have occurred in succession. each is caused by as yet unidentified mistakes. as mistakes are unavoidable, the key is to learn how to live with the instability or turbulences, and consequently draw lessons to improve the financial system. as a matter of fact, the financial authorities have introduced significant and substantive policy or institutional improvements after every crisis. by reviewing the above - mentioned turbulences in the u. s., we get a rough idea of how improvements have occurred. in the period of high inflation through 1970s and 80s, the role, independence and governance of the central bank were carefully studied. as a result, operations of the central bank made lots of improvements. we can read about these developments in the biography of paul volker and the autobiography of alan greenspan. after the black monday in 1987, it became known to the general public how the central bank used liquidity management in a flexible manner in response to the crisis that might otherwise spread quickly. after the s & l crisis between 1980 and early 1990s was resolved, the regulators carefully examined the potential moral hazard in the deposit insurance scheme. in 1991, the federal deposit insurance company improvement act was adopted to strengthen the supervision function of the fdic, establish an arrangement for prompt corrective actions and adopt differentiated premiums to mitigate adverse selection and moral hazards. after the long term capital management problem, the financial sector watched the leverage ratio of hedge funds more carefully and urged commercial institutions, commercial banks in particular, to strengthen internal control over the leverage ratio. with the burst of nasdaq bubbles, people began to get a taste of bubbles and their harms. in the aftermath of enron and worldcom scandals, sarbanes - oxley act was passed. though some may view a small number of its codes as over reaction, the act contains remarkable improvements in response to the problems of the listed companies. a lot of reflection has been seen in the recent turbulence triggered by subprime mortgage. as we usually say in china, there is a good chance of turning bad things into good ones. parsing china's experience looking back at china's economic and financial development since the period of opening up and reform, a similar picture emerges in which we could see financial distresses, big or small, always occurred. in 1985, china experienced a high inflation rate of 8. 8 percent. in the anti - inflation process, the decision - makers learned how to build a two - tier banking system. the blind optimism about the

will be slowed down if conflicts intensify. all in all, in the process of economic and social development, we have always made the harmony between the strength of reform, the speed of development and the endurance of the general public a top priority, and targeted a persistent improvement of the people ’ s living standard as the lock - point for handling relationship among the three factors. such a consensus has contributed to the mutually re - enforcement of reform, development and social stability. despite the outstanding achievements mentioned above, we should remain clear about the fact that china is still a developing country with large population. though large in absolute size, china ’ s gdp measured by per capita is still very low, with the 2003 figure just exceeding usd1000. myriads of problems, including slow growth of the farmers ’ income, pressures on employment and social security system, regional development disparity, widening gap of income distribution and degradation of environment etc., remain to be conquered on our way moving forward. since these problems emerge in the process of development, they must only be addressed in the process of development. ii. current economic situation and monetary policy in china for the time being, the chinese economy has broadly performed well. thanks to efforts of several years, we have overcome the deflationary effects developed since the end of the asian financial crisis and brought the economy back to the fast track. china ’ s gdp grew by 9. 1 percent in 2003, a total of 12. 99 million jobs were created, cpi rose by 1. 2 percent and trade volume expanded by 37. 1 percent. the fast economic growth momentum shows no signs of abating this year as gdp grew by 9. 8 percent in the first quarter, household income, business profits and fiscal revenues all witnessed large increase and foreign trade continued to grow strongly. however, in the process of accelerated economic development, some new problems such as over - investment and low - level duplicated constructions in certain sectors and regions as well as increasing bottlenecks seen in the supply of energy, transport and raw materials have also emerged. in the year of 2003, investment growth registered 26. 7 percent, with the investment in steel, cement and aluminum sectors doubled. entering 2004, the chinese economy continued to be plagued with over - investment in certain sectors and regions despite the overall health of its operation. fixed asset investment in the first quarter grew by 43 percent over the same period of last year, and investment in the steel, cement and aluminum sectors continued to grow