A year earlier, in the government report of 2013, former premier Wen Jiabao announced the annual fiscal deficit target as 1.2 trillion yuan ($197 billion), an increase by 400 billion yuan from 2012 and hitting a record high since 1949.

"It is not likely to set the same target this year because the radical fiscal deficit will do harm to the economy in the future," said He.

Sinopec is allowing in private investors

China to diversify SOE shareholding

The relatively tight fiscal situation will push forward reforms on State-owned enterprises, which require large and profitable companies to pay more taxes, He said.

In addition, developing a mixed ownership of the SOEs will help to attract private capital into broader industries and raise financial efficiency, the policy adviser said.

The Third Plenum of the 18th Central Committee of the Communist Party of China in November highlighted the need to diversify the equity ownership of SOEs.

The State-owned Assets Supervision and Administration Commission has been busy drafting SOE reform guidelines.

On Wednesday, China Petroleum and Chemical Corp, also known as Sinopec, one of the three large State-owned oil companies, announced it will open its highly profitable oil retail business to private capital participation.

Chang Jian, chief economist in China at Barclays Capital, said Sinopec's move is a positive development that could mark the start of a series of similar deregulation cases in previously monopolized sectors.

"We think this is a right approach and expect it to be expanded," said Chang. "We may finally see meaningful progress in allowing private investment in railways, municipal services, finance, energy, telecommunications, education and healthcare."

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