China’s Communist Party is to stick "unswervingly" to state control over Asia’s largest economy, dashing hopes for deep free-market reform over the next decade.
President Hu Jintao opened the 10-year power handover with a clear warning to modernizers that Beijing will not give up control over the commanding heights of industry and commerce.
In a valedictory state of the nation address after a decade in power - called "Firmly march on the path of Socialism" and delivered beneath a huge hammer and sickle - he insisted that "public ownership is the mainstay of the economic system" and warned that the party must "resolutely not follow Western political systems".
The language was peppered with anti-reform code words and pointed references to "Mao Zedong Thought", as well as a warning not to fall into "wicked ways".
While Mr Hu called for a "level-playing field" for private firms competing with huge state enterprises, he said the party should "steadily enhance the vitality of the state-owned sector and its capacity to leverage and influence the economy".
The underlying message is that there will be no root-and-branch reform of the great behemoths that still dominate the Chinese system and are widely blamed for graft and wasteful over-production.
Mr Hu said China would stick to its strategic drive to "boost domestic demand, and unleash the potential of individual consumption", accompanied by a slow shift away from currency controls.
"We should develop a multi-level capital market, take steady steps to make interest rates and the renminbi exchange rate more market-based and promote convertibility in due course," he said.
The pledge is music to the years of Washington and European capitals, long frustrated by China’s reliance on export-led growth and a suppressed currency. Yet the issue is losing its urgency as China’s wage inflation erodes competitiveness and jobs return to the West. Nomura says China’s current account may be in deficit by 2014.
While Mr Hu acknowledged that China cannot cling to an obsolete catch-up model, his speech make its clear that the country will not follow the free-market path of Taiwan, Korea, and Singapore. He vowed to double per capita income by 2020 without changing the core model.
His comments are sharply at odds with a report earlier this year by the World Bank and China’s Development Research Council (DRC) that has become the Bible for reformers.
It warned that China has exhausted the growth model of the last thirty years and risks stagnating in the "middle income trap" unless it breaks the suffocating control of the state.
"The forces supporting China’s continued rapid progress are gradually fading. The government’s dominance in key sectors, while earlier an advantage, is in the future likely to act as a constraint on creativity," it said.
"The role of the private sector is critical because innovation at the technology frontier is quite different in nature from catching up technologically. It is not something that can be achieved through government planning."
The report singled out state companies as arch-villains, saying their productivity growth rate is two-thirds lower than that of private Chinese firms. A quarter are losing money.
Mr Hu’s speech reflects a complex power-struggle behind the scenes as hardliners - some linked to former leader Jiang Zemin - reassert control, forcing the outgoing leader to change his message.
The ideological manouvering have profound implications as 70pc of top cadres in the party and the Chinese military retire, the most sweeping hand-over of power since the revolution in 1949.
Reformers have been left in deep confusion. The incoming premier Li Keqiang - a Hu protegee - was a key sponsor of the World Bank/DRC report. He offered his "unwavering support" for the findings at the time. It is unclear where he now stands.
As delegates scrutinised the seating arrangements, they spotted at once that leading reformer Wang Yang had been banished to the margins.
Mr Hu - a self-effacing, austere figure known for his theme of "social harmony" - said the growing gap between rich and poor is leading to social contraditions" and warned than unchecked corruption had become a mortal threat.
"If we fail to handle this issue well, it could prove fatal to the party, and even cause the collapse of the party and the fall of the state. We must thus make unremitting efforts to combat corruption."
For geo-strategists, the bombshell was his call to "build China into a maritime power" to match its economic clout. Even clearer was Wu Xiaoguang, a delegate at the congress and the chief designer of China’s first aricraft carrier the Liaoning.
"The number of aircraft carriers a country has is linked with the pursuit of its national interests. What I can tell you is that the Liaoning is only just the beginning," he said.