State to Loosen Hold on Gold

A senior gold industry official has confirmed that China's gold market will be deregulated within two years.

A gold exchange, expected to open in the near term in a city to be named, will be the first step of the deregulation, said Wang Dexue, director-general of the Gold Administration under the State Economic and Trade Commission (SETC).

As a free market reform, deregulation is a set strategy, but a schedule for implementing a gold exchange awaits confirmation by the central government.

Operation of the Huatong silver exchange in Shanghai, which Wang described as a success, is expected to speed up the establishment of the gold exchange.

The silver market deregulation was widely viewed as a prelude to opening China's gold market.

Wang told Business Weekly gold market deregulation will stimulate the gold sector in China which is suffering from funding shortages, especially in gold prospecting.

"With the country's financial reform deepening, the industry is losing government financial assistance," said Wang, who also serves as president of the China National Gold Corporation.

The government invested only 100 million yuan (US$12 million) in the sector last year, compared with nearly 2 billion yuan (US$240 million) per year from 1988 to 1993. A special fund for prospecting will also be abolished next year, Wang said.

But the sector requires large amounts of money, and will need it to deal with challenges stemming from China's approaching accession to the World Trade Organization, Wang said.

"The sector must explore more fund-raising channels including foreign investment," Wang said. The coming gold market deregulation will help the sector accelerate utilization of foreign investment, because the central government's tight control of gold production and allocations will be relaxed, Wang said.

Foreign companies have been allowed to invest in the sector in line with interim provisions guiding foreign investment issued by the SETC, the State Development and Planning Commission (SDPC), and the Ministry of Foreign Trade and Economic Co-operation. But exclusively foreign-funded gold mines are still banned.

The SETC and SDPC are working out programmes to remove barriers to foreign investment in the sector and to allow risky prospecting for gold resources using foreign investment.

Companies from the United States, Canada, Australia, Singapore and the Hong Kong Special Administrative Region intend to co-operate with domestic gold miners in more than 10 projects.

The gold sector used little foreign investment under the tight control of the central government, Wang said.

Foreign companies were granted access to mines with lean and hard-smelted gold ores only after 1993, and the gold they produced could not be sold abroad, which dampened their investment enthusiasm.

(Source: CIEC)

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