January 15, 2014
Sources: China Grants Gold Import Licenses to Foreign Banks for 1st Time
China has granted licenses to import gold to two foreign banks for the first time, sources said, as moves to open the world's biggest physical bullion market gather pace.
Allowing more banks to import gold could increase the supply of the metal into the country, easing local prices, which are higher than in most Asian nations.
China's gold imports more than doubled last year to over 1,000 tons - ousting India as the biggest buyer - as demand soared to unprecedented levels due to the first drop in international prices in 12 years.
ANZ and HSBC were awarded import licenses late last year, according to two sources with direct knowledge of the matter.
Other trading sources said China Everbright Bank has also received approval to join the nine local banks already allowed to ship gold into China. Beijing strictly controls how much the banks import through a quota system.
“China is actually increasing its transparency. I think there will possibly be further access to other banks as well,” said Cameron Alexander, manager of Asian precious metals demand at metals consultancy GFMS, which is owned by Thomson Reuters.
China faced a supply crunch early in 2013 when a sharp plunge in gold prices released pent up demand that eroded inventories at banks and jewelry sellers.
Premiums in China tend to be higher as supply is tighter than other parts of Asia due to the quota system and the limited number of import licenses.
Premiums are currently about $15 an ounce over London prices, compared to less than $2 in Singapore and Hong Kong. Premiums rose to a record high of $30 in April-May last year.
China imported 1,060 tons of gold from Hong Kong in the first 11 months of 2013. Beijing does not release gold trade data, so numbers from Hong Kong - the main conduit for gold - provide the best estimate on imports.
However, traders warned that the award of the new licenses did not necessarily mean imports would jump sharply from 2013's record volumes, as the level of demand would be the main factor driving shipments. They also pointed out that the move indicated appetite for gold would likely be strong.
In 2011, ANZ and HSBC became the first two foreign banks to get the green light to trade gold futures on the Shanghai Futures Exchange.
ANZ is the only foreign bank on the list of 10 most-active members by volume on the Shanghai Gold Exchange (SGE), the physical trading platform in China.
String of changes
The granting of new licenses is the latest in a string of steps by China to ease restrictions on bullion trading and boost market accessibility.
China approved its first gold-backed exchange-traded funds last year and extended trading hours on the futures exchange.
The central bank issued a draft policy document in September that proposed letting more banks import and export gold.
The move also comes as the SGE plans to launch gold futures in the city's pilot free trade zone this year. Those futures would be open to foreign investors.
“China will need to allow more foreign players into the physical gold market if it's planning to have foreign investors participate on its gold futures,” said one of the sources.
“This is the first step that the regulators are taking to ensure that its gold futures contract in the free-trade zone can take off.”