By Kevin Yao and Koh Gui Qing
BEIJING (Reuters) - China cannot delay tough economic reforms, Vice Premier Li Keqiang said on Sunday, underscoring the top leadership's push for market-based change after the sacking last week of an ambitious provincial leader who wanted a bigger state role in the economy.
Li, widely expected to succeed Wen Jiabao as premier in a leadership transition that begins later this year, promised flexible policies to keep growth brisk and prices stable, with a focus on boosting domestic demand and pursuing structural reforms to make growth more stable and balanced.
"China has reached a crucial period in changing its economic model and (change) cannot be delayed. Reforms have entered a tough stage," Li said, echoing comments made by Wen last week.
"We will make policies more targeted, flexible and forward-looking to maintain relatively fast economic growth and keep price levels basically stable," Li said in a speech at an economic policy conference, attended by top Chinese officials, the head of the IMF and dozens of foreign business leaders.
He said China would "deepen reforms on taxes, the financial sector, prices, income distribution and seek breakthroughs in key areas to let market forces play a bigger role in resource allocation".
Li's renewed emphasis on reform-led growth comes after Wen said slower growth and bolder political reform must be embraced to keep the world's second largest economy from faltering and to spread wealth more evenly, promising to use his last year in power to attack discontent that he warned could end in chaos.
Wen told a news conference at the end of the National People's Congress (NPC) that growth would be made more resilient to external pressures, domestic property and inflation risks deflated and 10.7 trillion yuan ($1.7 trillion) in debt racked up by local governments dealt with, while also promoting political change.
He cut China's official 2012 growth target to 7.5 percent, down from the 8 percent targeted in each of the last eight years, aiming to create leeway to deliver reform of items including subsidies, without igniting inflation.
China's annual rate of inflation cooled to 3.2 percent in February, below the government's 4 percent target for the first time in more than a year. But policymakers remain particularly sensitive to elevated commodity prices, given China's huge imports of raw materials.
PRO-GROWTH POLICIES CRUCIAL
Zhang Ping, head of the country's top planning agency, the National Development and Reform Commission, told the Sunday conference that economic policies maintaining relatively fast growth were key to the country's future.
"First of all, we need to maintain steady and relatively fast economic growth -- development is the key for resolving all problems in China," Zhang said.
The government would maintain prudent monetary and pro-active fiscal policies, and stand ready to fine-tune settings -- a consistent refrain from China's leaders since the autumn of 2011.
The show of unity over pro-market reform took on new significance last week when China's central leadership moved to bolster control over the southwest city-province of Chongqing after ousting its contentious but popular chief, Bo Xilai.
The calls for unity with the ruling Communist Party's top leaders were emblazoned on the front pages of Chongqing newspapers on Saturday. They made no mention of Bo, removed from power after a scandal when his Vice Mayor Wang Lijun took refuge in February in a U.S. consulate until he was coaxed out.
After arriving in Chongqing in 2007, Bo, 62 and a former commerce minister, turned it into a bastion of Communist revolutionary-inspired "red" culture and egalitarian growth, winning national attention with a crackdown on organized crime.
His self-promotion and revival of Mao Zedong-inspired propaganda irked moderate officials. But his populist ways and crime clean-up were welcomed by many residents and others who hoped Bo could try his policies nationwide.
Li said that while the overall trend of China's economy was stable with sound fundamentals, it faced structural obstacles that must be overcome, adding that Beijing would push forward structural reforms while encouraging technological innovations to generate new sources of economic growth.
CURRENCY REFORM CARROT
International Monetary Fund managing director, Christine Lagarde, dangled an additional reform carrot at the same economic forum on Sunday, saying that the yuan could become a global reserve currency with the right mix of market-oriented structural change.
"What is needed is a roadmap with a stronger and more flexible exchange rate, more effective liquidity and monetary management, with higher quality supervision and regulation, with a more well-developed financial market, with flexible deposit and lending rates, and finally with the opening up of the capital account," Lagarde said.
"If all that happens, there is no reason why the renminbi (yuan) will not reach the status of a reserve currency occupying a position on par with China's economic status."
China, the world's biggest exporting nation and the second-largest importer, has long wanted to break the dollar's dominance as the principal global unit of cross-border trade, in part to battle internal inflation risks and also to enhance Beijing's influence on the international financial system.
China's has a closed capital account system and its currency is tightly controlled.
Although Beijing has increased the use of the yuan to settle cross border trade, undertaking a series of reforms in recent years to that end, yuan settlement was only about $300 billion in 2011, which Chinese exports were worth about $1.9 trillion.
Li said he expected China's total trade to maintain double-digit growth this year. The government has an official target of 10 percent growth in both imports and exports for 2012.
Exports are a key source of demand and jobs for China's vast factory sector and have been a principal driver of wealth creation for much of the last decade in the wake of the country's accession to the World Trade Organization.
China's trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand drove the drop.
Li said that there were some encouraging signs emerging about the pace of global economic recovery, and forecast that China's total trade would top $10 trillion in the five years 2011-2015, but added that the outlook was not certain, with efforts to resolve Europe's debt crisis still evolving.
Economists expect China's annual economic growth to slow to close to 8 percent in the first three months of 2012, down from 8.9 percent in the last quarter of 2011. That would be the fifth successive quarter of slower growth and leave China on track to end the year with its weakest expansion in a decade.
A raft of economic indicators in the last two weeks have signaled that China's economy is on a gentle glide lower and on course to avoid a so-called hard landing.
(Writing by Nick Edwards; Editing by Don Durfee and Jonathan Thatcher)