BEIJING, March 29 (Reuters) – China’s gold demand is expected to double over the next decade from current levels due to jewellery consumption and investment needs, the World Gold Council (WGC) said in report released on Monday.

Currently the world’s second-largest gold consumer after India, China has seen its gold demand grow at an average rate of 13 percent per year over the past five years.

Demand from China’s two largest sectors — jewellery and investment — reached a combined total of 423 tonnes in 2009, with 314 tonnes supplied by domestic mines.

“This shortfall creates a snowball effect as China’s gold industry may not be able to keep pace with the annual leap in domestic consumption despite rising to be the world’s largest gold producer since 2007,” WGC said in the report.

The Chinese per capita consumption of gold jewellery is one of the lowest, at 0.26 grams, compared with other major gold consuming countries. If gold were consumed at the same rate per capita as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by at least 100 tonnes or as much as 4,000 tonnes in the sector alone, it said.

If the central bank boosts gold holdings to 2.2 percent of forex reserves, a peak level seen in 2002, from the current 1.6 percent, China’s total incremental demand would rise by 400 tonnes at the current gold price, the report added.

China’s share of global gold demand doubled from 5 percent in 2002 to 11 percent in 2009, and the council predicted that China’s domestic gold mines could be exhausted within six years.

“The Chinese gold industry is simply not responding fast enough to bring in new supply,” it said. (Reporting by Eadie Chen, Jim Bai and Tom Miles, Editing by Ken Wills) (eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net))