BEIJING. June 5: Chinese financial experts have dis missed suggestions that the high level of foreign Investment in the country Is a major source of inflation and needs to lx- limited In the future, a report said Supday. reports AFT

China utilised 33.8 billion dollars in direct foreign investment in 1994. up 22.8 per cent from the previous year, but analysts With a think-tank affiliated to the foreign trade ministry ' said concerns that the influx had drastically fuelled inflation through an increase in money supply were "misleading."

Of the total utilised foreign investment last year. 20 billion dollars was made in the form of such goods as machinery and technical equipment, the analysts were quoted as saying by the China Daily.

The breakdown was signifl-

cam they argued, because If all the investment had been in ca-.h form, the Central People's Bank of China (PBC) would have been forced to print an equal value of Chinese currency notes to put the foreign cash lino circulation.

However, the PBC only Issued 60 billion yuan (7.2 billion dollars) for the purpose of buying foreign currency.

"If the 60 billion yuan was all for swapping foreign cash Investment, it would have a notable role in fuelling inflation." which stood at 18.7 per cent in March, said a senior researcher at the think-tank. Li Youngjiang.

"But the fact is. a considerable pan of the bank notes put into1 circulation last ydar were meant to swap foreign loans and buy domestic trading companies' foreign exchange earnings?. . •,

However Li admitted (hat while foreign investment did not have a mujor effect on the overall money supply, it was a source of funds for fixed asset investment which Could fuel inflation.

China's attempts to freeze fixed-asset Investment through a credit squeeze have been hampered by the influx of the foreign funds, which have become an important source of capital outside the banking sector.

Tn basic belief Is that the role Is minor " Li said, adding that the devaluation of the Chinese cut+ency last year was a stronger factor because it had reduced domestic supplies by stimulating exports.

At the same time, imports were more expensive, which also pushed up prices on the domestic market, he added.