JOHANNESBURG (miningweekly.com) – The scale, scope and speed of the development of the gold market in China to date has been “quite breathtaking” – and there is still a lot more to come, World Gold Council (WGC) investor relations manager John Mulligan indicated on Tuesday

Speaking to Mining Weekly Online from London, Mulligan revealed that the WGC was engaged in ongoing discussions to support initiatives to make gold even more accessible in China and that various Chinese gold organisations were simultaneously setting out to modernise the entire gold supply chain from mining through to fabrication and appropriate technologies.

In its latest report entitled 'China's gold market: progress and prospects', the WGC explains why the Chinese gold market will continue to expand, irrespective of short-term blips in the economy, and calculates that China’s middle class will grow by another 200-million people in the next six years, taking the total in the middle-income bracket to 500-million.

In mining, China has already gone from being a minor producer to becoming the world’s largest source of mined gold and in consumption, the country last year become the world’s largest gold market.

Now private sector gold demand is poised to surge by another 25%, from the current level of 1 132 t a year to at least 1 350 t a year by 2017, buoyed by the additional 200-million people entering the middle class category.

As a result, the Chinese market has swung from a small ‘surplus’ to a massive ‘deficit’ and external supply of gold to the Chinese market has grown massively in recent years, which provides a huge potential opportunity to South Africa’s struggling gold-mining industry.

Beginning with the liberalisation of the gold market in the late 1990s and extending to commercial bank offerings of gold bullion products in 2004, a benevolent Chinese regulatory environment has spurred gold on to the point where there are now 100 000 retail outlets selling 24-carat gold jewellery and an equal number of commercial banks selling gold investment products.

The small gold bar market has grown 4 000% in ten years to 400 t, making China the world’s largest investment-product market.

At the higher-volume but lower-value end, some ten-million people hold 60 t of gold in gold accumulation plan accounts.

There are thus strong structural reasons why the WGC is confident of strong future private-sector demand growth, underpinned by China’s deep-seated cultural affinity for gold, increasing affluence and a supportive State. 

The Chinese government is continuing to deregulate and last year gave two more Western banks permission to import gold into China.

At the same time, the Shanghai free trade zone and other free trade zones are evolving towards the facilitation of foreign investment and foreign transacting in gold.

“The evolution, speed and orderly transition to market liberalisation has been quite impressive,” Mulligan commented to Mining Weekly Online.

Speculation remains strong that the Chinese government is itself continuing to buy gold.

China’s bullion imports are distorted by gold required for purely financial operations and possibly also official purchases, but the underlying increase in gold shipments to the country is genuinely linked to real growth in demand from consumers and investors, the WGC said.

The growth in domestic supply, from 137 t in 2004 to 563 t last year, has been driven mostly by the mining boom, although recycling has also increased over the same period.

MINE PRODUCTION

At the time of the 1978 economic reform, gold production in China was less than 10 t a year but was boosted with the setting up of the China National Gold Group Corporation and a special gold mining unit of the People’s Liberation Army.

In the past ten years, production has doubled to 437 t from 600 mines, but there are doubts of this being sustained.

China’s top five gold mining regions are the provinces of Shandong, Henan, Jiangxi, Yunnan and the autonomous region of Inner Mongolia, with these together accounting for 61.4% of official gold mine production in 2012.