China produces most of the world's silk and silk garments, and a rapid increase in production is alarming compatriots in Hong Kong and potentially creating friction among arms of government.

Hong Kong imported $904 million worth of silk, made-up garments and satins in the first half of this year, of which $660 million came from the adjacent mainland, according to China Resources Silk Co.General manager Huang Zenghua said this flood of supplies is proving an acute problem for Hong Kong dealers. He appealed to mainland suppliers to cut the volumes shipped to Hong Kong.

China Resources (Holdings) Ltd. is run by the Chinese government and is the mainland's principal commercial arm in Hong Kong.

It has a vast number of subsidiaries, affiliates and joint ventures in almost every aspect of commerce, including telecommunications, containerport operations and retailing, and heavy investments in China itself.

Mr. Huang said an artificial cotton shirt now sells for around HK$200 ($26), while a silk-lined jacket fetches only HK$150.

Many silk dealers have switched to other businesses or simply gone out of business due to the sluggish state of the market and oversupply of silk, he said.

Mr. Huang said the export price for some types of silk plunged to $25 a kilogram (2.2 pounds) last year from $51 in 1990. Export prices for silk products were one-third those in recent years, he said.

His company operates 12 joint-venture companies in China, specializing in silk printing and dyeing as well as clothing manufacture. Most of them are now in the red, he said.

Mr. Huang urged the Chinese authorities to pay closer attention to the volume of output by factories on the mainland, many of which are state-run.

"Poorly managed and unprofitable operations should be put out of business (and) a balance between supply and demand be maintained to increase the competitiveness of China's silk products in overseas markets," he said.

International demand for Chinese silk has not risen appreciably for several years. But China's output has grown steadily as farmers believed there were quick profits to be made as the country's textile industry ran short of cotton.

China is the world's largest producer and exporter of silk and silk products. More than 70 percent of its output is sold abroad, accounting for about 85 percent of the total world trade in silk.

China National Silk Import & Export Corp., the main state trading arm, said exports earned $2.6 billion in 1994, an increase of 27.5 percent on the previous year. American buyers are the biggest customers, sourcing around 70 percent of their needs from China.

Production in four main centers - Jiangsu, Zhejiang, Shandong and Sichuan provinces - expanded between 20 percent and 40 percent in recent years, even as profit margins slid.

More than 200 of the 369 state-owned large and medium-sized silk enterprises in 20 main silk cities were in the red earlier this year.

Most of China's silk exports are low-grade garments. The high value-added items originate mainly from France and Italy, which use raw Chinese silk to make upmarket garments.