By Jane Macartney

BEIJING, June 2, 1995 (Reuter) - An industrial boom in rural China is damaging the environment with three severe cases of pollution along one river affecting hundreds of thousands of people, China said in an annual environment report Friday.

"The problem of the environment has become a major factor curbing economic growth and influencing the health of the people," the Xinhua news agency said.

But it said the 1994 report by the National Environmental Protection Agency said the government's battle to try to control damage caused by pollution in a country witnessing the fastest economic growth in the world was achieving results.

"The worsening state of the environment is more or less under control and in some areas is relatively stable," it said. But it cited severe problems facing China.

Last year, three severe pollution incidents in the Huaihe river area in eastern China affected the lives of hundreds of thousand of local residents, the report said. It gave no details of the damage.

The report said discharge of sulphur dioxide, smoke and soot had increased with more cities suffering from acid rain than in 1993. It said 48 cities had reported levels of carbon dioxide emissions in excess of state-set standards, citing the central city of Chongqing with a population of over 10 million and southwestern Guiyang as among the worst affected.

China, which relies on coal for 76 percent of its energy, ranks third after the United States and Russian in carbon dioxide emissions, a major "greenhouse gas" blamed for global warming.

Dirty coal also causes acid rain, most prevalent south of the Yantze River, on the Tibet-Qinghai plateau and in central Sichuan. Figures from 77 cities showed 81.6 percent suffered from acid rain, with Changsha, capital of central Hunan province, among the worst hit.

Industry was the major source of pollution, with township industry the major offender, the report said.

China's mostly private or collective township industries have sprung up as a result of economic reforms in small towns and rural areas in recent years, fueling searing economic growth and escaping many regulatory controls.

The environmental pollution in and around cities was gradually encroaching upon the countryside, the report said, adding that the area of arable land dropped by 1.76 million acres in 1994, an increase of 14 percent compared with 1993.