However, economists are not as optimistic as Sheng. Zhao Xiao, a professor at the School of Economics and Management of the University of Science and Technology in Beijing, said since last year, overall prices have been increasing. With a mild recovery of the world economy, the easing monetary policies by developed economies have accumulated huge inflation risks for the global economy. These risks are gradually seen in emerging economies.

Growing rural incomes

Sheng thinks one of the highlights for the Chinese economy in the first quarter of 2011 is the accelerated increase of farmers' incomes.

According to the NBS figures, in the first quarter the nominal growth of per-capita cash income of rural residents was 20.6 percent year on year, or 14.3 percent in real terms. The growth of the income of farmers has surpassed that of urban residents for the first time. In the first quarter the per-capita disposable income of urban residents was 5,963 yuan ($913.17), a year-on-year increase of 12.3 percent, or a real growth of 7.1 percent allowing for price factors.

"This is extremely rare. But this is what we should expect after putting policies in place to target agriculture, farmers and the countryside," Sheng said.

For seven consecutive years, the Central Government's No. 1 Document has focused on agriculture and stimulated any type of growth in farmers' incomes.

There are three direct reasons for these increases, Sheng said. First is the household income of farmers from agricultural production is increasing, which mainly benefits from the rapid price hike of farm produce. Second is that more farmers are working in cities. In the first quarter, the number of migrant workers increased 5.3 million over a year ago. Third is that the wage income of farmers continues to increase. In the first quarter the wage income of farmers increased by 18.9 percent and their average monthly salary has surpassed 1,800 yuan ($275.65).

"Farmers' incomes from both agriculture and non-agriculture sectors are growing fast, which is the main reason for their rapid increase in the first quarter," Sheng said.

Not to be ignored

This year marks the first year of the 12th Five-Year Plan, and local governments are already enthusiastic about investment in fixed assets. But this may cause the economy to overheat.

According to the NBS, in the first quarter of 2011, investment in fixed assets was 3.95 trillion yuan ($607.2 billion), a year-on-year growth of 25 percent. Of this total, the investment made by the Central Government was 254 billion yuan ($38.9 billion) and that made by local governments reached 3.69 trillion yuan ($565.08 billion), up 3 percent and 26.8 percent year on year, respectively. Among all investment in fixed assets, 93 percent came from local governments.

Development of China's western and central regions and plans for development of other regions have driven up growth of investment and encouraged local governments to look for ways to capitalize on this trend, Sheng said.

The biggest problem from this investment is that real estate investment has increased too rapidly. In the first quarter, investment in real estate development was 884.6 billion yuan ($135.47 billion), surging 34.1 percent compared with last year's same period. Now China is conducting macro-control over the real estate sector in an attempt to slow the pace of real estate development. Even so, investment in real estate has remained unnervingly high.

From the NBS figures, there are also risks for further increases in the producer price index (PPI). In the first quarter, the PPI rose by 7.1 percent over a year ago. In March, the index grew by 7.3 percent on a yearly basis and 0.6 percent on a monthly basis.

A report released by Lombarda China Fund Management Co. Ltd. said, affected by the turmoil in the Middle East and the weak U.S. dollar index, increasing international oil prices may push up the PPI in the future, making China face even high inflationary pressures. Controlling inflation, then, must be the top task of the Chinese Government's macro-controls in 2011. To do so, the government will likely raise the interest rate and the deposit reserve rate.

Sheng also said it is hard to judge now how much PPI growth will be transmitted to the CPI, since the transmission involves various links such as production, logistics and corporate innovation.

"I think enterprises should enhance their internal structural adjustment, technology innovation and structure upgrading to deal with these factors of pressure," Sheng said.

According to Sheng, the environment for international and national economic development is still fairly complicated. In the next phase, the government should continue to carry out the pro-active fiscal policy and prudent monetary policy, maintain the continuity and stability of the policies and improve their relevance, flexibility and effectiveness. The government should also persist in balancing the relationships between steady and comparatively rapid economic development and between the adjustment of economic structures and the management of inflation expectations, so as to further consolidate the momentum of economic development.