Due to the widely observed effectiveness, Inflation Targeting Framework (ITF) has gained increasing popularity among monetary policy makers worldwide. This thesis seeks to explore the applicability of this policy framework in China based on a study of the inflation generating process. When tested against annual data from China, the classic Svensson (1997) model does not work well. This might be caused by the assumed demand driven nature of the inflation generating process. An alternative model based on Chand and Singh (2006) is then introduced, allowing influences from the supply side and loosing this assumption. According to the subsequent test, Chinese inflation is primarily a demand-driven process. This makes it potentially possible to adopt demand management strategies like Inflation Targeting. But when it comes to actual implementation, China still has a long way to go. And among the necessary preparations, reforms in the financial sector are truly essential.