foundation of the government administration council of the central people ’ s government in 1949, the pbc has been one of the council ’ s composing institutions and precisely practiced its functions in accordance with law. in 1982, the state council further emphasized that “ the people ’ s bank of china is the central bank of the people ’ s republic of china, and it is a government agency responsible for supervising the financial industry of the country under the leadership of the state council ”. in 1983, the state council decided that the pbc should exclusively perform the function of the central bank and specified its ten functions. in 1995, the law of the prc on the people ’ s bank of china was enacted, which confirmed the lawgranted status of the pbc as the central bank through state legislation. revised in 2003, the law further stipulated that “ as a composing department of the state council, the people ’ s bank of china is the central bank of the people ’ s republic of china, and serves as a regulatory department at macro level to formulate and implement monetary policies, maintain financial stability and provide financial services ”. firm actions shall be constantly taken to advance the opening - up of financial sector. it was through opening - up and a thorough study of the international standard of financial supervision and regulation, that we could have a realistic picture of how far we lagged behind, and we brought in better technology and management skills as well as competition mechanism. the mechanism especially contributes to improving corporate governance, reducing external administrative intervention, and promoting the reform of intermediary services such as accounting standard, transparency, credit rating, etc. the opening - up has also advanced the reforms in related fields at home. for instance, the inclusion of rmb in the sdr basket required china, as a reserve currency issuer, constantly to improve its macro policy framework, so as to boost the world ’ s confidence in rmb. safeguarding economic and financial stability shall be deemed as an important target at all times. a sound economic and financial environment is essential for the successful advancement of each financial reform. therefore, flexible and appropriate accommodation of macro regulation and adjustments, especially monetary policy, should be pursued in line with the changing economic landscape, and counter - cyclical regulation should be enhanced as well. in times of an overheated economy or asset bubbles, proper instruments should be used to achieve a “ controllable pressure - relieving ” and a “ soft landing ”, so as to secure a stable adjustment.

the housing sector. private payrolls have continued to contract, and the declines in employment, together with earlier increases in food and energy prices, have eroded the purchasing power of households. this sluggishness of real incomes, together with tighter credit and declining household wealth, is now showing through more clearly to consumer spending. indeed, since may, real consumer outlays have contracted significantly. meanwhile, in the business sector, worsening sales prospects and a heightened sense of uncertainty have begun to weigh more heavily on investment spending as well. the intensification of financial turmoil and the further impairment of the functioning of credit markets seem likely to increase the restraint on economic activity in the period ahead. even households with good credit histories are now facing difficulties obtaining mortgage loans or home equity lines of credit. banks are also reducing credit card limits, and denial rates on automobile loan applications reportedly are rising. businesses, too, are confronting diminished access to credit. for example, disruptions in the commercial paper market and tightening of bank lending standards have made it more difficult for businesses to obtain the working capital they need to meet everyday operating expenses such as payrolls and inventories. all told, economic activity is likely to be subdued during the remainder of this year and into next year. the heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth. to support growth and reduce the downside risks, continued efforts to stabilize the financial markets are essential. the federal reserve will continue to use the tools at its disposal to improve market functioning and liquidity. inflation has been elevated, reflecting the steep increases in the prices of oil, other commodities, and imports that occurred earlier this year, as well as some pass - through by firms to consumers of their higher costs of production. however, more recently, the prices of oil and other commodities, while remaining quite volatile, have fallen from their peaks, and prices of imports show signs of decelerating. in addition, expected inflation, as measured by consumer surveys and inflation - indexed treasury securities, has held steady or eased. these recent developments, together with economic activity that is likely to fall short of potential for a time, should lead to rates of inflation more consistent with price stability. still, the inflation outlook remains highly uncertain, in part because of the extraordinary volatility of commodity prices. we will need to continue to monitor price developments closely. overall, the combination of the incoming data and recent financial developments