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China Watch: An Open Door Policy? 3 Things to Watch Saturday

TAIPEI ( TheStreet) -- China is writing another self-criticism this month. Beset by the state's unwieldy role in enterprise and tough conditions for private business, despite 15-plus years of liberalization, top leaders in the ruling Communist Party will meet tomorrow to discuss what's next.

Their event, a Party plenary session, is expected to lay groundwork for a chain of pro-private business policies such as deregulation and new social security systems.

China's Communists hardly release plenum agendas to the public, but according to Chinese media and economists in Asia we should expect ground to be broken here:

1. Signals that emerge from the plenum will point to an eventual thinning of local government power, state-run China Daily indicates in an Aug. 28 report.

Leaders of provinces downward are used to stuffing their own companies into the endless pipeline of new projects -- pushing out private peers without proper bribes or connections. (When a suspicious fire code inspector suddenly visits your surprisingly successful upstart private company but no one else on the block, you can smell the smoke and mirrors.)

If this reformist mission translates into action -- tough because Beijing infamously lacks control over its fiefdoms -- the likes of Bombardier could win more mass transit projects while procurement deals might fall to someone such as Fuji Xerox, a joint venture between Xerox (XRX) and FujiFilm.

Local officials would switch more to providing public services, the proverbial parks and libraries, per the demands of an increasingly restless public. Those who don't go along may be busted for corruption as the plenum makes another run at that stubborn problem.

2. More broadly, the plenum may propose "restricting the government's unnecessary involvement in the market economy," China Daily says, quoting a professor from the Party School of the Communist leadership's Central Committee.

That reduction in the already heavily eroded command economy will allow land to be sold at market value and introduce a "social pension system with universal coverage," Credit Suisse says in an Oct. 28 economics research report. It would also add taxes on consumption and property while redistributing tax revenue, according to the report.
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