In response to a rise in activity in the housing market and an acceleration in inflation during the second half of 2010, the government has started to tighten policy. Further incremental tightening is likely in 2011, as the authorities try to maintain steady economic growth while keeping inflationary pressures in check. Fiscal policy will continue to exert a drag on growth, as the central government's traditionally conservative fiscal instincts reassert themselves amid an effort to address the risks associated with the recent surge in local government debt.

Distortions in the economy will remain a major policy challenge in 2011-15. In particular, growth will continue to rely on unsustainably high rates of investment. The government will look to moderate increasing social inequality; an important CCP policy meeting in October stressed the need to raise incomes and "reasonably adjust income distribution". Officials may support workers' efforts to secure pay rises, and could seek to use the tax system more effectively to redistribute wealth. But state welfare services will remain underdeveloped, and efforts to increase spending in this area will make frustratingly slow progress. The state-owned sector benefited from a far higher level of policy support than the private sector during the 2008-09 economic slowdown. Although this support will diminish in the next couple of years, the public sector will continue to enjoy preferential treatment, for example in terms of access to credit and support from government policy.