The People’s Bank of China removed all barriers to gold licensing for the manufacture, distribution and retailing of gold products, at the beginning of April.
This event is another landmark in the liberalisation of precious metals trading in China, and in the reform of China’s financial markets. Last November the end of more than 50 years of absolute control by the central bank was celebrated, with the formal launch of trading in physical gold on the Shanghai Gold Exchange.
‘This is certainly a historical moment for the China gold industry, which has been closely regulated for many years,’ said Albert Cheng, Managing Director, Far East, of the World Gold Council. ‘Foreign competition is expected to stimulate proactive efforts of the local jewellery trade to upgrade their product design and quality, and a more competitive market will benefit consumers and the industry’s long term development.’
The World Gold Council acts as the sole foreign adviser to the Shanghai Gold Exchange and has worked towards establishing a deregulated market in China for several years.
Although overseas investors are now free to operate in the China gold market without seeking prior approval from the People’s Bank of China (providing local gold is used), the import and export of gold will still be regulated. Producers of gold jewellery manufactured in China for export will also need to be licenced by the Bank.
The World Gold Council has recently published its 2002 fourth quarter Gold Demand Trends report. Demand for gold during this period was 12% greater in financial terms than in the fourth quarter of 2001, though it was 3% lower in terms of tonnage. This meant that demand for 2002 as a whole was 4% greater than 2001 in financial terms, and 9% lower for tonnage.
The jewellery market showed consistent improvement throughout 2002, and industrial demand remained unchanged. Growth in East Asia (excluding China) was offset by worldwide conditions. The level of interest in gold is expected to prove erratic due to instability in political, economic and pricing conditions.
The dollar price of gold surged in the last few months of 2002, which carried into the beginning of 2003 - the high trade was just below US$390 per ounce. The impending war was obviously a factor in the fail of prices, and the market was due to stabilise at US$350 per ounce at the time of the report’s writing.