Next year will be a litmus test for China's macro-economy: On the one hand, the continuation, or expansion, of the stimulus package may lead to a quick short-term rebound and an overheated economy; on the other, if the stimulus is rolled back, policy-stimulated demand will contract sharply and the newly-introduced and incomplete market dynamic mechanisms will come to a premature end.

Currently, China confronts a "dilemma" in a variety of fields.

First is how to deal with economic restructuring in a recovery dominated by heavy and chemical industries. The sluggish export and housing markets in 2008 inflicted serious losses on heavy and chemical industries, which later became the main target of the government rescue plan. So, heavy and chemical industries saw the strongest rebound in 2009. But the tendency of this recovery, it appears, is not in line with China's structural readjustment goal and the planned new path of industrialization.

Second is the contradiction between the recovery without sufficient employment creation and the stimulus program aimed at increasing employment. Increasing job opportunities and promoting reemployment have been the focus of China's macro-control efforts and social relief and assistance. But current overall investment is centered on infrastructure construction and capital-intensive industries, which, while boosting the economy recovery, have generated fewer jobs than expected. Therefore, it is increasingly imperative to balance macro-recovery and social stability by revising the stimulus package.

Third, policymakers still face the long-standing problem: Export incentives, which contribute to fast recovery, are likely to bring China back to the old path of economic growth.

Fourth, we should pay attention to real estate development. The government wishes most residents can afford to buy houses at a fair price. But since real estate is a pillar industry of the national economy, the government also intends to promote investment and sales through housing price rises so as to drive macroeconomic performance. This is why the governments always assume an ambiguous attitude over regulating the housing market.

Fifth, the central government and local governments have different preferences on the planning of land use. Local governments want to sell more land in the face of rising land prices to increase revenue. The central government, however, wants to limit farmland acquisition and balance real estate development with agricultural security.

Sixth, integrating two approaches of restructuring: Incremental and stock readjustment. Generally speaking, the newly-launched projects are technology-intensive with promising market prospects. While the production capacities with outdated technologies and low profits are difficult to be restructured, incremental readjustment can be achieved by controlling land, credit supply and project approval.

Seventh, the exchange rate policy has been long nagging China as it is employed both as a trade and a financial strategy. The two functions of exchange rate policy, hot money management and as a monetary policy instrument, often see conflicts, which will re-emerge in 2010.

Eighth, monetary policy "constrained" by medium- and long-term investment projects and local governments face a quandary in choosing quantitative withdrawal or price withdrawal. The continuing quantitative withdrawal of currency will lead to capital deficiency for many major projects while the price contracting of monetary policy would cause risks of hot money influx and malfunction of monetary policy.

Ninth, structural readjustment is a strategy led by the government and complying with economic development stages, which should not be dealt with as short-term tactics.

Policy readjustment is suggested in the following several fields for the next year.

First, reviewing various targets and reducing the number of targets in macroeconomic control. Since inflation expectations look likely set to weaken, inflation control can be a secondary target. The bigger problem will be the property price bubble. Expanding domestic consumption should be the main goal as driving internal demand is a top priority for next year's macroeconomic regulation.

Second, more attention should be paid to matching policy instruments and targets, such as medium- and long-term policy and targets, reform and interest structure adjustment, industrial planning and restructuring, and social programs and projects.

In order to realize balanced development of productive capacity, the benefit distribution structure and methods of evaluating officials of local governments should be changed and effective elimination mechanisms introduced for them, and a sound social security network should be established.

The author is deputy dean at the School of Economics, Renmin University of China.