In the rural areas, incomes have stagnated, a major problem Chinese leaders have yet to address with much success. The strong national economy is putting a lid on a long-running speculation that China will devalue the ren min bi, or people's currency, because of a weak Japanese yen and other Asian currencies. The central bank holds it in a narrow band of about 8.3 to the U.S. dollar. China won't be able to hold this torrid pace for long when, and if, the economies of its trading partners turn negative. And sometime this year, the competitive position changes when China joins the World Trade Organization.
Membership means trade barriers come down and a flood of imports enters China.
That's going to knock foreign currency reserves hard. In fact, the central bank experimented a few times since the year began with a wider trading band for the ren min bi, perhaps preparing a way to cushion itself against trade shocks. To access Merrill Lynch research reports, click here , log in to your Merrill Lynch account and go to the Research section. Or you can sign up for Merrill Lynch's 30-day free research trial . The information in this Internet site is directed at, and is intended for distribution to, and use by, persons in the U.S. only.