China To Allow Citizens To Trade Gold

by Mary Swire, for LawAndTax-News.com, Hong Kong

09 September 2004

Although the Chinese mainland is still remaining sphingine on plans to float its currency, progress is being made in opening up other parts of its investment markets, with the announcement this week that individuals will be allowed to trade gold through the Shanghai Gold Exchange.

People's Bank of China governor Zhou Xiaochuan said on Monday that the government wanted to encourage more trade in gold as an investment, rather than restricting it to hedging against price movements by suppliers and buyers. Gold Exchange chairman Shen Xiangrong told the South China Morning Post that futures trading and foreign participation were likely to follow, although the latter was not likely until futures contracts were in place.

Chinese individuals are thought to hold about 12 trillion yuan of domestic savings. Although they can already buy gold through commercial banks, allowing direct access to the market is likely to increase domestic demand by anything up to 200%, according to some experts. Annual demand is currenctly about 600 tonnes, and the central bank holds about this amount of gold in its reserves.

Also on Monday, Dow Jones said it would partner with China Business Network (CBN), a unit of the state-owned Shanghai Media Group to launch a comprehensive stock index for the mainland's A-share markets, challenging the existing Xinhua-FTSE index. The Dow Jones CBN 600 Index will track the 600 largest A-share companies on the Shanghai and Shenzhen exchanges, and is expected to provide a boost to trading - existing indices have largely failed to excite punters.

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