"The all-round liberalization of China's gold market is in the offing and the operational environment of the gold industry has witnessed tremendous changes," said Cheng Fumin, director-general of the Gold Bureau under the State Economic and Trade Commission. Cheng cited the simulated operation of a Shanghai Gold Exchange last November.

But judging by capital structure, human resources, enterprises' scale, equipment and technology, and management and understanding of the industry, the entire sector still lags behind its developed foreign counterparts, Cheng said.

"We should spare no effort to intensify reform and asset restructuring, with a focus on supporting good players so they can take a leading role in the market," he added.

Cheng is now helping China National Gold Corporation to forge a conglomerate - China Gold Group - in the hope that it will better enable China to compete in the global market.

Chen Jiu, general manager of Shanghai Lao Miao Jewelry Co, echoed Cheng's view. Chen said getting stronger and more specialized is the only way out for Chinese gold enterprises and poorly managed players must be weeded out.

"I expect to see a merger and acquisition wave on the heels of the market liberalization, which will result in better management and use of resources as well as lower operational costs among the survivors," he said.

Both of them maintain that it's high time for domestic players to adapt their sales strategy to the new environment. Their understanding of financial instruments should also be updated to keep up with the times. China's gold output reached a record high of 181.83 tons last year, compared with 175 and 166 tons in 2000 and 1999 respectively.

As one of the world's major gold producers and consumers, China's gold manufacturing and allocation has been under monopolistic control of the central government for five decades.

In the past few years, the government has accelerated deregulation and decreased policy protection and support.

Last year China relaxed its control of the gold jewelry retail market. It was the final move after the central People's Bank of China established a weekly quotation system for domestic gold prices, which adjusts the prices in line with international fluctuations.

Observers expect the official launch of the Shanghai Gold Exchange will bring China's gold industry into a market system as opposed to a planned one.

"It will abolish the role of the central bank as a gold trading middleman and provide a direct trading platform for domestic buyers and sellers. Thus the prices in the market will fluctuate with international prices changes," Chen said.

However, the official launch of the exchange has been postponed due to an unsettled taxation issue until the year's end.

Experts have also pointed out that because the exchange is to provide only spot transactions and no futures or financial derivatives, it will still be unable to meet gold enterprises' demand for risk hedging.

（China Daily September 10, 2002）