With Chinese President Hu Jintao now winding down his US visit with a trip to the Windy City, much of the news this week has been China related.

Shanghai’s mayor announced that the city will implement a controversial property tax in order to slow rising prices and curb speculation in the real estate market. Another such program is being mulled in the western city of Chongqing and neither city’s government has provided information on how this tax would be structured. However, Chinese officials often test new policies on a small scale before rolling them out nationwide. Property prices in China have been a long-standing concern for Chinese policymakers. According to Manila-based Global Property Guide, a square meter of property costs 164 times China’s per capita income. By comparison, that figure is 33 times in Japan. Fitch Ratings said overall Chinese residential property prices could rise by 5 to 10 percent this year due to higher incomes and inflows of foreign funds into the real estate market. Prices will rise the most in China’s first-tier cities, though the rate should be smaller than the 20 to 40 percent price rise seen in 2010, Fitch Ratings said.

Rising asset bubbles and inflation have emerged as a major concern for Chinese policymakers, who have already shifted the orientation of their monetary policy from supporting growth to combating inflation. Inflation in November reached a 28-month high of 5.1 percent. The most recent December economic figures, released on Thursday, showed that inflation had tapered off to 4.8 percent. But full-year inflation rose by 3.3 percent, higher than the government’s 3 percent target.

China has already taken a series of measures to contain inflation, including 7 hikes of banks’ reserve requirement ratios (the money banks must hold in reserve and not lend out) since early 2010 and two recent interest rate hikes. But none of these moves appear to have curbed bank lending, a major contributor to rising asset bubbles in China. Furthermore a gray market of “shadow loans” extended by banks off the books could amount to USD455 billion last year, according to Fitch Ratings. China’s banking regulator this week announced that it will require banks to bring all off-book loans onto their balance sheets by the end of this year.

China will likely combat inflation with a cocktail of measures including rate hikes, raising the reserve requirement ratios and allowing the currency to appreciate faster against the dollar. The country will also act to curb speculation in the property markets, more firmly restrict bank lending and implement price controls.

But while inflation does threaten the Chinese economy on the margins, it’s unlikely to derail the country’s strong economic growth, which came in at 10.3 percent last year, up from 9.2 percent in 2009. Underscoring this theme, this week JPMorgan, UBS and Deutsche Bank each raised their yearly forecasts for inflation and GDP growth in China.