3.18.3.1 Availability and Consumption     

Gold is used mainly in jewelry trades and subordinately for manufacturing electronic instruments, artificial teeth, ornaments, medals and coins. Besides, reserve of gold bars and investment are other main forms of gold consumption.     

Thanks to its extremely high value, gold has long been regarded as a special "commodity" in China and monopolized by the State for purchase and sala. It can be bought only by the State banks,while other departments or individuals are not allowed to buy or sell gold. In the meanwhile, the State has made great efforts to restrict the industrial utilization of gold in order to guarantee the foreign exchange reserve.

(1) Gold reserve of China

      The gold reserve stands for the whole value of gold bars or coins reserved by the government of a country for the sake of maintaining the credit of money and dealing with international payments. Gold forfeited its legal position of an international currency after the early 1970s when the world's monetary reform was implemented. In the monetary reserve of western countries, gold decreased rapidly. Nevertheless, gold has not been finally withdrawn from the monetary realm and nearly 30% of gold is still held by banks or international monetary fund organizations in the world. According to relevant statistics, the central governments of all the countries have 35,000 tons of gold reserve, which is equivalent to the gold output of about 16 years.

      China is a socialist country and had long practiced planned economy. Accordingly, the gold reserve has the following features.

      (a) Short-term cumulation of gold reserve

      Although China has held its gold reserve for 50 years since 1949, this period is still rather short compared with western developed countries.

      (b) Planned utilization of gold reserve

      China is a socialist country with public ownership of production means and has carried out the planned commodity economy for a long time. The scale, cumulation and utilization of the gold reserve are arranged in a planned way in accordance with the development and requirements of the national economy. Chinese gold reserve ought to serve the development of the national economy.

      (c) Monopoly nature of gold reserve

      China has always exerted strict control over gold management. In 1983, the State issued Regulations of the People's Republic of China on the Control of Gold and Silver, stipulating that the State exercises highly centralized administration of gold and silver and that gold products are purchased and distributed monopolistically by the State. This document also specifies that the People's Bank of China is the only department in charge of the gold and silver administration.

      (d) Step-by-step and steady increase of gold reserve

      Owing to various historical reasons, there had been a relatively small increase of gold reserve in China for a long time. Since the reform and opening-up policy was implemented in 1978, the gold reserve of China has had a continuous increase. In the early 1950s, the gold reserve was 5 million oz, but it was down to 4 million oz in the early 1960s. In 1970, it rose up to 7 million oz and further to 12.8 million oz in the early 1980s. During 1981~1990, China had the gold reserve of 12.67 million oz each year (Table 3.18.3).

Table 3.18.3 Gold reserve of China from 1953~1995

Note: I, II , III, IV, V, VI, VII and VIII denote the 1st, 2nd, 3rd, 4th, 5th, 6th, 7th and 8th Five-Year Plan periods, respectively.

      (e) Closed nature of gold reserve

      For a long time, gold-concerned data such as output, rationed amount and gold reserve of China had been a top-secret in view of the special position of gold for foreign policies and international politics. After the reform and opening-up of China, relevant governmental departments started to regularly release the above information in order to meet special needs of international trade affairs and make foreign countries be aware of the actual strength of China in foreign economic activities.

(2) Gold for industrial utilization

      Actual figures in this regard have not been released by related industrial departments of China thus far. According to foreign reports, the annual consumption of gold in the industrial sectors of China during 1987~1996 is listed in Table 3.18.4.

Table 3.18.4 Gold consumption in industrial sectors of China from 1987~1996

This table shows that although the gold consumption increased evidently in electronic and some other industrial sectors during the period of 10 years, the overall demand was still low and the increase of gold consumption was not very large. Besides, the consumption occupies a very small proportion against the total production and hence the industrial consumption of gold cannot support the market space for the development of Chinese gold industry.

(3) Gold used in jewels and ornaments

      After the 1980s, thanks to the reform and opening-up policy, the living standard of the Chinese people has been improved continuously and thus the demand has exceeded the supply in the gold market, the scale of which was only hundreds of millions yuan in the early 1980s but had expanded drastically to 20~30 billion yuan in the ensuing 10 years. In recent years, however, the market of gold ornaments ceased its expansion. For example, the total sales volume of gold ornaments in Shanghai, the largest market in China, was 22, 14.7 and 13 tons in 1993, 1994 and 1995 respectively and 11 tons in 1996. The sales volume decreased by 50% in 4 years. Investigation made by departments concerned abroad also revealed the above trend (Table 3.18.5).

Table 3.18.5 Consumption of gold ornaments in China

3.18.3.2 Trends     

From the above analysis and discussion, the following conclusions can be reached.

1) The demand for monetary gold has seen a downward trend in China in recent years as in other countries. Furthermore, the consumption of gold in various industrial sectors has also declined. Thus, the total consumption of gold cannot support the market space required by the development of the gold industry.

 2) Gold used in jewelry and ornaments forms the major portion of gold consumption in China, but it has lost its soaring trend and become relative steady. This trend will not fluctuate very much and may have a decline at the same time if no sudden change takes place.

3) The above analysis shows that the demand of gold will not increase boundlessly in the years to come. In view of the present production, the gold market is still characterized by demand-exceeding-supply feature. One would ask how long this situation will be continued. According to the official report of the Chinese Government, gold output of China was 120.8 tons in 1996, but foreign sources believed that China's gold output was actually as high as 145 tons, which is more than that of Russia and ranked fifth in the world. The annual increase of the gold production was 10.1%, 11.03% and 9.6% for the 6th, 7th and 8th Five-Year Plan periods respectively and the average growth rate was over 10%. If the rate of increase is to be maintained, the gold output of China will be up to 200 tons or more in 5~6 years. If the gold produced in mines run by the local people and the smuggled gold are allowed for, the gold supply at that time will basically meet or slightly exceed the demand.