China's First Gold Exchange Opens for Trade

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Last updated at: (Beijing Time) Friday, November 01, 2002

China's First Gold Exchange Opens for Trade

The opening of China's first gold exchange Wednesday in Shanghai signals the end of 50-plus years of government monopoly over the gold market. With the opening of China's first gold exchange, Shanghai is poised to be a major international gold trading center, industrial analysts said.

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China's First Gold Exchange Opens for Trade

The opening of China's first gold exchange Wednesday in Shanghai signals the end of 50-plus years of government monopoly over the gold market.

Dai Xianglong, governor of the People's Bank of China (PBOC), the nation's central bank, was the first to strike the bronze gong at the Shanghai Gold Exchange, located in a European-style mansion on the Bund, now Shanghai's prestigious financial street.

The first deal was done at 9:58 a.m., as the Shanghai Laofengxiang Jewelry Research Institute Co., Ltd. purchased one kilogram of gold from the Shandong Gold Group at 83.68 yuan (about10 U.S. dollars) per gram.

Lu Xiaoyin, a woman trader representing Laofengxiang, said the price is very close to that of the London gold market.

In the first minute, 14 deals were transacted. Before the first hour ended, 273 kilograms of gold changed hands.

In his speech, Dai Xianglong said that the opening of the exchange, on which silver and platinum can also be traded, marks the establishment of all major financial product markets in China, following the opening of currency, securities, insurance and foreign exchange markets.

Analysts called the gold market the "last fort of China's planned economy." Since the founding of new China in 1949, the production, sale and processing of gold was strictly controlled and monopolized by the government in compliance with state plan, while private trading of gold was totally forbidden.

As China is currently moving to a market economy, the old system has become increasingly irrelevant because it deprived gold enterprises of both pressure and vigor.

In April 2001, the central bank announced the abolishment of the monopoly system and the forming of a gold exchange in Shanghai.

On Nov. 28 last year, the Shanghai Gold Exchange went on a trial run.

Shen Xiangrong, chairman and general manager of the exchange, said that with the opening of the exchange, the central bank's function as the distributor of gold will cease, and that in a relatively short period of time, it will stop purchasing gold as well.

Liu Shibo, a research fellow with the Development Research Center of the State Council, the country's governing body, said that the deregulation of the gold industry will deprive enterprises of government protection and expose them to rigid competitions.

Enterprises will need to keep a still closer eye on the international gold market and learn more from advanced production and management technologies used by their overseas counterparts, he said. On the plus side, Liu predicted that the deregulation of the market will lead to an increased demand for fine instruments, arts and handicrafts, decorative materials and other industries.

The deregulation of China's gold market, the world's fifth largest gold producer and third largest consumer, has caught the attention of the international gold industry.

Albert Cheng, East Asia regional director of the World Gold Council, noted the opening will drive up world gold consumption and its impact on the global gold market cannot be underestimated.

"I am convinced that Shanghai will become the gold trading center of East Asia in the not too distant future," he added.

At present, the Shanghai Gold Exchange boasts 108 members from 26 Chinese regions. They include 13 commercial banks, 24 gold miners, 61 consumer units, eight refineries and two mints. Only members can trade in the exchange.

All transactions are subject to a 0.06 percent commission. The settlement is done by China's four state-run banks, namely, the Industrial and Commercial Bank of China, the Bank of China, the Construction Bank of China and the Agricultural Bank of China.

New international trading center

With the opening of China's first gold exchange, Shanghai is poised to be a major international gold trading center, industrial analysts said Wednesday in Shanghai.

The opening of the Shanghai Gold Exchange Wednesday marks the deregulation of the gold market in the country after over half a century of government monopoly, said Cheng Binghai, deputy head of the China Gold Council.

China's status as the world's fifth largest gold producer and third largest consumer, combined with Shanghai's developed credit system and financial market, enabled the municipality likely to achieve its new ambition, Cheng said.

There are currently more than 40 major gold markets worldwide, with London, New York, Chicago, Zurich and Hong Kong as the top five markets. Most of the gold markets are now situated in international or regional financial centers instead of being located in gold production belts.

For a city to be turned into an international gold trading center, it must have a developed commodity economy and credit system, a sophisticated financial market, stable political environment, as well as sound transportation, communications and warehouse facilities and a good legal system, Cheng noted.

As long ago as the 1930s and 1940s, Shanghai was already a renowned financial center in the Far East and the largest gold trading center in the region.

More than half a century later, Shanghai is now well on its way to recovering its status as China's financial center and an international financial center.

The municipality is already home to interbank and foreign currency markets, the interbank bond market, the silver and jewelry markets, as well as securities and futures markets.

Shanghai's edge as a major hub of capital and other production factors and its strong storage capacity and developed communications and transportation facilities mean that the metropolis possesses the major essential conditions to become an international gold trading center, Cheng said.

Industrial sources predict that nearly 30 percent of Asia's annual 2,200 tons of gold trading volume will be done in Shanghai in the years ahead.

Though this figure is still small in comparison with the trading volume in the London gold market, analysts said that the figure at the Shanghai Gold Exchange will increase rapidly with China's expected removal of restrictions on the import and export of gold.

Albert Cheng, the World Gold Council's East-Asia regional director, said he believes that Shanghai will emerge as the gold trading center of Southeast Asia and maybe even all of Asia within just a short period of time.

All the top five gold markets enjoy free exchange rates and cross-border gold trading. In this regard, Shanghai is a regional market only.

But after China's entry into the World Trade Organization, the Reminbi (RMB) is also likely to become an international currency and maintain a stable value in the long term, the sources said. Itis also highly possible that China will become a major receiver ofinternational capital in the next 20 years.

Xi Jianhua, a research fellow with the Shanghai branch of the Bank of China, said if all the predictions come to true, Shanghai is very likely to become the world's sixth largest gold market.

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