 http://www.zerohedge.com/news/2014-08-20/china-becoming-global-gold-hub-and-gold-price-discovery-centre China Becoming Global Gold Hub And Gold Price Discovery Centre by GoldCore on 08/20/2014 05:09 -0400 Shanghai Gold Exchange Launching International Bullion Exchange In Yuan Next Month China is moving closer to positioning itself as the physical gold trading hub of the world and the world’s gold price discovery centre. It is a natural progression for the largest economy in the world and for the world’s largest gold buyer, importer and indeed producer. The Shanghai Gold Exchange (SGE) is launching its yuan denominated international bullion trading exchange next month. This is another important step in internationalising the yuan or renminbi and positioning it as an alternative global reserve currency.
Bloomberg reports this morning that The Shanghai Gold Exchange plans to start bullion trading in the city’s free-trade zone on Sept. 26, according to three people with knowledge of the matter. The people asked not to be identified because they aren’t authorized to speak to the media. Gu Wenshuo, a spokesman for the exchange, confirmed that the trading system is being tested, without giving further details. Shanghai wants to become a regional bullion-trading hub, giving foreigners access to the world’s largest physical-gold market, Xu Luode, the exchange’s chairman, told a conference in Singapore in June. The gold contract will be priced and settled in yuan and the infrastructure is in place for trading to start in the third quarter, Xu said in June. The zone will have a vault capable of holding 1,500 metric tons of gold, which can either be imported into China or be in transit to other markets, Xu said. China is seeking to open up its bullion markets just as domestic demand weakens. Consumption contracted 19 percent in the first six months of the year, according to the China Gold Association. Bullion of 99.99 percent purity traded on the Shanghai Gold Exchange climbed 8.7 percent this year, damping demand which reached a record in 2013. Reuters reports this morning that China has allowed three more banks, including a foreign lender, to import gold, sources with direct knowledge of the matter said, as the world's top gold buyer gears up for its strongest effort yet to gain pricing power of the metal. The move, which brings the number of firms allowed to import gold into China to 15, comes ahead of the launch in September of a new international bullion exchange in Shanghai with which China hopes to become a price-discovery centre. China and other Asian gold trading centres such as Singapore are calling for more localised pricing of the precious metal as they seek alternatives to the so-called London fix, the global benchmark for spot gold prices, which is being investigated by regulators on suspicion that it may have been manipulated. Standard Chartered (STAN.L), Shanghai Pudong Development Bank (600000.SS) and China Merchants Bank (600036.SS) were given regulatory approval recently to import gold, five sources with direct knowledge of the matter told Reuters. China approached foreign banks, gold producers and refiners to participate in SGE's international bourse, sources told Reuters earlier in the year, to boost its position as a price-discovery centre for gold. It plans to launch three physically-backed gold contracts. Conclusion Chinese gold demand has fallen from record levels in recent months. this was to be expected given the huge leap in demand seen in recent years. Nothing moves in a straight line and a fall was inevitable and reflects the natural ebb and flow of demand, one would expect. However, an important fact, not realised by most market participants, is that the people of China were banned from owning gold bullion by Chairman Mao in 1950. This means that the per capita consumption of over 1.3 billion people is rising from a miniscule base. This suggests that demand will consolidate at these levels and could again return to record levels - particularly if there are losses in the Chinese property market or stock markets. This prohibition continued until 2003 when the Chinese gold market was first liberalised and China made its first steps to becoming a global gold hub to rival New York or London. Since the market in China was liberalised, gold in yuan terms has risen by more than 250% while the stock market has performed poorly. Even after the significant increase in demand seen in recent years - Chinese per capita gold ownership remains well below that of the levels seen in India and other Asian countries and indeed below levels seen in more affluent Hong Kong.  Culturally, India is known to have the greatest affinity for gold in the world. China had a similar cultural affinity prior to the "cultural revolution" and in time its levels of gold ownership will likely rival those seen in India, Vietnam and other Asian countries. Within the lifetime of many Chinese people living today is the experience of hyperinflation as many middle aged and elderly Chinese people experienced hyperinflation in 1949. Therefore, as in Germany, there is a greater awareness of what inevitably happens when a central bank debases the paper currency. Many market participants and non gold and silver experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” or major change in the fundamental supply and demand situation in the gold and silver bullion markets. This is particularly due to investment, store of wealth and central bank demand from China and the rest of an increasingly affluent Asia.
It is worth noting that the People’s Bank of China’s official gold reserves are very small when compared to those of the U.S. and indebted European nations. They are miniscule when compared with China’s massive foreign exchange reserves of more than $3 trillion. The People’s Bank of China is continuing to quietly accumulate gold bullion reserves. As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices. They also do not wish to create a flight from the dollar – thereby devaluing their sizeable dollar reserves. Expect an announcement from the PBOC, sometime later this year or in 2015, that they have trebled or even quadrupled their reserves to over 3,000 or 4,000 tonnes. Source: China Becoming Global Gold Hub And Gold Price Discovery Centre Receive our award winning research here | ||||
ZERO HEDGE: China Bond Default Risk Reignites, Despite "Never Anticipating Any Risks" Posted: 20 Aug 2014 07:52 AM PDT  http://www.zerohedge.com/news/2014-08-19/china-bond-default-risk-reignites-despite-never-anticipating-any-risks China Bond Default Risk Reignites, Despite "Never Anticipating Any Risks" Submitted by Tyler Durden on 08/19/2014 22:07 -0400 When, six months ago, we first brought the market's attention to Chaori Solar - China's first corporate bond default in history - there were 2 narrative sin play: 1) it's all good, government knows the contagion risk and will bail them out (that happened), or 2) if government bails them out, it will merely delay the inevitable and stoke further risk exposure (that happened too). However, as Bloomberg reports, the consequences are coming as bondholders met today to discuss the value of any assets left (Chaori’s liabilities were more than 700 million yuan greater than its assets). With China's TSF collapsing last month, perhaps demand is finally waining for these high-risk assets, but expectations of implied government support remain, as one Chaori 'loser' laments, "never anticipated any risks with the securities." Halted since April...  As Bloomberg reports, Holders of China’s first corporate bond to default onshore met today in Shanghai, as investors look for clues on how the government will balance market liberalization with steps to maintain stability.No risk... Ding Guixiang, who said she invested more than one million yuan in the Chaori bonds, said outside the meeting today that she had never anticipated any risks with the securities when she bought them. Government to the rescue...except for Chaori... “To prevent large-scale bond defaults, regulators will strengthen monitoring and supervision to solve crises in a timely manner,” according to the commentary today in the Financial News, a publication of the People’s Bank of China. The commentary was by Xu Shaofeng, who wasn’t identified. * * * As JPMorgan warned in a previous note, "avoiding defaults is not the right answer, as it will only delay or even amplify the problem in the future." A default that encourages lenders to price in risk would be a positive development. * * * We noted before that a more confident government means more defaults... With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market. * * * Clearly then - the government is not confident. |
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