BEIJING: The Communist Party sees its signal achievement over the past 30 years as having put China on the road to a free-market economy while retaining a monopoly on political power.

Now, scholars say, the Communists need to give up some of that power if they are to accelerate economic change and underpin the fast growth that confers legitimacy on the party.

Intriguingly, the annual meeting of the National Peoples Congress, the rubber-stamp Parliament, which opens Wednesday, has been preceded by frank acknowledgements from within the party of the need to deepen “political system reform.”

“The backwardness of the political system is affecting economic development,” says a report by the Central Party School, a training ground for top cadres.

The proposed changes are best described by what they do not seek to achieve.

“The objective of political system reform should not be adopting the model of universal elections, a multiparty system and freedom of the press,” the authors say.

Rather, the aim should be to adopt a model that is “appropriately centralized and moving toward a market economy.”

It all sounds vague. But even if reform means no more than introducing some checks and balances along with greater transparency and accountability, the impact on economic policies could be far-reaching.

Certainly, the reforms that economists identify as priorities for the intake of policy makers who will be confirmed in their jobs by the Congress can be seen as primarily political, not technical, in nature.

Having an independent central bank set interest rates, allowing the yuan to trade freely, permitting Chinese to invest overseas and letting markets decide who can borrow money or float equity would all strip power, now often exercised arbitrarily, from bureaucrats and party officials.

One of the hot issues that best illustrates the link between political and economic reform is rural land rights. Farmers lease their land for 30 years, but they do not own it. This means that they cannot pledge it as collateral, which discourages them from making the investments needed to increase efficiency.

What is more, unscrupulous local officials, often colluding with developers, find it easy to expropriate land for urbanization. Peasants get minimal compensation.

The collective ownership of land, enshrined in the Constitution, is a basic tenet of Chinese Communism and officials have repeatedly ruled out privatization. But with thousands of protests against land grabs breaking out every year, there is a growing recognition of the need to give farmers greater security.

Ding Xueliang, a scholar who works for the Carnegie Endowment for International Peace in Beijing, has been invited to advise officials in Chongqing and Chengdu on trial programs to encourage harmonized urban and rural development.

“One of the key issues is granting more property rights to farmers, including the possibility of allowing farmers to expand trade in land rights,” Ding said. “I wouldnt say its clear-cut land privatization, but it seems to be moving in that direction.”

A rural policy document issued last month shows that the authorities finally mean business about assuring farmers of their land rights, said Li Ping, who heads the Beijing office of the Rural Development Institute, which is based in Seattle. “When individuals have secure property rights,” Li said, “they will also want some kind of political voice to secure what they have.”

Plans to build a petrochemical plant in Xiamen, for example, led to protests last June by homeowners worried that the environmental risks would reduce the value of their homes. The plant is now on hold.

Seeking a political accommodation in such cases, rather than treating objectors as subversives, would be positive for Chinas long-term economic prospects by building a consensus around what are the acceptable costs of development.

Pushing through policies that weaken the power of local officials is bound to run into opposition. But better governance and greater transparency should not necessarily threaten Communist primacy.

“What were talking about is completing reform,” said Richard Herd, a China expert at the Organization for Economic Cooperation and Development. “It makes control more difficult, but I dont think these reforms are going to undermine the political power of the party.”

TOKYO: $290 million loss on deal

The Japanese consumer lender, Takefuji, said it might lose as much as 30 billion, or $290 million, on a structured finance deal arranged by Merrill Lynch, making it the first money lender in the country to be hit by the global credit crisis.

Takefuji, already hurt by stricter consumer finance laws, said the loss on the deal might force it to reduce its full-year earnings forecast for a second time. Shares of the firm tumbled 6.57 percent to 2,490.

“This is not a company I would want to invest in now,” said Shigemi Nonaka, a special adviser at Polestar Investment Management.

Fallout from the U.S. mortgage market collapse spread to the consumer finance industry for the first time after eroding earnings at the nations largest banks, brokerages and insurers. Global financial companies may have losses of at least $600 billion related to U.S. subprime mortgages, UBS estimates.

“Its a surprise to learn that a consumer finance company, which can get a high return just by lending money, bothered to invest in such securities,” said Fumiyuki Nakanishi, an equity strategist at Sumitomo Mitsui Financial Group in Tokyo. “The fallout from the subprime problem is like a black box.”

Takefuji removed 30 billion of 20-year bonds, carrying a coupon rate of 4 percent, from its balance sheet through transactions set up last May by Merrill Lynch Japan Securities. The consumer lender initially estimated the deal could save it as much as 1.2 billion a year in interest expenses until 2022, when the bond was due to mature.

Tsukasa Noda, a Tokyo-based spokesman at Merrill, declined to comment.

Japans consumer lenders have cut costs and tightened lending standards to revive earnings after a government crackdown on industry practices led to multibillion-dollar losses last year. Takefujis biggest rivals - Acom, Promise and Aiful - said they had no similar losses.

After telling Takefuji in January that there were “no problems” associated with the securities, Merrill Lynch told the company last month that they were “rapidly losing value,” said Kentaro Itai, a Takefuji spokesman. Takefuji will revise its earnings forecast within a week or two, Itai said. The company has lowered its profit forecast for the year ending March 31 by 19 percent, citing bad loans and falling interest income.

Japanese financial firms booked 600 billion of losses on subprime-related investments in the nine months ended Dec. 31, more than double the figure compiled three months earlier, the Financial Services Agency said last month.

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ROPER INDUSTRIES, () a diversified manufacturer, lifted Q2 EPS 25% to 66 cents, topping views by a penny. Sales grew 25% to $531 mil. It edged up.