FACTS ‘N’ FIGURES — China rethinks gold stance

The People’s Bank of China (PBC), which has full control over China’s gold policy and regulations, recently announced that the official purchasing price paid by the PBC to mine producers would be reduced to 80.5 yuan per gram, equivalent to US$9.70 per gram, based on a gold price of US$302 per oz.

In addition, the price paid to the PBC by gold jewelry manufacturers would be adjusted to 82.1 yuan per gram, equivalent to US$9.90 per gram, based on the same gold price.

The 8.5% reduction in the price paid to gold miners is the most dramatic since China began liberalizing its gold pricing policy in 1993. The differential between the price paid to producers and the price paid by gold jewelry manufacturers has gradually fallen to 2% from 10%, reflecting more closely the actual costs incurred by the PBC for transport and refining.

Through the PBC, the government subsidy to the gold mining industry has been reduced, thereby forcing miners to reform and modernize, as well as compete internationally. At another level, jewelry manufacturers will be paying less for their gold, enabling them to invest more in product design and quality to increase their competitiveness.

The new policy pulls the domestic gold price more closely into line with international prices and gives full autonomy to the PBC for gold price adjustments in response to international market changes without the need of prior approval from the State Council. This not only paves the way for opening up the Chinese gold market, but should also deter smuggling and boost the confidence of the jewelry industry.

Cui Xiwu, president of China National Gold Corp., says that although the changes will force many small mines to close, the strong operations will thrive.

Since 1993, when the World Gold Council entered China, top priority has been given to regulatory work as the key to exploiting China’s gold demand potential in the longer run. A special regulatory task force was set up by World Gold Council staff with representatives from influential Chinese entities, including the PBC, the State Planning Commission and several key ministries. Meetings among the groups have helped convince both China’s government and gold industry of the benefits of gold market liberalization.

— From a release issued by the Geneva-based World Gold Council.