Inflation might yield to growth as the top issue on China's economic agenda next year, with a more relaxed policy environment and further tax cuts on the way, experts said ahead of the top economic conference, which is expected to convene soon.
Analysts called for more efforts to offset the impact of the European debt crisis and maintain domestic financial stability.
"Tackling inflation has been off the table for the central bank", as is clearly shown by the recent cut in the reserve requirement ratio, said Yuan Gangming, a senior researcher with the Center for China in the World Economy at Tsinghua University.
"One of the major tasks for the next year should be to provide a reasonable money supply to maintain the momentum of economic growth," Yuan said, adding that "targeted easing" policies aren't enough to quench businesses' thirst for credit.
The comments came ahead of the Central Economic Work Conference, which will set the tone for China's economic policies next year.
The authorities have yet to announce any timetable for the top meeting.
Last year's conference made tackling surging prices the top priority for 2011, but there have been signs of a policy shift as inflation eases and the manufacturing sector experiences setbacks caused by tightening policies and weak external demand.
China's inflation could fall to about 4 percent in December, from a more than three-year high of 6.5 percent, said a UBS Securities Asia Ltd research note. It will fall to about 3.5 percent in 2012, it said.
The purchasing managers' index, a preliminary indicator of manufacturing activity, dropped to 49 percent in November.
Meanwhile, the global economic outlook remains pessimistic and poses a challenge to China's growth.
A report by the World Economy Research Center at Beijing Technology and Business University gave more than half of the 120 rated countries a "negative outlook". The report cited the mounting debt default risks in the US and Europe, along with other major economies.
Peng Wensheng, chief economist with China International Capital Corp, said in a research note that the reserve requirement ratio cut only signals the start of a policy change, and a series of cuts may be in the pipeline. The next is to take place in January.
"A change of policy stance will bring positive effects for growth, which may lead to a 'soft landing' for the economy," Zhu Haibin, chief economist of JPMorgan Chase Bank in Hong Kong, said in a research report.
JPMorgan cut its forecast for China's growth for the first quarter in 2012 to 7.6 percent from 8.0 percent but said the rate would rebound to 8.7 percent in the second quarter "thanks to an expected loosening environment and improving global climate".
However, not all analysts see a policy U-turn.
A report by UBS said considering the leadership transition for the local and central governments next year, macro policies will be characterized by stability and continuity, "with the central government mindful of the deteriorating external environment on the one hand and the strong investment drive of local governments on the other".
The government is expected to ease policy in the face of falling exports and construction, but it will remain cautious about reversing property sector measures or allowing another major credit expansion, the report said.
"More fiscal support is likely to serve as a compensation for monetary policy next year to boost growth. Tax cuts in areas such as personal income and sales taxes earlier this year functioned well, but there is still much room left, given that fiscal revenue is increasing at 20 percent annually," Yuan said.
"Meanwhile the central government should remain cautious about possible debt defaults by local governments, as many debts will mature next year," he said. (Source: China Daily)