phenomena can be expected to have large – but not permanent – effects on prices of consumer goods. the most important determinant of inflation at the horizon the mpc is concerned with is domestically generated inflation. and measures of domestically generated inflation ( such as unit wage costs, chart 4 ) have stayed relatively stable during the period in which headline inflation was declining. but what is a little puzzling is that, given the growth of the economy in recent years and the associated decline in economic slack, measures of domestically generated inflation have not picked up as quickly as we would otherwise have expected. for example, although unemployment has moved more than three quarters of the way from its peak back towards what we might consider its equilibrium rate, unit wage cost growth is still just over one third of its pre - crisis rate. 2 there are a multitude of possible explanations for this. but one i put weight on is that, in light of six years of very weak wage growth, workers are not quite confident enough to demand the kinds of wage increases which would have been the norm in the years prior to the crisis. were the recovery in wage growth not to materialise and inflation to linger far below the 2 % target for longer than currently embodied in the mpc ’ s forecast, it would be a very undesirable outcome. it would prolong the headwind from deleveraging that i will come on to discuss, and potentially result in higher real interest rates than would otherwise be appropriate. and the mpc has underlined its commitment to avoiding such an outcome. 3 however, recent data have been more encouraging. and as workers become more confident over the coming years, i would expect wage growth to continue to pick up. there is already unit wage costs defined as whole economy awe relative to gdp per worker. latest value of 1. 1 %, compared to 2004 - 2007 average of 2. 9 %. http : / / www. bankofengland. co. uk / monetarypolicy / documents / pdf / cpiletter130515. pdf. bis central bankers ’ speeches anecdotal evidence that the tightening labour market has made recruitment and retention concerns a source of upward pressure on labour costs. so it is reasonable to expect that once a significant minority of firms has offered a return to pay growth that is more normal by historical standards, we can expect the majority to follow. 3. the balance of savings and investment intentions let me turn to the balance of savings and investment. although

by sub - industries, such as agricultural and animal husbandry, textile, light industry, machinery, and so on. they were in charge of import and export of their respective sub - industry and adopted different financial rules. there was no competition among the companies. in order to attract foreign investment, china introduced the first sino - foreign joint venture law in 1979, after which domestic companies competed from foreign companies and industry segmentation and monopolies began to fall apart. competition has driven the soes to make great progress. industries with more sufficient opening - up and fiercer competition have developed more rapidly. the manufacturing industry has flourished. 1 / 4 bis central bankers'speeches 2. opening - up has promoted domestic policy reform the opening - up has strongly impacted the traditional centrally planned policy making system, and triggered a series of major domestic reforms, including pricing system reform, value - added tax reform, export tax refund reform, market - based exchange rate regime reform, and negotiation for accession to gatt and wto. in the early 1980s, in order to attract foreign investment, the domestic policy system must move more closer toward the market rules and provide a level playing field. subsequent consideration was to make sure chinese enterprises compete fairly in the international market. fair competition and opening - up are inter - connected. it involves not only competition between chinese and foreign - funded companies, but also equal and adequate competition among chinese companies. opening - up accelerated the access of domestic private capital, and subsequently brought in the concept of national treatment. market access criteria should be the same for domestic and foreign - funded companies. the opening - up facilitated three major policy reforms, i. e., trade and investment liberalization, market - based exchange rate regime reform, easing of exchange control, including lowering the market access threshold. as a result, competition and market gradually became generally applicable policy mechanism. 3. service industry has opened up in a similar process in the past, economists treated the service industry as a non - tradable industry. however, with the rapid progress of information technology, transportation and globalization, many services became tradable. people began to say that “ the world is flat ”. the opening - up of the service industry in china followed a similar pattern of the manufacturing industry : opening - up brought in competition, boosted efficiency and quality of service, and facilitated domestic policy reform. in the industrial field, the market competition rules are not applicable to a very small number of industries such as defense industry,