly, after hong kong returned to the motherland in 1997, the first important cooperation was to face with the asian financial turmoil. in recent years, with the increase in commercial, trade, investment and personal exchange between the mainland and hong kong, cooperation became much smoother. the launch of cepa not only produced zero tariff and facilitated commodity trade and transportation, but also promoted the fast development of service trade, such as the acceptance of professional certificates. cooperation in financial field between the mainland and hong kong has also achieved great progress in recent years. in november 2003, with the authorization of the state council, the pbc announced to provide settlement arrangement for personal rmb business of hong kong banks. many new financial instruments were introduced in 2004, such as the rmb bankcards with unionpay logo were accepted in hong kong from january 2004. in february 2004, participating banks in hong kong started to conduct rmb deposits, exchange

next three years, with a consequent boost in demand for uk exports of around 2 ½ %. lower oil prices will also boost uk domestic demand directly as households spend their windfall. our forecast conservatively assumes that they save 40 pence in every pound of that amount. on balance, there is likely upside risk to growth and inflation from this assumption. oil isn ’ t the only reason why inflation is low globally. measures of inflation that strip out volatile factors – so - called “ core ” inflation – have been trending down as well ( chart 6 ). core inflation rates in the euro area, the us and the uk have declined by between ¾ and 1 percentage points since 2012. core inflation in the uk, currently around 1. 4 %, is likely to decline further in the coming months, reflecting sterling ’ s past strength and muted domestic cost growth. the weakness in core inflation across the globe reflects the shortfall of global demand below global supply ( chart 7 ). 10 in some major economies there are additional disinflationary forces. for example, in the euro area, a series of necessary internal devaluations are weighing on wages and prices. in china, a rebalancing of investment and consumption risks generating further disinflation. the producer price inflation rate has been negative for 35 months in a row, reflecting longstanding overcapacity in industries such as concrete and steel, while the more recent weakness in the property market could further increase excess capacity in related sectors. all this suggests a persistent period of low inflation globally is a possibility, and as i mentioned a few moments ago, could itself create a self - fulfilling fear of a bad outcome. concerns that household or government debt will weigh on demand could cause firms to delay further their already weak investment spending ( chart 8 – see annex ). such rational corporate caution is consistent with the behaviour of many financial asset prices, which appear to be pricing the possibility of material downside tail risks, such as that economic weakness and persistently low global inflation become mutually reinforcing. 11 this fear of fear itself might be reflected in other asset prices too ; in particular those that measure or are influenced by inflation expectations. along with measures from household surveys, some of these have fallen in recent months. 12 those expectations matter as they feed into the wage and price setting processes that ultimately determine inflation. that is why central banks are keenly alert to the possibility that low inflation could de - anchor mediumterm inflation