The Hindu Business Line : Chinese gold demand set to rise to 600 t

WHILE it is known that China's consumption of gold currently stands at about 200 tonnes and rising purchasing power is generating a strong demand for gold jewellery in all its forms, the demand potential is rated much higher.

A report on the gold market in China prepared by GFMS Ltd has pointed out that various assessments suggest a rise in consumption demand to about 600 tonnes a year, based in part on the country's consumption of other raw material, and on the effects of similar deregulation in India.

Much of the extra 400 tonnes would need to come from imports. However, this projection needs to take into account the changing demographics, which may force higher personal investment in private pensions and healthcare to cover the collapsing dependency ratio.

The role of gold as a consumption and investment choice could be adversely affected by these concerns, the report pointed out.

The other question to grapple with is revaluation of currency and convertibility. A revaluation of the Chinese currency RMB would make gold cheaper in local terms, encouraging further consumption growth.

It is unclear what the current stock of gold in China is. It is estimated at anything between 5,000 and 8,000 tonnes. Another unknown factor is the reserves policy of the country's central bank where gold's two per cent share at 600 tonnes seems underweight for an official reserve, GFMS remarked.

In terms of production, China ranks number 4 in the world with output of 213 tonnes in 2003 (out of world output of 2,593 tonnes) as compared with 202 tonnes in 2002 (2,590 tonnes).