By Sui-Lee Wee and Ben Blanchard
BEIJING, Nov 8 (Reuters) - President Hu Jintao warned China's incoming leaders on Thursday that corruption threatened the ruling Communist Party and the state, but said the party must stay in charge as it battles growing social unrest.
In a state-of-the-nation address to more than 2,000 hand-picked party delegates before he hands over power, Hu acknowledged that public anger over graft and issues like environmental degradation had undermined the party's support and led to surging numbers of protests.
"Combating corruption and promoting political integrity, which is a major political issue of great concern to the people, is a clear-cut and long-term political commitment of the party," Hu said.
"If we fail to handle this issue well, it could prove fatal to the party, and even cause the collapse of the party and the fall of the state. We must thus make unremitting efforts to combat corruption."
He promised political reform, but only to a degree, saying: "We will never copy a Western political system."
"We will neither walk on the closed and rigid road, nor will we walk down the evil road of changing (our) flags and banners," Hu said.
He also stressed the need to strengthen the armed forces and protect sea territory amid disputes with Japan and Southeast Asian nations.
Hu was opening a week-long congress at Beijing's Great Hall of the People that will usher in a once-in-a-decade leadership change in the world's second-largest economy.
Despite the high profile of the event and the focus on sensitive issues like reform and graft, the comments were not considered unusual since they mainly reinforced existing ideas and themes.
"It was a rather conservative report," said Jin Zhong, the editor of Open Magazine, an independent Hong Kong publication that specialises in Chinese politics. "There's nothing in there that suggests any breakthrough in political reforms."
The run-up to the carefully choreographed meeting, at which Hu will hand over his post as party chief to anointed successor Vice President Xi Jinping, has been overshadowed by a corruption scandal involving one-time high-flying politician Bo Xilai.
The party has accused him of taking bribes and abusing his power to cover up his wife's murder of a British businessman in the southwestern city of Chongqing, which he used to run.
While Hu did not name Bo - a man once considered a contender for top office himself - he left little doubt about the target.
"All those who violate party discipline and state laws, whoever they are and whatever power or official positions they have, must be brought to justice without mercy," Hu told delegates, one of whom was his predecessor, Jiang Zemin.
"Leading officials, especially high-ranking officials, must ... exercise strict self-discipline and strengthen education and supervision over their families and their staff; and they should never seek any privilege."
The New York Times said last month that the family of Premier Wen Jiabao had accumulated at least $2.7 billion in "hidden riches", a report China labelled a smear.
Hu entered the venue accompanied by Jiang, 86, signalling the former president still wields influence in the party and in the secretive deliberations to decide on the new leaders. As Hu delivered his speech under a massive, golden hammer and sickle, a healthy-looking Jiang sat flanked by senior members, party elders such as Li Peng and incoming leaders such as Xi.
The congress ends on Nov. 14, when the party's new Standing Committee, at the apex of power, will be unveiled. Only Xi and his deputy Li Keqiang are certain to be on what is likely to be a seven-member committee, and about eight other candidates are vying for the other places.
The congress also rubber-stamps the selection of about two dozen people to the party's Politburo, and approves scores of other appointments, including provincial chiefs and heads of some state-owned enterprises.
"We must uphold the leadership of the party," Hu said.
He also named health care, housing, the environment, food and drug safety and public security as areas where problems had "increased markedly".
The meeting is a chance for Hu to cement his legacy before retirement and ensure a smooth handover of power, and his prime-time speech was a chance to push his achievements and perhaps help steer a course going forward.
While Hu promised "reforms to the political structure" and more encouragement of debate within the party, he gave no hint that China would allow broader popular participation.
"We should ... give full play to the strength of the socialist political system and draw on the political achievements of other societies. However, we will never copy a Western political system," said Hu, who mentioned "socialism with Chinese characteristics" no less than 78 times in his speech.
While Hu will step down as party leader, Xi will only take over state duties at the annual meeting of parliament in March.
Just weeks after anti-Japan riots swept city streets following a row over disputed islands, Hu also said China should strengthen the armed forces, protect its maritime interests and be prepared for "local war" in the information age.
"We should enhance our capacity for exploiting marine resources, resolutely safeguard China's maritime rights and interests and build China into a maritime power," he said.
China is also locked in dispute with Southeast Asian neighbours over areas of the South China Sea. Relations with the United States have been bogged down by accusations of military assertiveness in the region from both sides.
The government has tightened security in the run-up to the congress, even banning the flying of pigeons in the capital, and has either locked up or expelled dozens of dissidents.
Security was especially tight on Thursday around the Great Hall and Tiananmen Square next door, the scene of pro-democracy protests in 1989 that were crushed by the military.
Police dragged away a screaming protester as the Chinese national flag was raised at dawn.
The party, which came to power in 1949 after a long and bloody civil war, has in recent years tied its legitimacy to economic growth and lifting hundreds of millions out of poverty.
Hu said China's development should be "much more balanced, coordinated and sustainable", and it should double its 2010 GDP and per capita income by 2020, as previous targets have implied.
But China experts say that unless the new leadership pushes through stalled reforms, the nation risks economic malaise, deepening unrest, and perhaps even a crisis that could shake the party's grip on power.
This year marked the first time Chinese Internet users could discuss the congress on Weibo, China's version of Twitter.
Many said his reference to not walking on a "closed and rigid road" not the "evil road of changing (our) flags and banners" reflected gridlock between two factions - the reformists and the leftists, who are critical of a market-based reform agenda.
"Which road to walk on?" a microblogger wrote. "Both the right and left have blocked you to death, so where can you go?"