With the gradual expanding of the  gold production capacity and improvement of the gold smelting technology, China will take the place of South Africa to become the world's largest gold producer this year.

     Hou Huimin, vice-president of the China Gold Association said that China has surpassed the United States to be the world's second   largest gold producer just next to South Africa, with the gold output in 2007 reaching 270.491 tons, up 12.67 percent year on year. The  gold output of South Africa was 272 tons in 2007.

     China's gold output has grown 34.84 percent over the past five years. It produced 240.078 tons in 2006, up 7.15 percent over 2005.  

The national gold output has been growing rapidly since 1978 and it has entered into a stable growth stage and showed a trend of  accelerated growth in the past 10 years.

     At present, China's gold resource is estimated at 15,000-20,000  tons, and preserved gold reserve at 4,634 tons including 2,786 tons  of rock gold, 593 tons of sand gold and 1,255 tons of accompanying gold. Its proven gold reserve has ranked seventh in the world.

     China discovered proven gold reserves of 650 tons in its southwest Yunnan, Guizhou and   Sichuan provinces and the Guangxi Zhuang  Autonomous Region, and its northwest Shaanxi and   Gansu provinces in 2006. Five large and super-large gold deposits were discovered last  year with proven reserves of 753.09 tons.

     According to the Industry Department of National Development and  Reform Commission (NDRC), the 11th Five-year Program (2006-2010) for gold industry has put forward the plan of producing 1,300 tons of gold and adding 3,000-3,500 tons of basic reserve in five years.

     China has formed a completed professional gold industrial chain  integrating prospecting, exploitation, processing and smelting, with  a strong technological capability. It has so far built 330 sizeable gold mines, with daily mining capacity of 110,000 tons and annual  gold production capacity of more than 230 tons.

     According to Hou, as the entire scientific and technological level of China's gold industry has upgraded obviously, those metallurgical gold that is hard to be dressed in the past can be fully processed  with updated technology and reach a high recovery rate. In addition,  it has also made a big breakthrough in the low-grade gold ore processing technology.

     In January-April of this year, China's gold output grew eight  percent year on year, and it is predicted to grow further in the   second half of this year.

     While the gold production capacity and exploitation technology  achieved progresses continuously, China's gold market also got improved gradually. After the gold market was deregulated in 2001, the Shanghai Gold Exchange was established on April 28, 2001 and    started simulated operation in November of the year and official  operation one year later. The gold market became fully open to   investors. But it mainly engaged in trading of gold commodity, spot trading and domestic market trading at the first beginning.

     In January of this year, gold futures made a strong debut on the  Shanghai Futures Exchange (SFE). The contract offers China a chance  to become a key player in the global gold market. It could also be a hedging tool for gold producers and a means to absorb excess  liquidity. It is predictable that the secondary development of  financial products based on gold spots and derivatives will be net hot spot of the future gold trading, and it will push the entire gold industry of China towards more maturity.

     The restructuring of China's gold industry has revitalized domestic gold enterprises and gradual improvement in gold production  technology and enterprise strength promoted the gold production.   Moreover, the new findings of gold mine resources provided guarantee for China to become a strong gold producer.

     Currently, the industrial concentration degree is on the rise. The state gives an energetic support to the gold enterprises to further sharpen its competitive edge and raise independent development capability and supports large and advantage enterprises to become   bigger and stronger, and it also actively supports and encourages   qualified enterprises to explore gold mine resource abroad.

     The gold supply around the globe will be stable and show a trend of small decline in the years to come as the gold output of major  gold producers like South Africa and the United States drop. But the demand for gold will keep increasing. Gold will remain undersupplied and gold price will remain high.

     China's gold consumption presented a strong growth momentum in  2007. Gold sales in China including Hong Kong and Taiwan hit a record high of 363.3 tons last year. In the mainland alone, the demand for gold topped 326.1 tons, 26 percent higher than in 2006. Its demand  for gold for jewelry use reached 302.2 tons, breaching 300 tons for  the first time in the past 10 years and making China the second  largest gold jewelry market of the world after India.

     The gold transaction volume of the Shanghai Gold Exchange amounted to 1828.13 tons in 2007, up 46.30 percent over 2006, setting the peak record since its establishment. However, the transaction volume only  made up 0.93 percent of China¡¯s GDP. It promises a broad growth  space for Chinese gold market in the future.