China is borrowing heavily from international lenders to finance its campaign to produce more high-quality and specialized steel products.

While the government says it wants U.S. expertise, Japanese and European firms are the beneficiaries so far.The industry has announced plans to borrow US$1 billion this year for expansion. China International Iron & Steel Investment Corp. signed a contract late last week to borrow US$34 million from a syndicate of eight Japanese banks.

The funds will go for imports of technology and equipment for a hot rolling mill at Meishan Iron & Steel Co. in coastal Jiangsu province. The supplier wasn't identified, but can safely be assumed to be Japanese.

Only a few days earlier, the state-run Chinese firm signed contracts worth about US$140 million to buy cold rolling equipment from Mannesmann Demag of Germany, Clecim of France and Maschinenfabrik Andritz of Austria.

This gear will be used in a US$274 million project at the Benxi Iron & Steel Works in northeastern Liaoning, the heart of China's heavy industry. The funds were raised by the Chinese firm and Bank of China, the principal foreign exchange house.

The Chinese firm, established in 1986 to spearhead a drive for more advanced technology from the West, has so far spent US$210 million on five projects. A new deal is expected this month for US$320 million or so of equipment from a Spanish company, supported by soft Spanish credits.

That equipment is destined for construction of the No. 3 plant at Wuhan Iron & Steel Corp. in central Hubei province, the country's second-ranked producer.

China reported steel production last year of 70.5 million metric tons, up

from 66 million in 1990. Rolled steel output was 55.5 million tons compared with 51 million in 1990, official figures show.

But poor quality and a limited range hamper the country's industrial development. Officials acknowledged last month that most of the 100 main varieties of steel needed in energy, communications, general machinery, electronics and chemicals must still be bought overseas.

This leads to a persistently hefty import bill. China spent US$2.5 billion last year buying various steel items, even though import volume dipped to 3.58 million tons from 3.68 million in 1990.

Most of the imports are destined for the auto, shipbuilding and consumer products sectors. Officials of China International Iron & Steel said Friday the new plant in Liaoning will produce 700,000 tons of cold-rolled thin plates when complete in 1994.

The country's largest producer, Anshan Iron & Steel Co. in Liaoning, says production is creeping back from a slump in 1990 . Anshan, which once accounted for a quarter of China's steel output, was given special allocation of raw materials and funds when output began to slide.

The company says production last year was 7.8 million tons of steel, or about 11 percent of the national total, compared with 7.7 million tons in 1990. It produced 5.7 million tons of rolled types, against 5.6 million the year before.