I believe that the gold market trading in China (Shanghai?) was temporarily postponed.
They did a test run on their market recently and it went well to wit, this article
SHROFF: GOLD
A New Player?
By John Adams
Issue cover-dated December 20, 2001
John Adams is director of China Financial
Services and the author of a report on
China's gold market
On November 28, China opened its
long-promised gold exchange in Shanghai. The
opening isn't quite what it seems--the official
launch won't be until next year. But, as usual
in China, it's worth taking a look behind the
scenes, where an interesting story is unfolding.
Until recently, China had a flourishing import
trade, mainly in smuggled gold. This
amounted to 400 tonnes in some years, when
the price outside China was lower than the
domestic price. It is highly likely that the same
gold was then smuggled out when the situation
was reversed.
The control and taxation of gold transactions
by making them official is certainly a major
motivating force behind liberalization of the
gold market. The demands of WTO
membership is another, together with moves
to reform the state-owned gold-mining
industry. And it is part of a 2-3 year plan that
ends with integration into the world gold
market, foreign participation and the use of
instruments like hedging.
The People's Bank of China will retain its role
as manager of the official gold reserves and
will also supervise the new exchange. The
bank began a couple of years ago to set the
gold price on a regular basis and to track the
world price more closely. There is however
still the question of how to trade gold at a
world dollar price, but in a currency which is
not yet freely convertible. So long as the
renminbi is linked to the U.S. dollar,
everything is fine. But there are little whispers
of the need for another renminbi devaluation
to offset falling exports. A dollar-denominated
asset like gold could look like a good home for
spare renminbi cash in the interim.
So how will it work? Firstly, there will only be
spot trades for physical delivery. Membership
is be limited to Chinese banks and jewellers.
Members will be divided into three main
categories: commercial banks; comprehensive
members who will be able to trade on their
own account and act as agents for other
enterprises; and individual members who can
only trade for themselves.
The exchange will trade one-kilogram 9999
bars for Asian retail investors; three-kilogram
9995 bars suitable for the New York
Commercial Exchange's 100-ounce contract;
and 12.5-kilogram bars suitable for the
London Bullion Market's 400-ounce contract.
It is likely that a sales tax on gold deals in the
exchange will be waived, at least for the time
being. Taxation put a blight on China's
fledgling diamond and silver markets.
Industrial & Commercial Bank of China,
which will act as one of the clearing banks,
claims to be able to provide nine types of
services to the market, including settlement,
storage, purchasing, import and export and
individual trading services. The bank's clearing
system allows trading funds to be settled
within two hours. Other clearing banks will be
the Agricultural Bank of China, the Bank of
China and the China Construction Bank.
There is speculation that the new exchange
will also allow the authorities to offload
official gold in the market. It certainly shifts
the burden of holding gold--which is a risky
and costly reserve--from the government to
the population. Eventually it will allow the
state to step back from gold mining and spin
off the gold mines for listing on the stock
exchange.
On the downside, this is a committing move,
made in a time of weak world markets, with
turmoil in the world's major gold-mining
companies. Tax issues do not appear to have
been resolved yet. Against such a backdrop,
an official launch in 2002 is a wise delaying
tactic.
Nonetheless, China has come a long way from
the fire sales of gold in the 1950s and 1970s,
when the metal was exchanged for essential
equipment and food. China's reserves, at
around $150 billion, are now among the
highest in the world. Gold forms only a small
part of that, at an official level of 395 tonnes
or 3% by value.
Some not disinterested commentators in the
Chinese gold industry would like to see a level
of 15%, but the latest news is that the
People's Bank is going long on Euro
instruments. These pay interest, have no
carrying cost, and offer considerable
appreciation potential.
The World Gold Council and the world's
major miners are now looking to Chinese
consumers to boost gold demand. They may
have to wait a long time. Mainland Chinese
consume just one fifteenth of the amount of
gold that their Taiwanese counterparts do, and
one thirtieth of the amount bought by people
in Hong Kong. Nonetheless, the new
exchange may boost demand, which reached
about 184 tonnes in 2000, according to the
Gold Field Mineral Service. Jewellery is the
main component, with strong demand in rural
areas.
Meanwhile, the Chinese gold industry has
other ideas. Shenzhen is now a major
producer of gold jewellery. China's gold
jewellery exports reached $1 billion last year.
The Chinese producers are hoping that in a
post-WTO world, the combination of Chinese
cheap labour and Hong Kong capital will be
unbeatable. Shenzhen is already lobbying with
the central government to be allowed to set up
its own gold exchange. |
