Top Chinese leaders will likely resist pressure to declare an outright easing in monetary policy when they meet next week to decide economic priorities for 2012, the last full year of President Hu Jintao's tenure ahead of a critical leadership succession.
The Central Economic Work Conference is due to convene a three-day session from Monday, but observers hoping that Hu and Premier Wen Jiabao will mark their waning days in office with bold policy measures will be disappointed.
This year's conference will chart the course for monetary and fiscal policy for 2012 and discuss key economic targets ahead of a parliament meeting in March next year.
But with Europe in turmoil, U.S. consumer demand in question and China's own economy cooling, the caution that has been a hallmark since Hu and Wen rose to power in 2002 will likely be on display.
The two leaders are expected to retire from their party posts in late 2012 and their state positions the following March, ending a decade in power that has seen China's economy overtake Japan as the world's second largest.
The effort needed to choreograph a soft landing is substantial though, underscored by a raft of data on Friday that showed a welcome easing of inflationary pressure on consumers while also signaling a serious risk of a sharp industrial slowdown, a potentially perilous mix for policymakers [ID:nL3E7N92AM].
Given the growing economic uncertainty at home and abroad, Beijing may emphasize stability and stick to the status quo for both fiscal and monetary policies, analysts said. That should entail carrying this year's growth and inflation targets over to 2012, at 8 percent and 4 percent respectively.
The only crucial change would probably be an adroit promise to keep policy flexible and ensure there is room to maneuver should Europe's troubles worsen sharply.
"I don't think there would be an obvious change in stance," said Tao Wang, an economist at UBS. "Growth would be slower, but it's still going to be above 8 percent."
"It would just be fine-tuning."
China is watching Europe's debt crisis with rising alarm as it dampens the world's growth engine by hurting the country's exports and threatening millions of its factory jobs.
Although Chinese leaders are likely to stick with a "prudent" monetary policy, analysts say there is a nuanced shift underway towards supporting growth, since inflation is no longer the top enemy.
Lower inflation could create some room for the central bank to "fine-tune" policy when necessary, which most analysts take to mean relaxing credit restrictions aimed at helping cash-strapped small firms, a key employer in the Chinese job market.
It is reluctant to fuel another lending boom that could re-ignite price pressures. But Wang at UBS says that behind the scenes China also may lift its 2012 annual lending target for banks to 8 trillion yuan, up from this year's 7.5 trillion yuan.
POLICY WHIMPERS, NOT BANGS
Hu, Wen, top officials from the central bank, finance ministry and economic planning agency as well as provincial officials are expected to attend the closed-door meeting.
Their conclusions serve as a work plan for various government agencies and are announced through short statements, but recommended measures are generally not disclosed.
The increasingly murky world economic outlook and the leadership transition virtually ensure Beijing will not move dramatically on any policy front, analysts say.
It will likely commit to gradually making the yuan more flexible, keeping fiscal policy pro-active, upholding tightening measures on the property market, and restructuring the Chinese economy to promote consumption and greener growth.
China's central bank announced on Nov 30 it was cutting the reserve requirement ratio for its banks for the first time in nearly three years to ease credit strains and shore up business activity, and market watchers expect further reductions next year.
Bolder steps such as cutting interest rates, however, appear premature for now. While that may boost investment, China's leaders fear it could also revive inflationary pressures, especially in the housing market, economists say.
"The key theme for policy, even if not stated explicitly, will be flexibility," said Nicholas Consonery at Eurasia.
"Given that economic growth is still above the 8 percent comfort zone, there is little appetite for rapid policy change to defend growth at this time."
(Editing by Brian Rhoads)