Chinese gold demand could rise over 22 percent in the next three years and sharply outpace domestic production, the head of the country’s largest state-owned gold miner China National Gold Group said on Thursday, signalling room for a strong ramp up in imports.

Gold production should reach 400 tonnes by 2014, a gain of nearly 19 percent from 2010, but consumption is set to grow by nearly a quarter to 700 tonnes, Sun Zhaoxue, president of the group, told reporters at the sidelines of a conference in Shanghai.

“I’m very optimistic about the future of China’s gold market,” Sun said.

China produced 340 tonnes of gold in 2010 and investors locally bought 571.5 tonnes, according to official data, for a gap of 231.5 tonnes made up by either imports or sales of existing stocks.

The proportion of imports is not available because China doesn’t regularly publish gold-trade figures and rarely comments on its reserves.

China has seen a spike in demand for gold and silver since late last year as investors looked to precious metals over stocks, property and savings.

India remains the world’s largest gold buyer, but China is closing in and from a low base with room to grow quickly as income rise, Sun said, noting gold buying per capita stood at just 4 grams, much lower than other industrialised nations.

In April, Shanghai Gold Exchange, China’s only specialty precious metals exchange, started a trial for over-the-counter trading, providing an easier tool for institutional clients to trade large quantities of gold.

Sun said Beijing’s move to consolidate the gold mining sector, improve technology and encourage exploration at depths exceeding 1,000 metres would combine to boost the country’s underground reserves and output over the coming years.

China’s gold output in the first three months of 2011 totalled 73.4 tonnes, up 4.6 pct from the same months of 2010, the Ministry of Industry and Information Technology said.

Gold’s decade-long price rally could take the metal above $1,600 an ounce by year-end, metals consultancy GFMS said in a widely anticipated industry report as investors’ appetite for gold sharpens further.

Separately, Sun said the group was still considering whether to inject its copper assets into its Shanghai-listed China Zhongjin Gold.

“Some don’t support the idea of an injection. We are the fifth-largest copper producer in China and they think it may be better to spin off our copper assets,” Sun said, adding the firm was also in talks with regulators on the subject.

Gold futures may tread higher nearing the keenly watched 16,000-rupees mark this week, supported by a weak dollar overseas, with investors eyeing the outcome from the Fed monetary policy and G20 meet for direction.

The most-traded October contract was 0.46 percent higher at 15,848 rupees per 10 grams at 6:04 p.m., when a weak dollar overseas supported the yellow metal, recovering from its one-week low of 15,665 rupees, struck on Monday in late-trade.

The euro hit a one-year high against a sliding dollar as dealers took advantage of the U.S. currency’s rise the previous day to resume selling ahead of a Federal Reserve monetary policy meeting and Group of 20 summit later in the week.

A weak dollar enhances gold’s appeal as an alternative asset to the greenback.

Prices are still below the all-time high of 16,040 rupees, struck on Feb. 20, earlier in the year.

“Gold may test 15,950-15,975 rupees later in the week,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

“Gold may be in the range of 15,100-15,950 for the week,” said Pradeep Unni, senior research analyst with Richcomm Global Services.

However, subdued demand from India, the world’s largest consumer, may keep the upside limited, they added.

India’s gold demand abated on Tuesday after picking up for two continuous sessions, as prices recovered from their one-week low.

The World Gold Council’s January to June figures show India’s gold imports fell 55 percent to 126.7 tonnes from 282.3 tonnes a year earlier.

It is reported that the World Gold Council is planning what it calls an unprecedented campaign to encourage gold sales in rural China, where higher farm incomes and government stimulus programs are feeding demand.

“Rural areas showed better-than-expected demand for gold in the first half in China,” said Gerry Chen, business development manager for China with the World Gold Council.

China is the only country in the world where the demand for gold jewelry has risen in the aftermath of the world financial crisis, the council said. Sales on the mainland rose 9 percent in the first half, while global demand contracted 8 percent.

But demand in China is unevenly spread.

“Gold demand was flat in Beijing, Shanghai and other first-tier cities, while consumption in rural areas showed surprisingly strong growth,” Chen said.

He declined to break down figures and said details of the rural marketing campaign had yet to be finalized.

Throughout China, gold is considered a symbol of good fortune. In rural areas in particular, gold is used to celebrate weddings.

Prosperity is returning to many hinterland areas, where household spending and consumer sentiment are rising faster than in large urban centers.

About 59 percent of rural households said they planned to increase spending in the next 12 months, compared with 41 percent in big cities, according to a MasterCard survey released this week.

China has increased spending in rural areas as part of a comprehensive stimulus program to boost domestic consumption and counter a slump in exports, the nation’s traditional engine of growth.

“The second half will maintain the momentum,” said Chen. “It was hustle-bustle at the Shenzhen International Jewelry Fair last week. Retailers stood in long lines to do business.”The annual fair is deemed to be a benchmark for China’s jewelry market. The busier the show, the bigger the sales going into the Chinese New Year. The fourth quarter is traditionally the high season for gold sales in China.

The council wants to increase that proportion to 15 percent by 2012. While it maps plans to stimulate sales in the nascent rural gold market, the council is expanding its urban campaign to promote high-end, designer 24-carat jewelry, which now accounts for 5 percent of China’s total gold jewelry consumption.