By Steven Mufson
Washington Post Foreign Service
Sunday, March 8, 1998; Page A27

BEIJING, March 7—The Asian financial crisis could slash foreign direct investment in China by a third, hurt China's exports and slow the growth of its foreign exchange reserves, central bank governor Dai Xianglong said today.

But Dai said at a news conference that he believes China can maintain a modest trade surplus, increase total investment by about 15 percent and meet this year's economic growth target of 8 percent.

"China has not been seriously affected," President Jiang Zemin was quoted as saying in today's China Daily. "But we should have a correct understanding of the situation. We should not underestimate its negative impact on our economy."

Dai gave China's first official assessment of the damage done by the financial turmoil in Asia, which previously provided most of the investment to China and bought many of China's goods.

Dai said that foreign direct investment would exceed $30 billion. That would be down sharply from last year's $45 billion.

He added that he was "not overly optimistic" about exports this year but that growth of 8 percent to 10 percent was "entirely achievable." China's exports soared 20.9 percent in 1997.

The central bank governor said China is expected to register a slight trade surplus or balanced foreign trade in 1998. China registered a surplus of $40.3 billion in 1997 on exports of $182.7 billion and imports of $142.4 billion.

Foreign exchange reserves were essentially flat for the first two months of this year, edging up to $140.3 billion at the end of February from $139.9 billion at the end of December. During 1997, China's reserves grew by $34.9 billion.

Dai said that China will ease reserve requirements for banks, encourage greater lending and ease limits on private debt financing of infrastructure projects in an effort to meet this year's economic growth target of 8 percent.

"Especially after the Asian financial crisis, China has all the reason to expand domestic demand and exploit its domestic market," Dai said.

"We should be confident that we can fend off the crisis, consolidate the current good situation at home and seek further development as long as we follow the principles decided by the central authorities," Jiang was quoted as saying in China Daily. His comments were said to have been made Friday at a closed-door session at the National People's Congress.