Launch of a national gold exchange, the first step toward long-awaited gold market deregulations, is just a matter of time, say experts, but where the market will be located has raised a stir of debate.

Four cities - Shanghai, Beijing, Tianjin and Shenzhen - are vying to host the gold exchange.

The launch of a national exchange, which is expected to help gold producers seek hedging and improve gold circulation, has become an urgent task for the government.

But as of yet the State Council has not announced an accurate timetable and programme for the new exchange.

The national gold exchange should be established in a city which has flourishing gold transactions and financial activities, convenient transportation and successful experience of market operation, said Liu Shijin, director of the Industrial Economy Research Department of the State Council-affiliated Development Research Center.

From this perspective, Shanghai, China's largest economic powerhouse, appears to be the most favourable host.

Gold consumption in eastern China with Shanghai as the center amounted to 50 tons in 1999, one-fourth of the country's total.

Shanghai is also the country's largest gold jewelry market.

In whatever city is chosen, the gold transactions would require sufficient financial assistance, Liu said.

"Commercial banks, with advantages in capital, trade network, talent, management and information, can play an essential role in promoting gold circulation and should be allowed to conduct gold transactions," Liu said.

However, the People's Bank of China, the central bank, currently tightly controls the national gold production and circulation.

The Shanghai municipal government plans to build the city, home to many commercial banks, into a world financial center in the 10th Five-Year Plan (2001-05).

The world's five gold exchanges are all located in financial centers -London, New York, Zurich, Tokyo and the Hong Kong Special Administration Region.

The country's first silver exchange opened in Shanghai at the Huatong Nonferrous Metal Wholesale Market, which is widely seen as part of Chinese authorities efforts to liberalize the sliver market and pave the way for a gold exchange.

The silver market liberalization is the prelude to the gold market, said Zhang Changjie, president of Huatong market.

"The smooth operation of the silver exchange is expected to provide helpful experience for the future gold exchange," Zhang said.

The Huatong market is in full preparation, he said, adding he is confident the market could be chosen to operate the gold exchange.

According to international practice, silver and gold are traded at same exchange.

During the past eleven months, China's silver exchange trade volume exceeded 800 tons and was valued at more than 800 million yuan (US$96.4 million).

The volume per week has increased to 25 tons from 7 tons in the exchange's initial stage.

Zhang predicted that the silver exchange's trade volume per year will account for two-thirds of the country's total silver output with further improvement of its operation.

Currently, there are 56 trade members authorized to conduct spot silver transactions using the renminbi currency at the silver exchange.

Silver prices on the exchange, which fluctuate in line with changes on the international silver market, has functioned as benchmark for the domestic market.

(China Daily 11/5/2000)