Below is the full translation of a Chinese article I’ve used in a previous post on the Shanghai Gold Exchange international board. The article is about a speech from SGE chairman Xu Luodo at the Fourth Commercial Bank Gold Investment Forum where he spoke about the SGE international board.
It’s a must read because Xu clearly states he is developing the SGE from a domestic to an international gold exchange for China to have a stronger voice in gold pricing – and stimulate the internationalization of the renminbi. Xu Luode has long been engaged in the practice of financial reform and development, he has a wealth of experience and deep theoretical knowledge. A short biography:
1983, Xu Luode graduated in economics at the Hunan University (the oldest institution in Chinese history, founded in 976 AD).
1983 to 1996, Xu worked at the China Banknote Printing and Minting Corporation, that carries out the minting of all renminbi coins and printing of renminbi banknotes for the People’s Republic of China.
1996 to 2003, Xu served as general director at the People’s Bank of China (PBOC).
2003 to 2007, Xu served at the People’s Bank of China Payment and Settlement Division.
2007 to 2013, Xu was president of China UnionPay, a bankcard association established under the approval of the State Council and the People’s Bank of China, where he gained experience to internationalize a Chinese financial institution. China UnionPay is one of the world leaders in payment services, reaching 3.5 billion people in over 30 countries.
October 2013, Xu was appointed as the chairman of the SGE and vice president of the China Gold Association. In December 2013 he announced the SGE international board.
Very important about this translation is the part where Xu points out that in 2013 Chinese mines produced 428 tonnes of gold and China net imported 1540 tonnes, adding up to nearly 2000 tonnes. This is exactly in line with the amount of total supply (/demand) at the SGE that year: 2197 tonnes. The 229 tonnes gap has been filled by scrap supply. With this statement Xu confirms that SGE withdrawals equal wholesale demand. (read this for a full analysis of the Chinese gold market)
Translated by Soh Tiong Hum:
Xu Luode: China Should Become First Class International Gold Market
Author: Lilin Xu | Source: China Gold Network
May 15 , Speaking at the “Fourth Commercial Bank Gold Investment Forum” in Hangzhou, Xu Luode, Chairman of the Shanghai Gold Exchange said the Chinese gold market is an important force, a positive energy in the international gold market but its influence does not correspond to its mass and scale. Therefore to accelerate the development of China’s gold market, he proposed building China’s “Shanghai Gold”.
Commenting on China’s voice in the international gold market, Xu Luode said that the right to price gold now lies in the West, namely New York and London. New York prices gold through bidding whereas gold price is fixed by five banks in London. However the London gold fixing price is now being questioned since these five banks are price-fixers while at the same time they are also the market’s most important participants.
Xu pointed out that the current gold market, especially the physical gold market is actually in the East, mainly in China. Last year China’s own gold-enterprises produced 428 tons; at the same time China imported 1,540 tons of gold, adding up to nearly 2,000 tons. China’s import volume is significant but China’s influence in the gold price is very small. Although influence was visible last year, real influence still lies in the West. Data such as Non-farm payroll, even a speech could impact the gold market in a big way. In this sense, the mass and scale of China’s gold market and its voice and influence in the international gold market do not match, so it should speed up the development of China’s gold market.
Xu pointed out that the development of China’s gold market should not be limited to an increase in scale, it also needs market development, product improvement, system development and risk prevention. Marketing, pricing mechanisms and international standards are all very important building blocks so every aspect of China’s gold market should join forces to speed up development.
Touching on the Shanghai Gold Exchange, Xu said the exchange has nearly 8,000 institutional investors and nearly 5 million individual investors.
As for Shanghai Gold Exchange’s future direction and potential, Xu said that there should be more and more investors to participate in the Shanghai Gold Exchange platform. Along with China’s economic development and growing personal wealth, the rising middle class wants to invest in capital markets, make financial investments, attend to wealth planning and also want to invest in the gold market. This is a judgment based on the general trend. Therefore the Shanghai Gold Exchange must grow to accommodate more domestic investors participating in the gold market, for example growing from the current 5 million investors to 6 million, 7 million, 8 million or even more. Key issues are marketing, sales, sufficient investor education and plentiful products.
Xu suggested that a platform such as the Shanghai Gold Exchange should be internationalized. Compared to international exchanges, the number of domestic exchanges is relatively few so the emergence of the Shanghai Gold Exchange was well received from all quarters; approved by the regulatory body, supported by the industry and acknowledged by society.
Xu said the Shanghai Gold Exchange is actively preparing for internationalization this year. Of course, the specific meaning of internationalization is to allow overseas investors to invest through the Shanghai Gold Exchange platform and to trade gold quoted in RMB.
Xu said that other currencies can be used as margin for transactions. Shanghai Gold Exchange will become an international platform with global investors. This will raise the standard of product assortment, ability to prevent risk, information technology and support market promotion and regulation.
Xu believes that China’s gold market should be the first class in the international gold market. China is fully qualified and may become the world gold market’s most important player.
When talking about the Shanghai Gold Exchange international board, Xu said that early interaction is very good with very good momentum. Many commercial banks, industrial enterprises and investment institutions all expressed interest in the international board.