As China heads into next month's 18th CPC National Congress, observers say the new generation of central leaders must combine a well-conceived reform plan - characterized by "top-level design" - with a willingness to support grassroots innovation.

This new stage of reform is categorically different than previous stages, according to Yu Pei, a world history researcher with the Chinese Academy of Social Sciences, who said China's reform has reached the "deepwater area".

"China's economic reform in the 1970s has been described as 'crossing a river by feeling the stones'," Yu said. But now there are "no more stones to feel", he said.

Instead, Yu said the Party and the government "need to take action with a clear plan in mind and prudently push reform to address public concerns".

These concerns include the slowest economic growth in about 13 years, a yawning wealth gap, lack of social security for rural residents, lending policies that are biased against small companies, industrial dominance by State-owned enterprises, administrative opaqueness, environmental deterioration, corruption and a need for more democracy both within the Party and in rural areas.

A clear plan of reform, as described by Yu, corresponds with the concept of "top-level design", which was introduced during the current 12th Five-Year Plan (2011-15) and is expected to guide the new generation of state leaders when they take office.

According to a recent article in the People's Daily, the flagship newspaper of the Communist Party of China, top-level design should aim to solve major problems that may affect the country's further development, such as economic imbalances, weakening global demand, risks arising from a slowing economy and the widening income gap.

The newspaper also said that top-level design should not be shackled, but promote innovation in the economic, political, cultural and social spheres.

President Hu Jintao, speaking to a meeting of high-level officials in July, also spoke of the importance of reform.

The speech was widely seen as sending a message about the path China will take after the upcoming Party congress.

"It's clear that the Party is resolute in pressing ahead with reform. But the challenge is how to make a sound top-level design that inspires and respects grassroots innovation," said Yu.

An example of the kind of grassroots innovation Yu is talking about is the formation of a "three-level council mechanism" in Shicheng town in Guangdong province last year. The system, which created democratically elected councils at the sub-village level, was introduced by local farmers to help them better communicate with village and township-level authorities, thus improving rural governance.

The effectiveness of the new system was soon proven. Farmers in Dongfeng village had long wanted a new road to make it easier for them to get oranges to market. Two months after their wish was conveyed to township authorities, government-funded construction on the new road began.

Professor Deng Dacai, with the government-sponsored Center for Chinese Rural Studies, hailed the three-level council mechanism as "another great invention of the people to expand rural autonomy".

The mechanism is reminiscent of the bold move by Anhui villagers in 1978 to shift from collective to household farming - a move later approved by Deng Xiaoping and considered the impetus behind China's contemporary reforms.

In describing the three-level council mechanism, Deng Dacai emphasized the need for government support of local innovation, saying that Chinese law requires that all non-governmental organizations officially register with civil affairs departments.

Yu of the Chinese Academy of Social Sciences also emphasized the need for the Party to support the creativity of the people.

"China's potential to have an economically sustainable and culturally prosperous future depends on whether the Party is smart and confident enough to pool people's wisdom and address the issues about which the public is deeply concerned," Yu said.