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China's leaders consider economic reforms
This weekend China's president Xi Jinping is chairing a Communist Party meeting which many of his countrymen and women hope could mark a turning point for the world's second biggest economy.

More than 200 members of the elite Central Committee are considering financial reforms to open up China's highly regulated economy to more competition.

China's state-run media have talked up the potential for change. But many observers say any reform is likely to be slow.

China correspondent Huey Fern Tay reports from Beijing.
HUEY FERN TAY, REPORTER: Free-trade, it's not what China is known for.

But here in Shanghai, China's government has set up a special zone where businesses can in theory trade more freely.

According to those inside, the Shanghai free-trade zone is a hit among local businesses.

FU CHENGYU, FTZ STAFF MEMBER (translation): It's been busy every day since October the 1st. Our staff work really hard. They can't go home until all the registration and consulting services have been done. It's always between 6.30 and 7 O'clock.

HUEY FERN TAY: The Shanghai free-trade zone is one initiative that could change the course of China's economy. The zone was implemented well before the start of the Third Plenum, a grand annual event that has historically led to major economic policy changes.

Foreign investors are hoping specific policies, like the liberalisation of lending rules, will be announced during the meeting that begins this weekend. Some feel any change could be slow.

BO ZHUANG, TRUSTED SOURCES: My view is that this reform actually will happen but will happen very gradually, and most of the reforms will be selected reforms rather than great big bang, everything happens at once.

HUEY FERN TAY: In the past, these political meetings, which include more than 200 members of China's elite Central Committee, have marked economic turning points in the country's history. In 1978 and again in 1993, this meeting was used to announce major economic reform.

So what's likely to be on the agenda of the Third Plenum?

For those on the outside, the loosening of financial and fiscal systems, as well as the possibility of cutting the state's role in the economy could have a global impact.

Domestically, there's a long list of issues many reformers hope will be addressed, including land reform and maybe even changes to the household registration system, which would give migrants from other provinces greater rights.

BO ZHUANG: If the Chinese government allows land transferability of the rural land especially, that could actually change the way local government gets finance. China could slowly gradually get themselves out from the land financing trap.

HUEY FERN TAY: But there are many risks in reform. The world's second largest economy is in debt, and there are concerns about just how quickly that's growing.

BO ZHUANG: I think the biggest risk for China today actually is for China to open up capital account without reforming the domestic financial system. And also that today I think the Chinese banking system and also is so vulnerable with all these unknown levels of local government debt, unknown levels of the bad loans from the high corporate leverage in China. So China, before they clean up all these bad debts domestically, it's quite unlikely that China will be ready for this big bang, cross-border capital liberalisation.

HUEY FERN TAY: Additionally, the Global Financial Crisis highlighted the huge risks for an export led economy like China.

The US recovery is weak, as it is in the European Union, and both are key export destinations for China.

OLI REHN, EU MONETARY AFFAIRS COMMISSIONER: In Europe, overall growth turned positive in the second quarter of this year and confidence has been rising. However, the ongoing necessary process of adjustment and delivery will still continue to weigh on growth for some time.

HUEY FERN TAY: While expectations are high that the Third Plenum of 2013 may go down in history as another milestone in China's transformation, some international commentators have warned not to expect too much. All these key decisions will be made behind closed doors, and only a privileged few of Communist Party members here get the true understanding of just how serious China's leaders are in their drive for economic reform.
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