Congress will give us government's priorities

This will reportedly loosen restrictions on private investment in SOEs. Another key area to watch is financial sector reform, which is central to efforts to improve credit allocation. Last year's Work Report pledged to establish a deposit insurance system, which was eventually unveiled in November. We will be looking to see if policymakers pledge further steps towards interest rate liberalization this year, such as gradually removing the deposit ceiling on fixed-term deposits with longer maturities.

The third thing to pay attention to at the NPC is the premier's press conference on the final day as it might cast valuable light on a number of key issues, including how the central government will handle the trade-off between short-term growth and deleveraging, its reform priorities, and topics such as currency and property policies that get little attention in the more-tightly scripted proceedings of the NPC.

Finally, it is worth paying closer attention than usual to the budget statement this year, which is usually delivered on the NPC's opening day. This will include a target for the budget deficit which has remained unchanged at 2 percent of GDP in recent years.

In the past we haven't put too much weight on the budget since it only provides a partial view of the government's fiscal stance. One reason is that the finance ministry massages its expenditure and revenue data as a matter of course by shunting money in and out of the budget stabilization fund. Of greater significance for the wider economy, most of the changes in the underlying fiscal stance in recent years have been due to shifts in the large share of spending that has taken place outside of the formal budget, typically via local government financing vehicles.

However, a revision to the budget law that came into effect in January effectively bans local government borrowing via LGFVs. Although a grace period of one year has been given to allow LGFVs access to finance in order to wind down existing projects, many have now lost their implicit government backing. The number of LGFV bond issuances has fallen sharply since the start of 2015 on the back of weak demand. Policymakers will need to fill this funding gap by borrowing elsewhere, potentially causing the official budget deficit to increase sharply. If not they will have to accept abrupt fiscal tightening, something they are likely to want to avoid.

At a State Council meeting last week, Premier Li emphasized the need to maintain a proactive fiscal stance this year in the face of moderating growth. The budget statement will hopefully provide clues as to how policymakers intend to manage this shift from off-budget to on-budget spending, while still maintaining an accommodative fiscal stance.

The authors are economists with Capital Economics, a London-based independent macroeconomic research consultancy.