|
NEWS
RELEASE
26 March
1998
THORITIES TO REFORM GOLD MARKET
China's new Gold pricing strategy
The People’s Bank of China (PBC), which has full control over China’s
gold policy and regulations, announced on 20 February 1998 that the official
purchasing price paid by the PBC to mine producers would be reduced to
80.5 yuan a gram (US$9.7/gram, based on US$302/oz). In addition, the price
paid to the PBC by gold jewellery manufacturers would also be adjusted,
to 82.1 yuan a gram (US$9.9/gram, based on US$302/oz).
Bold step towards liberalisation and end to gold protectionist policy
The dramatic 8.5% reduction in the price paid to gold miners is the most
significant since China started to liberalise its gold pricing policy
in 1993. The differential between the price paid to producers and the
price paid by gold jewellery manufacturers has gradually come down from
10% and is currently only 2%, reflecting more closely the actual costs
incurred by the PBC for transport and refining.
This reduces the government subsidy, through the PBC, of the gold mining
industry, thereby forcing miners to reform, modernise and become internationally
competitive. At another level, jewellery manufacturers will be paying
less for their gold, enabling them to invest more in product design and
quality to increase their competitiveness.
Enthusiastic trade response to free market policy
The new policy pulls the domestic gold price more closely into line with
international prices and gives full autonomy to the PBC for gold price
adjustments in response to international market changes without the need
of prior approval from the State Council. This not only paves the way
for opening up the Chinese gold market but should also deter gold smuggling
and boost the confidence of the jewellery industry.
The industry welcomed the long-awaited moves as demonstrated by the following
remarks:
Mr Cui Xiwu, President, China National Gold Corporation. "The
new policy will inevitably lead to the closing down of many small gold
mines. In the
short run, only those with real strength and capabilities will survive
and thrive. I welcome this as crystallising the spirit of a free market
and I am sure it will induce healthy development for the gold market in
the long term."
Mr Shi Xiao Guang, General Manager, China National Arts and Crafts
Corporation. "It is certainly great news for us manufacturers.
The previous gap between the international and domestic gold prices made
gold smuggling into China a phenomenon. Local goods had lost competitiveness
totally and many manufacturers were running businesses at a loss. The
latest reform breathes new hope and brings incentives into the manufacturing
sector as a whole."
Council efforts are productive
Since the Council entered China in 1993, top priority has been given
to regulatory work as the key to exploiting China’s gold demand potential
in the longer run. Following years of careful and patient work on relationship
building, conservative officials of the PBC have gradually come to trust
and rely on Council staff as key advisors in the process of reforming
the gold market.
A special regulatory task force was set up last year by Council staff
with representatives from influential Chinese government entities, including
the PBC, State Planning Commission, and several key ministries. The result
was a series of regular round table meetings, closed door seminars with
international experts and overseas study tours to Hong Kong, Singapore,
Japan, India, Malaysia and London. Such meetings have helped to convince
both the government and the gold industry of the benefits of gold market
liberalisation.
The impact of these programmes has been enormous as Chinese policy-makers
have been greatly impressed by some of the changes and advanced methods
used by the gold industry abroad. They were thus convinced to accelerate
the pace of liberalisation in their domestic gold market.
|