CHINA, the world's third biggest gold consumer, is expected to use 17 percent more of the precious metal this year as investment demand has grown, the head of the China Gold Association said yesterday.

China's gold consumption is expected to rise to 350 metric tons from 300 tons in 2005, Cheng Fumin, the chairman of the China Gold Association, said at a conference in Shanghai. Demand for bullion as an investment had increased, while gold jewelry demand had fallen because of high prices, he said, according to Bloomberg News.

Gold prices in New York have risen 27 percent in the past year and reached a 26-year high in May as investors sought to hedge against expectations of higher inflation resulting from rising energy costs.

"The higher gold price has deterred buying of jewelry, but Chinese bullion consumption has surged," Cheng said.

Chinese gold jewelry demand last year was 241.4 tons, Cheng said, adding that this year's jewelry demand would be lower. The share of bullion had risen to 15 percent of total demand from less than 10 percent previously.

China, behind India and the United States in terms of gold consumption, is the world's fourth-biggest gold producer and plans to attract foreign investment to the sector.

China's gold production may rise more than 10 percent next year, Cheng said, without elaborating. China produced 169.4 metric tons of gold in the first nine months of this year, 8 percent more than a year ago, Beijing Antaike Information Development Co said in a report e-mailed yesterday, citing the China Gold Association.

Higher prices spurred profit at China Gold and other Chinese gold miners. The nation's gold industry boosted profit by 52 percent in the first nine months this year from a year earlier, according to Antaike.

China Gold Corp, the nation's biggest state-owned producer, is among companies inviting overseas investors to buy stakes.

China Gold Corp is holding talks with potential investors, Cheng, former president of the company, said. The Chinese companies would welcome foreign strategic partners, while maintaining controlling stakes, he said.

China eased curbs on international miners in March 2002. Still, the country has been slow to attract investment.

Apart from inefficiency in the way China approves projects, high taxation and unclear regulations have deterred investors, Liu Yikang, vice secretary general of the China Mining Association, said in August 2004.