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.

Fair trade in any type of land in China helps multi-national corporations that need new space to manufacture, warehouse, distribute or retail. One name that comes to mind right away is Wal-Mart as it plans 110 new stores in China in the next three years.

A new pension system would require fund management, meaning contracts for asset managers with close ties to China. A stronger safety net should also help healt hcare firms such as Roche ( RHHBY) and Novo Nordisk ( NVO) that have already gotten a foothold in China due to market liberalization and demand from an aging urban population.

3. Leaders may not stick it directly to the country's prominent state-run companies but may study deregulation that would check their power. They may examine whether to ease off electricity rate controls, ban lending to companies that face overcapacity and lower entry barriers for private firms in so-far protected sectors.

The topic of breaking up oil and banking monopolies may reach the plenary floor as well, but no drastic action is expected.

"The protections still being offered to the state sector give one reason to believe that the overall reform process will move slowly," according to London-based research firm, Capital Economics, in an Oct. 30 research note. "Nonetheless, there are a number of less-contentious reforms, mostly in the area of regulation, that could indirectly weaken state-owned enterprises and open up more space for private-sector competitors."

At the time of publication the author had no position in any of the stocks mentioned. 
Ralph Jennings is on LinkedIn. 
This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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