Updated at 11:11 a.m. ET: BEIJING — While Americans celebrate the power of the ballot with the re-election of President Barack Obama, China's ruling Communist Party on Thursday launched a tightly orchestrated gathering in Beijing for a transition of power to a new generation of leaders amid tough challenges.

To the applause of some 2,000 party officials from across the country, outgoing Party leader President Hu Jintao, 70, reaffirmed in a lengthy speech the party's right to govern, with a ringing endorsement of the achievements during his 10 years in office.

In that span of time, China's economy quadrupled in size, leapfrogging to No. 2 from No. 5 in global economic ranking, and amassing the strategic global clout that the country wields today.

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Over 2,000 journalists were invited to the 18th Communist Party Congress inside the cavernous Great Hall of the People near Tiananmen Square.

The week-long event is expected to culminate in the election of Xi Jinping, 59, as China's next top party leader. And when China's parliament convenes early next year, Xi is expected to be named China's president, acquiring by then the full authority with which he will co-manage with Obama the delicate course of Chinese-American relation.

A reforming party
The striking contrast between the Chinese and American models of governance, which were playing out at the same time, was certainly not lost to the media handlers of the Chinese party congress.

Embassy ballots give Chinese a glimpse of democracy ahead of power transfer

In a pre-congress media event, NBC News posed the issue of whether China will eventually adopt democratic reform and popular elections.

''The leading position of the Chinese Communist Party is a historic choice, a people's choice,'' responded Cai Mingzhao, the congress spokesman, dismissing any prospect of multiparty politics.

Hu's swan song Thursday reinforced China's path of gradual reform, which prizes harmony and stability in times of rapid change. Still, China observers concede that a smooth party congress will mark only the second peaceful transfer of power in Communist China's otherwise tumultuous history.

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Before the 2002 change of leadership from then-president Jiang Zemin to Hu Jintao, all succession plans involving the designated heirs of Chairman Mao and even Deng Xiaoping ended up in bloody and tragic power struggles.

China's leadership transition is also seen as a vindication of China's reform that sets an age limit on top leaders, a practice not yet adopted by other modern nations, according to scholars.

The Hu-Wen legacy
Despite China's enormous gains in the past 10 years, the jury is out on the legacy of Hu and his close political partner, Premier Wen Jiabao.

''They have laid the foundations of a meaningful social safety net, in terms of health insurance, retirement pensions, unemployment benefits, and more recently subsidized housing while keeping a rather high economic growth rate,'' said Jean-Pierre Cabestan, a professor of government and prominent China scholar at the Hong Kong Baptist University.

''But 'lay the foundations' is important because a lot remains to be done in terms of reimbursements and coverage,'' Cabestan told NBC News.

''Hu has introduced a series of very important concepts such as scientific concept of development, harmonious society, and pro-people approach but has yet to implement them,'' said Bo Zhiyue, expert on China's elite politics at the National University of Singapore.

Chinese say one child is enough as Beijing weighs end of policy

Premier Wen represents the ''human face'' of the Chinese communist leadership, according to Li Cheng, a top China scholar of the Brookings Institution.

''Some critics may doubt the sincerity of Wen's human face, but it was effective among a vast number of farmers and migrant workers in the country, especially for groups like AIDS orphans, coal-miners and families of earthquake victims,'' Cheng said in an earlier email interview.

''Liberal intellectuals in the country consider Wen as the most important political ally, especially for Wen's long-standing argument for universal values of democracy,'' he added.

However, recent reports of corruption involving family members and a protege seem to have tarnished both Wen and Hu, with Wen reportedly urging an investigation into alleged hidden family fortunes to clear his name.

The challenges of Xi Jinping
China's new leadership to be announced next week promises to be ''the most diversified generation of leaders,'' Cheng said.

''This diversity can be found in the leader's educational backgrounds, in their career paths, in their policies and world views,'' he further said.

Read more China coverage on NBC's Behind The Wall

And for Xi Jinping, who will head this leadership, maintaining ''delicate balance on several fronts'' will be the key challenge.

''How to crack down on the vested interest groups of state-owned companies but not undermine the national competitiveness and lose the support of this key power base of the party? How to be seen as the top leader who places China's national interests above anything else but at the same time maintain a good personal relationship with the United States? How to satisfy the bureaucratic interests of the military but avoid a military conflict in South China Sea, East China Sea or elsewhere? How to pursue some bold political reforms but not lose control?'' are the tough choices, according to Cheng.

''Anti-corruption, clarifying the division of labor between the party and the government, and establishing the rule of law'' are the top challenges, according to Zhiyue.

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Cabestan however cited ''regime legitimacy after the avalanche of corruption scandals'' as a major issue.

Xi has to deal with a ''plutocratic bureaucratic elite increasingly entrenched in its vested interests.''

''He will need to reform in order to consolidate and save the regime but at the same time he will have to overcome huge obstacles and hurdles to succeed. A kind of mission impossible,'' Cabestan warned.

NBC Researchers Johanna Armstrong and Liu Yanzhou contributed to this report. 

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BEIJING -- Change in North Korea, and its potential impact on American interests in the Asia-Pacific, is likely to be on the agenda when US Secretary of State Hillary Clinton meets Chinese leaders next month on her region-wide tour.

Is the hermit kingdom, with its nuclear weapons program and a “military-first policy” that prioritizes its 1.2 million-strong army, capable of social reform?

Or is the latest staged-managed imagery from Pyongyang—of a Swiss-educated young leader displaying a stylish wife, giving thumbs up to pop music and promising that the belt-tightening days are over—a sign of a new beginning for the impoverished and isolated nation?

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The buzz about North Korea’s tantalizing hints of change has gained currency with the recent visit to China of Jang Song Thaek, the powerful uncle of the new North Korean leader Kim Jung Un, followed by reports that Kim himself is seeking to visit China next month.

China vowed greater support and investment in North Korea’s languishing China-style special economic zones, and urged Pyongyang to let “market” principles guide its moribund economy.

But while signs are pointing to change in Pyongyang, North Korean propaganda was denouncing as “hallucination” any talk of reform, denying that the new leadership is breaking with the past.

Authoritarian dictatorship
As a neighbor and ally, China is sensitive to any shift in Pyongyang’s policy directions that could impact China’s interests.  While Beijing provides Pyongyang with massive aid to prevent regime collapse that could cause regional instability, China is opposed to North Korea’s nuclear ambitions.

“I think it’s not possible for Pyongyang to sacrifice its military-first and nuclear arms policies, and that in turn will limit all possibilities for reform,” observed Zhang Liangui, China’s top scholar on North Korea who graduated from Kim Il Sung University in Pyongyang.

“I am not optimistic about reform because Kim Jun Un alone cannot decide, it will be decided by North Korea’s political system which prioritizes the army,” said Zhang, a professor of international strategic research at China’s central school for training communist party officials.

“There is low probability of significant change,” said Daniel Pinkston, Seoul-based senior analyst of the International Crisis Group.

North Korea’s system is “structurally set up as an authoritarian dictatorship…as long as the Kim family is in power it will be extraordinarily difficult to renounce the legacy of his father and grandfather,” Pinkston told NBC News, explaining his group’s latest report analyzing the barriers to reform in North Korea’s militarized society.

Preventing a Gadhafi-like fate
“As long as the Kim family regime is in power, they will not surrender nuclear weapons.  But I do not see why this is an obstacle for reforms,” argued Andrei Lankov, a Seoul-based Russian scholar on North Korea who also attended Kim Il Sung University.

“They will keep their nuclear devices, five or ten of them, for the deterrence purposes, just to make sure that they will not suffer the sorry state of Colonel [Moammar] Gadhaf i—while reforming the country if they consider that reform suit their interest,” he told NBC News.

Lankov noted, however, the “destabilizing” effects of reform. ”Sadly, the conservatives might be correct and I will not be surprised if the reforms will bring about a sudden collapse of the North Korean state,” he said, alluding to the examples of East Germany and Tunisia.

“It is still possible to take steps toward the market without giving up the nuclear program, though you would have to limit military spending,” according to Daniel Sneider, associate director for research at the Asia-Pacific Research Center at Stanford University.

But for Sneider, one issue is the challenge posed to Pyongyang’s legitimacy by South Korea. North Korea used to be more prosperous than the South due to pampering by China and the former Soviet Union during the Cold War.  But now, the North’s economy is barely three percent of the South’s, with half the population. The majority of North Koreans suffer from food shortages, according to UN reports.

“In the South, there is a wonderful example of a highly successful Korean market economy—the North claims to be morally superior and a purer Korean state, unpolluted by Western capitalism.  If they go down the road of market reform, that undermines a central plank of North Korean ideology,” Sneider said.

“The path of reform will be chosen by North Korea but China will certainly provide help,” said Lu Chao, director of North Korea Studies at the Academy of Social Sciences in Liaoning province, which shares a long border with North Korea.

Limited risk
Lu, who frequently meets with North Korean officials and businessmen from across the border, detects Pyongyang’s new focus on the economy.

“Kim Jung Un is focused on improving the quality of life, this can be seen in his visits to parks and artistic performances, in contrast with his father who prioritized the military,” Lu told NBC News.

“Some reforms are going on in the country, especially in agriculture,” he added, noting that farming reforms will pose “limited risks” to the regime.

For the International Crisis Group’s Pinkston, US policy should remain “deterrence and containment while being observant”.  

“The US should monitor, bilaterally and multilaterally, the situation in North Korea, maintain a strong deterrence and containment posture, but be willing, when the opportunity presents itself,  to engage North Korea if it changes its policy directions,” Pinkston said.

Clinton is scheduled to visit China Sept 4-5, before becoming the highest-ranking US official to visit East Timor, which gained independence from Indonesia in 2002.

She will later visit the Asia-Pacific Economic Cooperation forum in Vladivostok, eastern Russia.

NBC researchers Tianzhou Ye and Lorraine Liu contributed to this report. 

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SHANGHAI, China -- It can take two or three hours to drive from bustling Shanghai to the sleepy streets of Thames Town, a new housing development built in the style of an English village complete with quaint pubs, red telephone boxes and statues of Harry Potter and James Bond. There's even an Anglican Church, though not a functioning one.

All that's missing are the people.

Thames Town was completed in 2006, cost a billion dollars to build, and was designed as home for 10,000 people. But shops and restaurants are boarded up, their doors chained.

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Thames Town is one of the more bizarre examples of the madness of a construction frenzy and real estate bubble that has left the country with an estimated sixty four million empty homes. It was fuelled by easy money and rapidly rising prices.

Some economists see it as the biggest property bubble of all time - entire ghost cities built on speculation.

China reports slowest growth rate in 3 years

"Empty roads, empty buildings, empty neighborhoods, empty cities - all over China," says Gillem Tulloch, Managing Director of Forensic Asia, who has traced the spread of the ghosts using Google Earth.

When I last visited his Hong Kong office, we sat in front of a big computer screen on which he zoomed in on city after city, row upon row of empty apartment blocks, lining deserted roads. All have what look like government buildings, museums and universities - the amenities of modern cities, but few cars or people to be seen.

By China's own estimate, there are twenty new cities being built each year. One recent housing development was designed to look like a village in Austria.

And it isn't just homes that lie empty: In the southern city of Dongguan, the New South China Mall, once touted as the world's largest, has been ninety nine per cent empty since it opened in in 2005 – although gondolas are still at hand to offer visitors a cruise down its Venetian-style canals.

More recently, property prices have started to fall after the government took belated measures to end speculation. In some places, construction has slowed or ground to a halt. Construction equipment companies are struggling and there are reports of construction workers being laid off.

The problem for the Chinese government is that construction is a major component of GDP. Wasteful and mad though it may seem to outsiders, it has helped pump up growth figures, particularly after the 2008 financial crises, when the Chinese government injected into the economy a stimulus worth nearly US$700 billion. Much of that money went straight to those ghost towns.

Local government has come to rely on rising land prices for its funding, and local authorities have run up huge property-related debts. Nobody quite knows how exposed China's banks might be.

This is the background against which today's GDP figures should be seen. A lot of economists think the figures are pretty dodgy, and don't properly reflect the reality on the ground, but it’s still a significant slowdown by Chinese standards. And it poses a big dilemma for the government.

More savvy ministers know that property represents a dangerous bubble, and wants prices to fall further. They also know that the Chinese economy needs changing - re-balancing in economist-speak - away from wasteful construction projects and exports and today's domestic demand. That will also do a big favor to the world economy.

But with growth dipping below the psychologically important eight per cent level, and the communist party credibility on the line, there'll be a real temptation to open the financial taps again to boost the growth figures. The main impact of that will be to keep Gillen Tulloch busy as he looks at yet more ghost towns, delaying the day of reckoning for China’s economy.

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BEIJING – China's economy grew at its weakest pace in three years, the government reported Friday.

According to the National Bureau of Statistics, Gross Domestic Product grew at a 7.6 percent rate in the second quarter of 2012, down from a 8.1 percent pace in the first quarter and marking the sixth consecutive quarter of slowing growth on the mainland dating back to 2009.

The data were in line with official government projections for the quarter although they serve as another reminder that China's economy is slowing faster than the government had hoped.  

China is under enormous pressure from abroad and at home to maintain steady economic growth. Amid worrying economic numbers out of the European Union and the United States, China is increasingly viewed as one of the few motors strong enough to power the global economy through this financial turmoil.

Meanwhile, here on the mainland, the ruling Communist Party has seemingly staked its legitimacy to an unspoken pact with its citizens: give up some social freedoms for continued economic prosperity.

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“For the past 30 years, the Communist party derived a lot of its legitimacy from delivering the goods: better economy, better living standards,” says Patrick Chovanec, a professor of economics at Tsinghua University in Beijing, “If the perception is that's changed, then it introduces a real element of uncertainty.”

 

This relationship was probably best manifested at the end of 2008 when global trade ground to a halt and the country hemorrhaged nearly 20 million jobs. Beijing responded with a 4 trillion yuan ($635 billion) stimulus program that opened up lending from Chinese state banks.

The move helped kick off growth across the country as local governments went on a construction frenzy from new ports and airports to ambitious housing developments.

Internal problems
But the free-wheeling loan binge – often to state-owned enterprises with opaque accounting practices – may have helped foster the environment for today’s economic slowdown by providing a potential crush of bad loans that might very well brutalize the economy.  

“In 2008, the big problem was external, a slowdown in exports.”Chovanec told NBC News, “This year the problem is internal. It's bad debt, and the burden the bad debt is placing on the economy.”

With the government having to prepare to potentially step in and fill the holes in the national balance caused by bad debt, there is simply less money available in Beijing’s coffers to propel the economy out of its current doldrums.
 
“In many ways, they've pinned themselves to a corner,” says Chovanec, “They had this big stimulus over the past three years that kept China's GDP growth higher compared to the rest of the world, in the face of the global slowdown… But that caused twin problems of rising inflation and bad debt.”

“Particularly with bad debt right now - that problem's coming home.”

Believe the numbers
In addition, although the GDP shows a growth rate that would be the envy of any developed economy right now, there is growing cynicism over the veracity of the official economic figures being released by Beijing.
 
“There's a lot more skepticism today about Chinese official numbers, and I think it's reflective of the fact that you've got a very clear and very serious slowdown taking place in China,” says Chovanec, who noted that while figures show extraordinary high rates of private sector investment and profit gains this year, the numbers simply don’t jibe with what he’s seen in the field.

Nowhere is this disconnect more apparent than in China’s housing and construction industry.

A mere 75 miles away from Beijing resides the foundations for one of the grand-scale property developments that have been the hallmark of the boom times here in China. Conceived in 2004, Jing Jin City derived its name from the ambitions of its developers who envisioned constructing a city between the capital Beijing and the important nearby port town of Tianjin that would attract rich investors with business in both cities.

Touted by the developers as the biggest villa development in China, Jing Jin City was a $3 billion investment designed to eventually become home for half a million people. Really a satellite city of Tianjin, the city government there had aspirations of Jing Jin eventually becoming a new Manhattan.

However, as credit has dried up and speculators have now shown reluctance to sink money into risk property developments, Jing Jin City is effectively a ghost town, a surreal mixture of luxury homes that would look natural in any tony suburb in the United States and the ghostly skeletons of those only partly-built.

Surrounded by farmland, Jing Jin City’s wild underbrush and small lakes on the outskirts have become a popular place to water and feed the dairy cows from a nearby dairy.

“I haven’t seen many people around here,” said one farmer who was tending to his cows this week outside one unfinished construction phase, “I guess people think it's too far away from the cities.” 

With a primary Chinese engine of economic growth via construction in trouble, those economic woes spill over into the over 40 industries that are tied to the property industry.

As a result, local governments are said to be facing increased pressure to cook their books in order to offer a rosier view of the economic environment in their regions.

That this doctoring of economic figures may be occurring is not a surprise in China where economists and even senior Communist Party officials –mostly famously the expected future Prime Minister, Le Keqiang – have long believed that the provincial economic numbers are unreliable.

However, the New York Times last month reported that many of the economic indicators that economists and the Chinese government rely on to determine GDP growth – electricity usage, coal stocks, freight movement, etc. – may also be altered by local governments.

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BEIJING—Last week, the New York Times published a report about working conditions at factories producing Apple products in China.  Under the spotlight was Foxconn Technology, a key manufacturer for Apple and “China’s largest exporter and one of the nation’s biggest employers, with 1.2 million workers,” responsible for churning out tens of millions of iPhones and iPads sold around the world.

The article focused specifically on Foxconn’s Chengdu factory, where employees have complained about nonstop shifts, arduous overtime, crowded dormitories, mental health (nearly twenty workers at Foxconn have committed suicide over two years), and a hazardous working environment that's led to at least one explosion, in May 2011.

The New York Times report was also published in Chinese in the well-respected business and economic news weekly Caixin, where Chinese readers could post comments in response to the story. 

Since it was released over the Lunar New Year festival, a week-long holiday which brings the country to a rare standstill, reaction seemed relatively muted.  As we write this, there were 650 comments on Caixin’s Weibo page (a Twitter-like Chinese microblog)--compared to the 1,770 comments on the Times’ website. 

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A cynical reaction in China
On Caixin’s Weibo site, some of the comments condemned Apple’s corporate practices, but many also criticized the Chinese government for failing to protect its own citizens.

“Labor protection and social security is not only the responsibility of corporations.  If the government had regulations and supervised the corporations, then they cannot be that irresponsible,” wrote one person. 

A significant number also captured a sentiment that was cynical but perhaps very pragmatic of many Chinese: 

“If they don’t work for Apple, those workers don’t have anywhere to shed their sweat and blood.”

“Why not kick Apple out?  Tens of thousands of people will lose their jobs.“

“They are criticizing Apple only, because Apple is a huge target.  The migrant workers hired by state-owned enterprises here can hardly be as good as Apple’s.  Take care of your own workers before you pay attention to other people’s suppliers.”

All of which was bolstered by something this week that explains--in part--why the response in China might not be as outraged as those in the West might expect.

Workers want those jobs
On Monday, tens of thousands of people lined up outside a job agency to apply for an estimated 100,000 new jobs Foxconn is seeking to fill at its factory in Zhengzhou, the capital of central Henan province. 

Foxconn wants to double its current workforce of 130,000 at the Zhengzhou plant, which it opened last year.  The facility already churns out 200,000 iPhones a day and is part of Foxconn’s grand plan to make Zhengzhou the world’s largest smartphone manufacturing base.

The basic starting salary advertised--according to a report posted on M.I.C. Gadget, a blogsite about tech and other related matters in China—is 1,650 yuan a month ($261), which includes dorm housing and food.

The pay is lower than comparable salaries Foxconn pays workers at its Shenzhen factory in southern China.  But that may be a sacrifice Henan workers are willing to make initially. 

With a population in excess of 100 million, Henan is China’s most populous province.  A fifth of them are migrant workers who travel widely to find jobs in the country’s more prosperous regions like the south or coast.

With additional reporting from Bo Gu.

BEIJING – Getting caught leaking state secrets is no laughing matter in China

On Monday, Wu Chaoming, a researcher at the People’s Bank of China, and Sun Zhen, from the National Bureau of Statistics, were sentenced to six and five years, respectively, for passing on sensitive information to people they shouldn’t have.

Four other people who weren’t identified by officials have also been arrested in connection with leaked economic secrets.

The cases show how some officials have learned to profit from the veil of secrecy that surrounds sensitive economic data in China. These and other recent cases also illustrate how easy it is to run afoul of the country’s wide-reaching and opaque privacy laws. 

The country’s topsy-turvy stock market is still heavily influenced and guided by the government’s “silent hand.”  This, paired with the fact timely data is often in short supply, makes advanced knowledge of economic information especially valuable.  So, for example, finding out about upcoming government moves to curb inflation would allow traders and brokerage houses to reap a tidy profit.

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Up-to-date information is also especially valuable in China, whose super-charged economy – GDP grew by more than 9 percent in the third quarter of 2011, outpacing most of the rest of the world – is growing so fast that valuable data in the public domain quickly becomes stale.

While declining to say what specific secret information had been leaked, Du Yongsheng, Deputy Director of the National Administration for the Protection of State Secrets, on Monday said some of the officials arrested had not directly sold secrets to brokerages.  Rather, they were paid for “speaking engagements” by firms eager to get a heads up economic trends.

Unsurprisingly, the government has launched an aggressive campaign to eliminate both intentional and accidental leaking of classified economic information.

In prepared remarks to the media yesterday morning, the Deputy Director General of the ponderously named Procuratorial Department of Duty and Infringement on Citizen’s Rights of the Supreme People’s Directorate, warned that the government would “strike hard” against those who tried to profit from such leaks.

"The leaking of national macroeconomic data harms economic operations, prevents fair market competition and affects government credibility, thereby causing heavy losses to the interests of the country, society and individuals," the official, Li Zhong Cheng, said.

In Sun and Wu’s cases, their advanced knowledge of money supply, gross domestic product numbers and the consumer price index put them in an excellent position to trade on their insider information.

There has long been a culture of paying for what is perceived to be secret economic data, as well simply getting a read on policy important debates, writes Tom Orlick, a Wall Street Journal reporter and author of “Understanding China's Economic Indicators.”

“Well-connected academics and analysts in government think-tanks routinely request a consulting fee for meetings with investment banks and their clients,” according to Orlick.

Journalists looking to get a scoop or a steer on important economic data have also been warned.

“I think it’s normal for some media organizations, in particular foreign media organizations to try to forecast China’s economic data, to judge the economic performance of our country,” Director Li said. Some reporters were also using “back channels” to verify state secrets, he said.

“[This is] not allowed,” Li added.  “I’d like to remind our friends from the media here of the importance of abiding by China’s laws and regulations… otherwise you will be subjected to the consequences of the law.”

What exactly is a state secret?

While the government last year laid down new laws ostensibly meant to curb the number and scope of state secrets leaks, critics say the definitions are still vague and could be used to silence political opposition.

According to the Law of the People’s Republic of China on Guarding State Secrets, they can be defined in the following ways:

1. Secret matters concerning major policy decisions on state affairs; 2. Secret matters in the building of national defense and in the activities of the armed forces; 3. Secret matters in diplomatic activities and in activities related to foreign countries and those to be kept secret through commitments to foreign countries; 4. Secret matters in national economic and social development; 5. Secret matters concerning science and technology; 6. Secret matters concerning activities for safeguarding state security and the investigation of criminal offenses; 7. Other matters that are classified as state secrets by the national department for the administration and management of state secret-guarding.

The ambiguity of these classifications have led to high-profile arrests and convictions of foreign businessmen.  The most notable case involved Stern Hu, an Australian national who was sentenced to 10 years in prison for stealing commercial secrets.

Less well publicized was the plight of Xue Feng, an American geologist working for an American consulting firm who was arrested in 2007 and sentenced to eight years in prison for trying to buy a database that showed the location of oil wells belonging to a Chinese government-owned company – information that was readily available for sale online.

Both men were charged and sentenced before the new state secrets regulations were passed, but it is unlikely that the new laws would have helped them.

It remains to be seen when, and if, the state secrets laws will be defined more narrowly.

What is clear is that the policy will remain an effective way for the Communist Party to keep corrupt officials in line, and a headache for foreign companies trying to compete against companies that are plugged into the government’s economic planning apparatus. 

SLIDESHOW: China's booming middle class