China took a big step towards deregulation of its gold market Wednesday when it launched the long-awaited national gold exchange in Shanghai, the nation's financial center.

The move came after the People's Bank of China, the central bank, established a weekly quotation system of domestic gold prices in June and relaxed its control on the gold jewelry retail market at the beginning of this month.

The launch of the exchange would have a "positive impact'' on gold production, circulation and demand in China, the central bank said in a press release Wednesday.

The gold exchange has found 108 trading members from the gold mining, processing, exporting and importing sectors and commercial banks.

They are permitted by the central bank to conduct spot transactions using Renminbi in the exchange.

Eighty-two of the members participated in Wednesday's simulated operation.

Shen Xiangrong, chairman of the gold exchange's executive council, said the exchange will begin official operation at the beginning of next year.

Last year in Shanghai, as a precursor to the gold exchange, the central bank launched its silver counterpart.

The central bank has tightly controlled the production and circulation of gold since the founding of the People's Republic of China in 1949.

Under the central bank's control, gold producers had to sell all of their gold to the central bank.

Albert Cheng, general manager of the World Gold Council's East Asia operation, said the gold operation will be a "milestone'' in the reform of China's gold market.

"We are confident of gold demand growth in China after this launch,'' Cheng said.

The London-based council, a gold promotion organization funded by the world's leading gold mining companies, expected that the gold market deregulation will increase the demand in China.

The council earlier predicted the annual gold demand in China was expected to increase to 600 tons in a few years -- after the market deregulation from the current level of 200 tons.

The council's statistics show the demand for metal on the Chinese mainland increased by 5 percent year-on-year to 156.2 tons during the first three quarters of 2001.

Ye Yingnan, director of the currency, gold and silver division of the central bank, said the bank would partly continue its purchase from gold producers in the short term to ensure a smooth market reform.

The central bank will continue to allocate the metal to special gold users, such as military and scientific and research institutions.

Wang Jie, president of the gold exchange, said a guiding gold price will be formed in the exchange in line with the fluctuations on the world market during the initial stage of the operation.

The central bank's weekly gold price quotation system will be replaced.

The bank decreased its gold purchasing price from 71.75 yuan (US$8.68) a gram to 71.33 yuan (US$8.63) on Monday according to the world market changes.

The selling price declined from 73.18 yuan (US$8.85) a gram to 72.75 yuan (US$8.80).

The bank said futures transactions will be allowed in the gold exchange when the operation reaches "maturity."

Ye said the bank will also permit individuals to buy gold for saving or investment as another step in the market deregulation process.

Among 108 trading members of the exchange, 24 gold producers control 75 percent of national gold output, and 63 users account for 80 percent of Chinese gold consumption.

(China Daily November 29, 2001)