Li Yuanchao , a trusted ally of Communist Party General Secretary Hu Jintao, is tipped to become vice-president next year and oversee Hong Kong and Macau affairs.
However, in what appears to be the result of a compromise between party factions, sources said the 62-year-old head of the party's organisation department would not join its supreme Politburo Standing Committee and would remain a member of the Politburo.
Li, long seen as a front runner for promotion to a seven-member Politburo Standing Committee, appeared to lose out following intense horse-trading among various factions.
Sources said Li's relative youth weighed against him, with rivals saying he could wait for another five years before joining the Standing Committee. Five of the seven members widely tipped to join the Politburo Standing Committee this year would have to retire in 2017.
The deal has dealt a heavy blow to Hu's Communist Youth League faction, with the Politburo Standing Committee to be stacked with allies of former party chief Jiang Zemin . The only exception is Li Keqiang , who is tipped to become premier in March.
If the arrangement is confirmed, Li Yuanchao is likely to assume responsibility for overseeing Hong Kong and Macau affairs from Vice-President Xi Jinping , who will succeed Hu as party chief next week and as president in March.
Political analyst Johnny Lau Yui-siu said Li was known for his open-mindedness, and a combination of Li and Wang Guangya, the director of the State Council's Hong Kong and Macau Affairs Office, could mean a relatively open atmosphere for Hong Kong.
"Li tends to handle matters as flexibly as the party would allow," Lau said. "But it is on the condition that Hong Kong's political climate does not turn extreme."
He added that the power to handle Hong Kong affairs was not held solely by Li but ultimately by Xi and the Politburo Standing Committee. "For example, it would not be up to Li to decide who could become the next chief executive," Lau said.
Michael Tien Puk-sun, a Hong Kong deputy to the National People's Congress, said he could not see any signs that the city's importance to Beijing would diminish, even if Li did not make it onto the Politburo Standing Committee.
"Hong Kong and Macau affairs will likely become Li's major portfolio as vice-president," Tien said. "That could mean a more focused handling as compared to the past," he said.
Li is seen as a close political protégé of Hu, but he is also perceived by some as a princeling as his father was a vice-mayor of Shanghai. The politically astute Li is seen as capable of navigating between interest groups and had been widely expected to win promotion to the Politburo Standing Committee until recently.
Both Xi and his predecessor as vice-president, Zeng Qinghong , have been members of the Politburo Standing Committee. But some other vice-presidents have not been, including Wang Zhen and Rong Yiren .
There have also been suggestions that responsibility for overseeing Hong Kong and Macau affairs could go to Yu Zhengsheng , who is tipped to join the Politburo Standing Committee and then become chairman of the Chinese People's Political Consultative Conference in March. However, it is a responsibility usually handled by the vice-president.
Li earned mathematics and economics degrees from two of China's best universities and a doctorate in law. He also spent time at Harvard University's Kennedy School of Government in the United States. He was party chief of Jiangsu province from 2002 to 2007.
Although he is not a liberal reformist in the Western sense, he told US diplomats in 2007 that China could hold competitive elections for the Politburo and Politburo Standing Committee in 20 to 30 years, according to a US diplomatic cable released by WikiLeaks.