Golden opportunity for foreign
banks By Olivia Chung
HONG KONG - Foreign banks will be able to
cash in on China's growing gold-trading market
after the country begins to open it up in a bid to
boost the development of its precious-metal
sector.
The People's Bank of China (PBoC),
the country's central bank, has admitted five
major foreign banks as members of the Shanghai
Gold Exchange (SGE) in a significant step toward
globalizing the country's gold market.
Wang Yu, director of the PBoC's foreign
exchange and gold
market
department, confirmed that five foreign banks had
been invited at an exchange meeting last week to
join the SGE.
The first group of SGE
foreign bank members are: HSBC, Standard Chartered
Bank, both of the United Kingdom, UBS of
Switzerland, Canada's Bank of Nova Scotia, and
France's Societe Generale.
Yu said the
State Administration of Foreign Exchange has also
signed papers to ease foreign-exchange controls on
these foreign banks' investment in the domestic
gold market.
But he said a number of
practical issues, such as the quota and means of
investment, still need to be decided.
Since the foreign banks will trade in
gold under the quota for the qualified
foreign institutional investor (QFII) scheme regulated
by the China Banking Regulatory Commission,
approval from the CBRC is also required.
Wang Yuqin, vice general manager of the
SGE, China's sole national bourse for precious
metal, said the entry of major foreign banks will
help increase the liquidity of the domestic gold
market.
"The current problem of limited
gold-trading volume and liquidity at the exchange
cannot be solved by domestic banks. The
participation of foreign banks can help attract
foreign funds to the gold market through formal
channels, which will increase the trade volume and
liquidity of the market and ensure sustainable
development of the market," he said.
He
also said the market access of foreign banks will
also better integrate China's gold market with
international markets, leading to greater
convergence of prices.
Standard Chartered
Bank told Asia Times Online that it is actively
interested in becoming a member of the SGE, and
they are awaiting further instructions from the
regulators.
The SGE is expected to
increase the number of its foreign members
further.
The exchange is considering
extending trading hours and studying gold-linked
financial products, in a bid to tap China's
individual and corporate savings.
Established in October 2002, the SGE
offers cash and cash-deferred contracts for gold,
platinum and silver. It has more than 130 members,
including miners, jewelers and financial
institutions, according to its website.
Last year, the exchange reported total
gold-trading turnover of 1,249.6 tonnes with a
transaction value of 194.75 billion yuan (US$25.5
billion). Including other precious metals, the
exchange's turnover exceeded 200 billion yuan
($26.2 billion), with Bank of China as the top
trader.
The current turnover on the
domestic exchange is too small to influence the
international markets, but the opening up of the
domestic gold market to foreign institutional
investors represents another step in the process
of liberalizing the mainland's financial sector.
The central bank said in March that the
government will gradually ease restrictions on
gold imports and exports, and has called for the
development of gold futures and options.
China's gold import has declined since the
turn of the century to only 32 tonnes in 2003, while
more than 80% of new gold supply in that year came
from domestic mines.
China had 77.754 tonnes
of gold output in the first four months of this
year, up 13.89% from the same period of 2006,
according to China Gold Association data.
Gold output in China, the world's
fourth-biggest producer of the precious metal,
rose by 7.15% to 240.08 tons, behind South Africa,
Australia and the United States, according to the
Beijing-based association.
The National
Development and Reform Commission, China's top
industry regulator, expected the country's gold
production to reach 260 tonnes in 2007, up 8% from
last year, boosted by robust demand and bullish
prices.
NDRC said total gold production in
the country would rise to 1,300 tonnes between 2006
and 2010. Consumer demand for gold in China
totaled 259.6 tons, up 3% from 2005, according to
data from the London-based World Gold Council.
The figure secures China's position as the
world's No 3 gold consumer after India and the
United States.
Consumer demand for gold in
China is expected to grow continually this year
because of the rising popularity of bars and coins
among Chinese who consider the precious yellow
metal to be a safe haven against inflation and a
symbol of wealth.
Despite the anticipated
increase in competition with the entry of foreign
banks, SGE's members remain optimistic.
"The foreign banks can bring their
expertise and rich experience in trading in the
international market to the domestic market," said
a senior official of the gold business department
at Bank of China, one of the domestic members of
the SGE.
China has been gradually opening
its financial markets to foreign investors since
its accession to the World Trade Organization in
2001 and domestic banks are facing increasingly
intense competition from their foreign rivals.
In late March, the CBRC announced that it
would allow HSBC, Citibank, Standard Chartered
Bank and Bank of East Asia to establish locally
registered branches to conduct yuan banking
business in China.
Similarly, 11 other
foreign banks, including JPMorgan Chase & Co,
ABN Amro Holding NV, Hang Seng Bank Ltd and
Nanyang Commercial Bank Ltd, are in the process of
preparing to establish locally registered
subsidiary banks with corporate status or applying
to establish locally registered corporations.
Immediately after the four foreign banks
began to provide retail yuan business services to
people across China on April 19, their bank
services won recognition.
According to a
recent survey conducted by GDSQ, a research center
under the provincial government, about 79.5% of
the citizens in Guangdong have indicated their
intention to do business in foreign banks in the
coming year.
The findings of a three-month
study indicate that 3.1% of the respondents have
handled business at foreign banks.
Although 80% of the respondents said they
are willing to continue to handle business at
their favorite banks, only about 30% will remain
loyal, which indicates that domestic banks need to
improve the quality of their service or face
losing customers.
Of the services provided
by foreign banks, yuan deposit service seems to be
the most popular among Guangdong citizens - 56.5%
of respondents said they wanted to open yuan
deposit accounts at foreign banks.
In
addition to the better quality of service provided
by foreign banks in the fields of financial
management and investment services, many citizens
of Guangdong province intend to open accounts with
foreign banks as they are very dissatisfied with
the service at domestic banks, which welcome big
customers but bully small ones.
The top
complaint made by respondents is that queues are
too long, the survey showed.
Olivia
Chung is a senior Asia Times Online
reporter.
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