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A secret meeting of leaders in a Chinese beach town could determine the future of the country

China's President Xi Jinping (L) and China's Premier Li Keqiang arrive for the third plenary session of the National People's Congress (NPC), in Beijing, China, March 13, 2016.
Damir Sagolj | Reuters
China's President Xi Jinping (L) and China's Premier Li Keqiang arrive for the third plenary session of the National People's Congress (NPC), in Beijing, China, March 13, 2016.

A closed-door meeting in a resort town on the Bohai Sea may be where China's future leadership begins to take shape, at a time when observers say there's tension at the top in Beijing.

President Xi Jinping is said to be hosting the very highest echelon of China's Communist Party this week in Beidaihe. No hard decisions on leadership are expected to come immediately from the annual meeting, but this year's conclave is expected to initiate those conversations among top officials.

The precise whereabouts of the meeting are not disclosed, but sources close to CNBC said the annual meeting typically takes places in four to five villas nestled in Beidaihe, a coastal town.

The Chinese Ministry of Foreign Affairs did not respond to a message left by CNBC.

Beijing watchers will closely monitor comments that trickle out over time after the meeting this year to discern what may have been discussed there. Xi is closing in on the last year of a five-year term that ends in October 2017. It's for that reason that experts say politics and leadership changes will likely be on the agenda.

The conclave also comes as rumors suggest rising tensions between President Xi and Premier Li Keqiang. If the president's role in China can be thought of as a sort of chief executive officer, then the premier is more like a chief operating officer, tasked with implementing specific policies and overseeing the government.

"We will be looking for signs that the successors to Xi and Li have been chosen, as this time 10 years ago it was clear that Xi and Li would come to power after five years," said Duncan Wrigley, head of China research at NSBO.

"For international investors, it is quite interesting to see if this year's meeting produces any clarification of China's commitment to reform, especially in tackling the problems of excess capacity in many old-economy sectors and high levels of corporate debt." -Hung Tran, executive managing director, Institute of International Finance

As things stand now, there are no clear indications about who the next generation of leadership in Beijing will be.

But Wrigley said the most important topic will be any personnel changes within Xi's leadership team.

"Four or five of the top seven party officials are expected to retire, and plenty of mid- and high-level positions in party, government, military, (and state-owned enterprises) will change," Wrigley said.

Those shifts could have a significant effect on Chinese economic policy, as well as the way it handles defense, where it continues to take a hard-line stance in the South China Sea dispute. China has scheduled September naval exercises with Russia in the South China Sea, which it claims as its own territory despite an international court ruling against Beijing on the region last month.

Probably more important in the long term, however, is economic policy, which will almost certainly be on the agenda as China suffers from a slowdown.

"I think this year the public preoccupation will be management of the transforming economy, especially the slowing rate of growth and a shift to more market-driven, quality growth away from centrally driven investment that produces overcapacity," said James Keith, former deputy assistant secretary of state for China and director for China on the U.S. National Security Council.

Strategists point out that China has recently shifted priorities by putting greater focus on economic stability and mapping out a longer-term approach to reform. Wall Street is watching that progress closely.

"For international investors, it is quite interesting to see if this year's meeting produces any clarification of China's commitment to reform, especially in tackling the problems of excess capacity in many old-economy sectors and high levels of corporate debt," said Hung Tran, executive managing director at the Institute of International Finance. "Resolving these problems would help China rebalance its economy and put it on a more sustainable path."