Midas touch - China's tech, financial firms eye virtual gold rush

China's virtual gifting market is luring major financial institutions

China's virtual gifting market, typically the domain of plugged-in young consumers celebrating special occasions or flirting, is luring major financial institutions keen to boost trade of another auspicious commodity: gold.

Tencent's digital gold packets, known as "microgold", are backed by the country's biggest bank, Industrial and Commercial Bank of China. They allow users to send funds that track the real-time value of gold to friends over the firm's popular messaging platform WeChat.

It's a financial innovation on the concept of virtual gifts, such as digital roses and chocolates, more commonly used in online communities and which have more sentimental value than any tangible economic worth.

For financial institutions, China's booming virtual goods and smartphone-driven exchanges offer new markets to boost trading volumes in everything from banking services to gems.

ICBC, in an internal memo seen by Reuters and sent to staff on Friday, said the WeChat microgold platform had helped drive "explosive growth" in new gold accounts.

Over the recent Lunar New Year period, WeChat users sent 70,000 microgold packets worth just under 100 million yuan ($14.51 million) across the chat platform, the ICBC document said. It expects over 300,000 new gold accounts to be opened as a result of the Tencent tie-up. Neither ICBC nor Tencent were immediately available for comment.

While the volumes are relatively small, the take-up of similar virtual products on the WeChat platform suggests room for growth.

The gold packets are based on WeChat's popular virtual red envelopes, or digital "hongbaos", that also allow users to send funds to friends, albeit of a fixed nominal cash amount. Over the Lunar New Year period, users gifted 46 billion virtual red envelopes over WeChat.

For many Chinese, the yellow metal has both emotional and economic significance.

A Tencent user who goes by the name Liri Kuangjiu posted he had sent 1.3 grams of virtual gold and 520 yuan in a digital hongbao to his girlfriend.

"The money isn't much but it's a matter of affection," he said.

Kong Lingxin, a 20-year-old student from the northern city of Tianjin, uses her smartphone to buy, gift and hoard gold online.

Kong has spent 10,000 yuan ($1,452.88) of her savings on gold derivative products this year on Alibaba Group Holding Ltd-linked platform "Cun Jinbao" - literally "store golden treasure".

"My family has a history of collecting gold bars, which influenced my choice of investment," said Kong. "I chose an internet platform because it's easy to track gold prices, see your profits and make trades."

GOLD DEMAND

Gold analysts said the push by tech firms into the sector, though still at an early stage, had potential longer-term to stir up a sluggish Asian market if it caught on.

"It will become a support for gold demand and the gold price if WeChat gold packets become popular, considering the amount of traditional red envelopes users send," said Guotai Junan gold analyst Xie Qingpeng.

Beijing has taken note of the trend. The Ministry of Industry and Information Technology (MIIT) issued a guideline last week, calling for tech to play a bigger role in gold trading.

China's millennial consumers, loosely defined as those born between 1980 and 2000, are seen as the drivers of future growth in everything from retail to housing.

They make up over 60 percent of internet-based gold trading, according to a September report issued by G-banker, an online gold-trading platform backed by venture capital firm Softbank China Venture Capital and Alibaba.

Amid a property price spike, gold offers younger buyers a more affordable and accessible investment.

"It's nearly impossible for young people to invest in property in first tier cities in China. Alternatively, they put small amounts into gold, as a low risk investment," said Helen Lao, Singapore-based metals analyst at Argonaut Securities.