China's Gold Market Needs These 3 Improvements - WGC
(Kitco News) - China plays a major role in the global gold market, but it needs to improve its regulatory oversight, widen its investor base, and work on expanding the gold market infrastructure in order to continue to grow, according to the World Gold Council (WGC).
“Twenty years ago, China’s gold market was small; people outside of China paid little attention to it. But … the formation of the Shanghai Gold Exchange (SGE) in 2002, combined with a series of liberalizing policy measures, created the conditions necessary for China to become the largest gold market in the world,” the WGC said in a report published on Wednesday.
But, despite being the number one producer and consumer of gold, China’s precious metal market is fraught with three main challenges.
“Gold’s regulatory framework [in China] is fragmented, the investment market for gold suffers from a narrow investor base and China’s gold market infrastructure – while impressive – could be stronger,” the WGC said.
The first area that needs China’s attention is outdated regulations and standards, which limit the gold market’s potential growth, according to the report.
“Innovation has outpaced regulation. Fraudulent online gold-product providers have scammed many would-be retail gold investors; their products are underpinned by illegal, unregulated gold trading. Regulations and policies must be developed if the hard-earned savings of China’s retail investors are to be protected,” the WGC said.
The second area that could use a revamp is institutional access, which is restrained by narrow investor base, the report pointed out.
“Retail investment is the driving force in China’s gold market, supported by commercial banks, and trading and securities houses. Regulations, however, prevent long-term asset owners, such as pension funds and insurance companies, from investing in gold,” the WGC wrote.
And the final area that could benefit from restructuring is market infrastructure, said the report, noting the country’s two exchanges — Shanghai Futures Exchange (SHFE) and Shanghai Gold Exchange (SGE).
“Both exchanges need to think about potential new investors – including domestic institutional investors and overseas market participants – and tailor products, services and the value proposition to meet their needs.”
The WGC also shed some light on areas of the gold market that are doing quite well, highlighting the jewelry market, gold-related technology industry and science innovation.