By Kevin Yao
BEIJING (Reuters) - Just four months after unveiling the boldest set of economic and social reforms in nearly three decades, China's top leaders meet next week to discuss implementing the changes - but chances are they will play it safe.
The ambitious reform agenda and China's intended shift from investment- and export-fuelled growth towards a slower, more balanced and sustained expansion will be the focus of discussions at the annual session of parliament - the National People's Congress - due to open on March 5.
But signs of fragility in the world's second-biggest economy, volatility in emerging markets and fears of social instability could mean any implementation of any reforms will be cautious and gradual.
"The leadership has strong determination, but that does not necessarily mean reforms can be easily implemented," said Xiao Lian, senior economist at the Chinese Academy of Social Sciences (CASS), a top government think-tank in Beijing.
Economists involved in drafting the reforms say that plans that can be implemented without affecting growth or jobs are high on the agenda, such as fiscal system reform to help rein in local government debt, as well as efforts to gradually free up interest rates and the currency regime.
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Policymakers are aware that an abrupt slowdown, its resulting job losses and bankruptcies, could derail reforms, they said.
"The tradeoff between reform and growth implies that those reforms with neutral or positive near-term impact could progress faster, including administrative reform, fiscal reform, financial reform, resource pricing reform and easing the one-child policy," Haibin Zhu, China economist at JPMorgan in Hong Kong, said in a research note.
A key signal will be the annual growth target that will be unveiled by Premier Li Keqiang at the parliament session.
Economists with top think-tanks have told Reuters that Li could stick with the 7.5 percent target of last year, implying that the cautious approach to reform in 2013 would continue this year. Reforms are widely expected to gain steam this year, but the sequencing of reforms means less painful ones will come first.
Some analysts believe there is an off chance that Li could stop issuing an explicit growth target for this year, to underscore the importance of economic reforms. Most pundits, however, expect authorities to reaffirm the target to reassure markets.
Still, most local governments have already cut economic growth targets this year to focus on quality and efficiency.
Among the 31 provinces, regions and municipalities across the country, 22 local governments have lowered their GDP targets this year while seven local governments have kept the target the same as last year, according to official media.
LOW-HANGING FRUIT
Among the less controversial reforms, the central bank could unveil a long-awaited deposit insurance system in coming months, a step toward its declared goal of freeing up bank deposit rates, and it may also widen the yuan's trading band to encourage international usage of the currency. It could also announce opening up the highly controlled capital account at a free-trade zone in Shanghai, an experimental move it has already flagged.
But some changes, such as government downsizing or closures of debt-laden factories in sectors gripped by overcapacity, could take a back seat to avoid fuelling job losses and undermining social stability, analysts say.
"Reforms require careful planning and proper timing. The bottom line is the economy be kept stable," said Wang Jun, senior economist with China Centre for International Economic Exchanges (CCIEE), a well-connected think-tank in Beijing.
Still, there are signs that the leadership is keen to rein in the country's powerful planning body to reduce state interventions and clip the wing of state giants to create more breathing space for private firms - the vital economic driving force.
While announcing the sweeping reforms at a party conclave in November, President Xi Jinping said he would head the group leading change, underscoring his determination to push through the agenda amid fears of resistance from vested interests, such as state-owned giants and provincial officials.
But so far, Chinese leaders have been focusing on relatively pain-free reforms.
Some of the easier, more popular social reforms have already begun, including overhauling the pension system, relaxing family planning rules and abolishing labour camps. Efforts are also underway to tackle China's chronic environmental woes.
The Politburo, the nation's top decision-making body, pledged this week to maintain policy continuity to keep economic growth within a reasonable range this year.
Most analysts believe the central bank will keep monetary policy broadly neutral this year with fine-tuning to adjust liquidity while fiscal policy may be a bit looser to allow for tax cuts and more explicit government spending.
The inflation target is expected to be around 3.5 percent and the M2 growth target could be 13 percent - both the same as in 2013.
(Editing by Raju Gopalakrishnan)
