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To: Maurice Winn who wrote (24757)	10/30/2002 8:26:38 PM
From: TobagoJack	Respond to of 74559

Gold exchange paves path to liberalisation biz.scmp.com Thursday, October 31, 2002 CHRISTINE CHAN and BILL SAVADOVE in Shanghai China's central bank yesterday stepped away from centralised control of the country's gold market, ending five decades of buying and selling the precious metal. The move marks a key step in the liberalisation of one of the world's most important gold markets. It also paves the way for mainland gold prices to align more closely with international benchmarks. The transition came as China's first gold exchange was launched in Shanghai yesterday, providing buyers and sellers with a platform to trade and price gold based on market forces. Pricing and allocation was formerly rigidly set by the People's Bank of China. Officiating at the new gold exchange's opening ceremony yesterday, central bank governor Dai Xianglong said it marked "a new page of the setting up of China's financial market". Following the launch of the exchange, the central bank will stop selling gold and soon stop buying it. However, it will take on a regulatory role at the exchange. The exchange said it hoped gold would eventually become an investment product ranked in China with equities, bonds and foreign exchange. It said business was confined to physical trading for now, aiming to meet the demand of gold buyers and enterprises. Mr Dai said gold futures trading would be introduced when rules allowed. Exchange spokesman Yin Bo said there was no timetable for the introduction of forward contracts. Individuals might be allowed to trade gold through an over-the-counter market under new rules being drafted, he said. The 108 members of the exchange were all domestic institutions but the exchange might consider admitting foreign members in future in line with China's entry into the World Trade Organisation, Mr Yin said. Jason Wong, senior manager and head of bullion in Bank of China Hong Kong, said: "Allowing the gold price to be determined by market forces rather than the government is a significant step in China's gold market." However, he believed it would take some time for mainland gold prices to align with international benchmarks. Prices were likely to be affected initially by domestic demand and supply rather than international price movements, he said. China produces about 170 tonnes of gold a year and uses about 200 tonnes. Mr Wong said the correlation between the gold and equities markets in China was unlikely to be high because mainlanders tended to see gold as an instrument to protect capital rather than as an investment product. He said the exchange's ability to hedge gold overseas was a key challenge in view of the yuan's unconvertibility on the capital account, along with importing and exporting, which are under the control of the foreign trade ministry.