China Gold Lust Seen Overtaking India

China may soon overtake India in the consumption of gold. This is because like India, its neighbour too, is witnessing a tremendous demand for the yellow metal.

China has bought over 220 tonnes of gold each year, for the past four consecutive years, at a cost of around $3.7 billion.

This is almost one per cent of the nation's gross domestic product (GDP).

According to Jonie, area manager (North Asia), World Gold Council (WGC), the Chinese regard gold as the most reliable tangible asset.

This is all the more pronounced in the rural areas where accessibility to alternative investments is limited or almost non-existent.

A WGC research indicated that 34 per cent of the Chinese showed an inclination to acquire gold. With incomes steadily rising, gol has an excellent long term growth potential in China. There is, however, a hitch.

China's gold market is highly regulated. Gold jewellery attracts a 5 per cent consumption tax and a 17 per cent VAT. It is also reported that all forms of gold manufacturing and trading have to be approved and licenced by the Central Bank of China. No foreign companies are allowed to retail gold in China. The price too is fixed and controlled by the Central Bank.

Currently, the mine produce price is roughly 10 per cent below par and 3 per cent and 33 per cent above par respectively for manufacture and retail.

Jonie said the control had halted the local gold industry development and encouraged smuggling. The result was that quality and design of suffers in the bargain, he added.

Existing products are poorly produced and marketed, and do not match consumer expectations when compared with imported goods.

He said the consumer service being poor, consumers were less motivated to buy gold jewellery.

The World Gold Council has been trying to influence the Chinese government to adopt more pragmatic policies regarding gold, and has managed to get the market deregulated to some extent. The consumption tax on gold jewellery has been halved to 5 per cent above par which effectively closes the gap between domestic and international prices.

A result of these efforts is that a new retail price structure is now being tested out in the Shenzen economic zone of southern China.

Contrary to the old system, which had only one fixed retail price covering both material and manufacturing costs, the new structure allows jewellery manufacturers to charge higher labour costs for higher quality products so that the producers can generate more resources to reinvest in better technology and equipment.

The WGC, however, does not visualise any complete deregulation of the gold market as it will have to await the full convertibility of the Chinese currency, Renminbi. With effect from January 1, the Peoples Bank of China announced a reduction in the domestic price of gold from $390 to $375 per ounce which is still higher than the prevailing international price.

The World Gold Council added that global market research findings reveal that an estimated 700 million people bought gold in one form or the other last year.

At least 275 million of these gold buyers were in the emerging markets. China, India and Indonesia are the largest markets in terms of the number of buyers.

There were also some major variations between consumers in the emerging world, both in terms of buying behaviour and attitudes.

For example, while 61 per cent of adults in Saudi Arabia bought gold last year compared with 9 per cent in India, each adult in Saudi Arabia, on an average, bought 18 grams as against less than one gram per Indian buyer.

Thailand set to become regional centre for jewellery

Thailand will soon become the new regional centre for jewellery and ornament products competing with Hong Kong where the market may be affected because of the forthcoming transition of political power.

The jewellery and ornament industry in Thailand has been growing continuously, and has already gained international recognition, says Sathaporn Kawitanon, secretary-general of Thailand's board of investment He added the Thai industry has the advantage of having more skilled workers and advanced technology compared with other countries engaged in the manufacture of gold jewellery.

The change of power in Hong Kong might affect the island's jewellery industry, and shift foreign customers attention to Thailand, he added.