China's Challenge: How To Keep Economic Boom Alive The country's economy is at a turning point, and its leaders are gathering this weekend to decide how to steer a future course. For the world's second-largest economy, much hangs in the balance, including hopes for economic reforms. In the past, such gatherings have been game changers.
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China's Challenge: How To Keep Economic Boom Alive

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China's Challenge: How To Keep Economic Boom Alive

China's Challenge: How To Keep Economic Boom Alive

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It's MORNING EDITION from NPR News. Good morning. I'm Renee Montagne.


And I'm David Greene. How do you keep a three decade long economic boom alive? That's the question China's leaders face at a meeting that opens tomorrow in Beijing. It's the most important of its kind in years. For the world's second-largest economy, a lot is hangin in the balance. NPR's Frank Langfitt explains.

FRANK LANGFITT, BYLINE: The meeting has one of those soporific, Communist Party names: The Third Plenary Session of the 18th CPC Central Committee. But in the past, meetings like this have been game-changers.


DENG XIAOPING: (foreign language spoken)

LANGFITT: Take the one in 1978. When Deng Xiaoping officially shut the door on the chaotic Mao era.

BARRY NAUGHTON: They said the focus of our policy efforts should shift from political struggle to economic construction.

LANGFITT: Barry Naughton is a professor who studies China's economy at the University of California, San Diego.

NAUGHTON: And that was so fundamental that it was used to drive just a range of policy across the board.

LANGFITT: And set the stage for China's transformation from a totalitarian, basket case to economic powerhouse.

NAUGHTON: The question is whether policy makers meeting today, can muster the same kind of resolve and the same kind of willingness to overcome interest groups in the way that made sense 35 years ago. If they don't deliver on economic reform, I think they basically lose credibility to a very substantial degree.

LANGFITT: China's economy is at a turning point. The old model - low-wage labor, cheap exports and heavy investment in things like roads - is running out of steam. To keep growth on track, the country's leaders say the economy must become more efficient and rely more on Chinese people buying Chinese products and services.

ANDY ROTHMAN: I'm Andy Rothman, the China economist for the brokerage firm, CLSA.

LANGFITT: Rothman says one way to do that is to change the country's restrictive residency system that denies urban rights to rural migrants. Reform would allow migrants - who built China's modern cities - to live in them, permanently. They would enjoy government benefits and more security. And probably be more willing to spend money and drive the economy. On this reform, Rothman's pretty optimistic.

ROTHMAN: Next year, they'll start rolling out, gradually, a program to end the legalized discrimination against the migrant workers. This means treating them the same as people with an urban residence permit in terms of things like health care and education.

LANGFITT: Why haven't they been treated the same?

ROTHMAN: It's just a lot of money. And also there are vested interests at play. If you talk to people here in Shanghai and ask them do you think it's fair to discriminate against these migrant workers, they'll say of course not. But then when you remind them this might increase competition for school spaces, well, they get little bit nervous about that.

LANGFITT: In fact, the reason it's so hard to push reform here is there are now so many powerful, vested interests against it. Take China's giant, state-owned enterprises, which everyone here just calls SOEs for short.

GARY LIU: The SOEs, they are monopolies in many industries and it is a big obstacle to innovation and fair competition.

LANGFITT: Gary Liu helps run a financial think tank at the China Europe International Business School in Shanghai. He says reducing the power of state-owned enterprises in the lucrative sectors they dominate - such as telecoms and energy - is tough, because so many people benefit from the current set-up.

LIU: The government officials, they find SOEs are a very convenient tool to make money for themselves, for their good friends and for their family-members. So, if you want to change that it is a big test for the political will of the leaders. So, my expectation for SOE reform is not very high.

LANGFITT: Liu says failure to reform SOEs will disappoint many Chinese people, who often complain that SOE officials and employees enjoy high wages and overly-generous benefits because of their government-granted monopolies.

LIU: We all know that Chinese people - despite quick economic growth - we do not feel happy. Why? Because we don't feel fair. And SOEs are one key source of unfairness.

LANGFITT: At the end of the four-day plenary session, economists expect China's leaders to release a vaguely-worded report, which will call for broad economic reform, but within limits. After that, the Communist Party faces an even bigger challenge: Implementing its decisions. Frank Langfitt, NPR News, Shanghai.

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