Chinese residents welcome gold trade

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Last updated at: (Beijing Time) Friday, December 05, 2003

Chinese residents welcome gold trade

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A resident in Chengdu city of southwestern Sichuan province bought five ounces of gold this week in the Chengdu branch of the Merchants Bank of China at the price of 16,647.5 yuan (2,000 US dollars), becoming the first investor to try physical gold trade in China.

Just half a month ago, the Bank of China (BOC), one of the four major state banks in China, began selling gold-backed paper items to Chinese individuals in Shanghai. The trade was welcomed by locals with one of the largest buys reaching 2,500 grams of gold in paper.

Insiders said that from "paper" to "physical" gold trade, China is now providing more investment choices for its residents.

"The investment value of gold has long been screened owing to scarcity of investment channels," said Gu Wenshuo, general managerof the comprehensive section of the Shanghai Gold Exchange.

In the past five decades, nevertheless, the gold market was under a government monopoly with gold consumption focused on jewelry or industrial use in China. Total gold consumption is at alow level as compared with other nations in the world. In 2002, Per-capita gold consumption in China was only 0.16 grams, far lower than 1.42 grams in the United States and the world's averageof 0.7 grams.

Chinese people have traditionally had the tradition of hoardinggold as a way of securing savings against disasters, natural or man-made. Shanghai was the largest gold trade center in the Far East in the 1930s and 1940s. But gold trade was abolished with thefounding of new China in 1949.

Xia Yanlin, researcher in Guangfa Securities Development Research Center, cited gold as an deal good risk management instrument as the trend of it comes against most financial tools.

Xia said China brings gold trade service to individuals at justthe right time. Against the backdrop of gloomy stock and securities markets on its mainland and the rocketing gold price worldwide because of tension in international relations, trading in gold is expected to become a crucial investment arena for Chinese individuals.

Gold has exceeded 400 US dollars an ounce on the world market and is reasserting its powerful and some would say mystical role in the world economy. Affected by this, Shanghai Gold Exchange closed at 106.93 yuan per gram on Thursday.

A recent questionnaire by the Beijing Gold Economic DevelopmentResearch Center in 10 major cities in China showed 70 percent of respondents said that they would invest in the gold trade if they had money and over 20 percent of securities investors would transfer part of their capital to gold trade.

Experts predicted that nearly 7.5 million investors will try the gold trade while continuing the securities trade in the future.Calculating that each one will invest 10,000 yuan (about 1,200 US dollars) of capital, the trade will attract 75 billion yuan (some9 billion US dollars) of funds in total.

Astute and sharp-sighted commercial banks would never ignore potential income from the intermediate business and the huge clients resources it would bring. The other three state banks, namely, the Industrial and Commercial Bank of China, the Construction Bank of China and the Agricultural Bank of China, have all stepped up their preparations for launching gold trading.

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