World Gold Council's Proposal to Establish a National Gold Exchange Market Wins Support in China.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 13, 2000

The World Gold Council's persistent efforts to promote positive dialogue with some of the world's key governmental regulatory bodies and to liberalize gold markets around the world, took a significant step forward this month when the World Gold Council proposed an action plan to deregulate China's crucial gold market.

The major research report commissioned by the WGC entitled, China's Gold Market Reform in a new Era - Related Policy Research and Suggestions, was unveiled at the 2000 China Gold Economic Forum, organized by the World Gold Council in Beijing. Compiled by the renowned Chinese economist, Dr. Liu Shijin, the report examines gold production and distribution systems in China, with major focus on the establishment of a gold exchange market.

Over 200 key representative of government regulatory bodies, gold mining companies, the jewelry trade and financial institutions from China and overseas attended the forum.

The Bureau of Currency, Gold and Silver Administration and the People's Bank of China, were among the leading Chinese institutions co-sponsoring the forum with the WGC. The forum also secured the support of the Gold Bureau, State Economic and Trade Commission and the sponsorship of Anglogold, Ltd., the world's largest gold producing company.

The report, which called for acceleration of China's market deregulation process, sets out the position that "to reform or not to reform", is no longer the question. Rather it is how to reform in order to achieve the most desirable results.

Earlier the WGC, in its capacity as advisor to the People's Bank of China, proposed a three-stage scenario for liberalizing the market in order to comply with World Trade Organization rules in the event of China's expected entry into the free trade body.

This proposal, based on a study by the National Economic Research Institute of the China Reform Foundation, is expected to be the basis for future discussions on the reform of China's gold market.

The three stages toward liberalization proposed by the WGC comprise a partial deregulation of the Chinese gold market over a two-year transition period, the complete opening of the domestic market and the direct linking of the Chinese market to the international gold market.

Among several far reaching reforms, the WGC proposes the establishment of an exchange in a major Chinese city such as Beijing or Shanghai to trade in spot gold only. Chinese producers would be allowed to sell part of their gold output through the exchange.

At present, basically all the gold produced by Chinese firms must be sold to the People's Bank of China, which controls the purchase and sale of gold. Beijing would be forced to end the monopoly if China is to join the World Trade Organization.

China's gold consumption of 102.5 tonnes in the first half of this year ranked it fourth in the world after India, the United States and Saudi Arabia.

However, according to the WGC's Corporate Director, International Marketing, Kerr Cruickshanks, China's gold consumption might triple within three years of market deregulation, rising to as much as 600 tonnes a year from about 200 tonnes. "A liberated market in China will ultimately lead to increased gold consumption. India's market doubled within two to three years of deregulation and you might expect similar growth in China," said Mr. Cruickshanks.

The research report was enthusiastically received by both foreign gold experts and local gold market participants, who shared the World Gold Council's view that a national gold exchange market would be the way forward. They agreed that when opening up the market a gold exchange would be easier to regulate and would help insure market participants were credit worthy.

Ian MacDonald, V.P. Manager of Precious Metals of Commerz Bank AG, New York, a speaker at the conference, said that he was impressed by the commitment to change felt by all levels of senior government officials whom he had met.

"It was clear to us that they were committed to change and that deregulation together with a relaxation of foreign exchange controls and current levels of taxation on gold will lead to an appreciable rise in China's gold consumption."

Overall, there was a high level of agreement among government officials attending WGC's Gold Virtuosi Gala night in Shanghai. Mr. Huang Qi Fan, Vice Secretary General of the Shanghai Municipal Government, said "Shanghai will strive to set up a national gold exchange market before the end of the year. It will follow the practice of international gold exchange markets and the World Gold Council will be invited to provide advice and consultancy."

The World Gold Council is an international organization formed and funded by leading gold mining companies from around the world to stimulate demand for gold.