China targets a rise of consumer price of around 3 percent this year, Premier Wen Jiabao said when delivering a government work report at the parliament's annual session Friday.

The target takes into account of the carry-over effects of last year's price changes, price fluctuations of major international commodities, hefty increase of domestic money and credit supply, and consumers' ability to bear price increases, Wen told deputies to the National People's Congress (NPC).

The figure compares with a 0.7 percent fall of the Consumer Price Index (CPI) last year as economic slowdown and lackluster demand drove prices down.

"The 3 percent target is mild, which eases inflation fears in the short run,"said Zhuang Jian, a senior economist with the Asian Development Bank.

Ai Dehong, a financial professor with the Northeastern Finance University, said the fears for inflation are understandable, but not a big worry, since the current supply still outweighs demand.

Wen said the government will continue to implement a proactive fiscal policy and a moderately easy monetary policy to maintain continuity and stability in policies while constantly making them better-targeted and more flexible as circumstances and conditions change.

He noted the government needs to manage inflation expectations well and keep the overall level of prices stable.

As Chinese economy picked up thanks to the government's stimulus package, CPI returned to the positive territory last December, and gained 1.5 percent in January.

In addition, the record 9.59 trillion yuan of new loans and nearly 30 percent increase of broad money supply last year also caused fears of inflation.

To tame the excessive liquidity and potential inflation risk, the government planned a 17 percent increase of broad money supply in 2010, down from last year's nearly 30 percent.

New renminbi loans target fell by one fifth from a record high a year ago to 7.5 trillion yuan for this year.

Although the full year CPI target is 3 percent, Zhuang estimated the real figure will exceed that and there will be monthly fluctuations.

The CPI is expected to grow 4 or 5 percent in the first half of this year as the economic recovery takes hold, but it may slow down in the latter half due to expected cooling measures, he said.

Qin Xiao, chairman of the China Merchants Bank, expected inflation and excessive lending will gradually emerge in China following last year's monetary expansion, so tightening measures are very necessary.

Li Yining, an economist and also a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), said the current inflation target sends an alarm, but inflation has not emerged yet.

"If the economy growth accelerates throughout the year, the government should pay close attention to inflation, notably in the latter half of the year," Li said.

He noted moderate interest rate rise is ok to stem excessive liquidity in the capital market, but the increase should not be drastic since moderately loose monetary policy still takes hold.

Li Daokui, a financial professor with Tsinghua University, estimated the interest rate rise will happen before June, when the CPI exceeds 3 percent, a psychological watershed of monetary tightening.

China sets its full year growth target at 8 percent for 2010, expecting a "crucial but complicated" year for economic recovery, Premier Wen said Friday.

Wen also noted the inflation goal leaves room for reform in resource and environment taxes and fees and in the pricing of resource products.

He said the government will deepen the reform of pricing of resource products as the current state-controlled pricing mechanism does no good for conserving energy and resources and achieving sustainable development.

Zhuang Jian said the CPI target is lower than forecast because analysts do not expect the resource price reform would come as early as this year.

China postponed the resource product price reform in 2007 in fears of the possibility that the reform would further push up prices amid an overheated economy.

The reform got no progress in the following two years, as government worried the rising resource prices would squeeze business profit amid the global financial crisis.

Zhuang said it is high time to carry out the reform, otherwise rising consumer price would narrow the room for the reform.

The government should not miss the boat again, he noted.

(Xinhua News Agency March 5, 2010)