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What looks like a duck, quacks like a duck, but doesn’t walk like a duck?

A lame duck, of course.

Watch tomorrow’s state of China address and the policies announced by the National People’s Congress to see if Chinese Premier Wen Jiabao fits that description.

My bet is that with Wen and President Hu Jintao both scheduled to step down from their posts atop the Communist Party and to retire from their government positions in 2013 at the end of their ten-year terms, the jockeying over who will replace them has already begun. And that means that Wen doesn’t have the clout he needs to push through the reforms he has repeatedly told the country it needs.

If so, that’s got hefty implications for investors.

Wen made his most recent argument for reform on February 27 when he said that China’s current economic policies are creating increasingly dangerous distortions in China’s economy. A policy that emphasizes investment in manufacturing and growth in exports and that discourages domestic consumption is inflating property and stock prices, and threatens to produce runaway inflation, he said.

Recent government actions, such as subsidies for rural consumers and requirements that banks keep higher reserves, echo Wen’s critique.

But Wen has talked of the need to do much more—and on this front I think he’s likely to be frustrated by opposition from factions inside the Communist Party that profit handsomely from the status quo. The leaders jockeying to replace Wen will be bidding for the support of these factions and will do their best to win that support by blocking any of Wen’s reforms that might hurt those groups.

So, for example, Wen and Hu see the need to close inefficient factories and to shut off their access to cheap loans from local governments that keep technically bankrupt businesses in operation. They’d also like to rein in loans to state-owned companies that aren’t invested in the business but are instead used to speculate in property and stocks.

To fix those problems China needs an effective bankruptcy law, tougher enforcement of environmental and labor laws now on the books, and a thorough overhaul of a tax system that has left local governments dependent on land sales and taxes on industrial production for revenue.

None of those reforms are on the agenda for this year’s National People’s Congress. And in what looks to me like a shot across the bows of reformers, on the day before Wen’s address China’s Ministry of Finance announced plans to sell $29 billion in bonds on behalf of cash-strapped local governments so they can fund infrastructure projects.

Of course, that kind of spending is exactly what Wen has said distorts the economy. And it’s exactly this local government cash that has found its way into the pockets of the big state-owned companies that like the current system just as it is, thank you very much.

China’s local governments are prohibited by law from taking on debt directly. But this kind of bond offering gives them an officially sanctioned way around the prohibition.

You should be able to judge the current state of the race to replace Wen and Hu by watching to see how much emphasis Wen and the National Congress give to plans to crackdown on investment companies set up by local governments to unofficially get around the ban on official local government debt.

And by looking to see if the Congress sets up some kind of schedule for a new national tax system.

My bet is that the National People’s Congress won’t do anything to rock the boat even slightly this year.

That will be a relief to financial markets and to the big Chinese companies that reap the benefits of the current system. You can get easy one-stop exposure to this part of China’s economy in the iShares FTSE/Xinhua China 25 ETF. The exchange-traded fund, which is in Jim’s Watch List , is down about 10% from its early January 2010 high. You can place an even more concentrated bet on business as usual by buying the pink-sheet traded ADR of a big industrial construction company such as China Railway Construction (CWYCY). Be aware though that you’ll be giving up liquidity by going down that route. Daily volume for the ETF is around 10 million shares but less than 10,000 for the China Railway ADR.

The only question is When? I’m inclined to buy in the days right after Wen’s address when markets are still focused on his argument for reform and haven’t yet recognized how unlikely any major change will be.

Full disclosure: I own shares of FTSE/Xinhua China 25 ETF in my personal portfolio.