2010-11-18 14:07

TIANJIN - China's gold consumption is set to rise by about four percent from a year earlier to 430 tons this year, said a senior executive of China National Gold Corp, one of the country's largest gold producers.

Sun Zhaoxue, the company's general manager, said that accelerating domestic output will reduce China's need to import.

"China's gold production has been gradually increasing and will continue to do so in the coming years, so imports could start to gradually fall," Sun told a conference in the port city of Tianjin.

Sun's view contradicts that of most analysts, who expect China's gold imports to rise in the coming years, as demand for bullion increases from both official and private investment purchases.

"The rapid growth in China's gold consumption will stay intact in the coming years, thanks to an expanding pool of gold products and growing investment demand on inflation fears," said Shi Heqing, an analyst at State-backed research firm Antaike.

"As the government gradually opens up the gold market, gold imports should be on the rise."

The latest official trade data from Hong Kong, Asia's biggest bullion trading center and a main conduit for gold flows into the mainland, showed its gold exports to the mainland in the first nine months of the year more than doubled from a year earlier to 88.06 tons.

On an annualised basis, that would translate into 117 tons of gold from Hong Kong alone in 2010.

Sun said China's gold imports are at about 100 tons a year, which would put last year's total gold supply at 414 tons.

In the first eight months of 2010, gold production was up 8.85 percent from the same period of 2009, at 217.953 tons. On an annualised basis, China's total gold output would be about 327 tons.

But China is finding new gold reserves at a fast enough pace to avoid exhausting supplies, Sun said, a claim at odds with a report from the World Gold Council earlier this year that demand would outstrip production capacity.

However even if new sources are found, it usually takes years, if not decades, to turn reserves into producing mines, analysts said.

Sun said China should boost its state gold reserves further, echoing the view of many officials who have said China should buy more gold with its foreign exchange reserves, which stood at $2.648 trillion at the end of September.

"We have been urging the PBOC and SAFE to boost China's gold reserves because it will enhance our (China's) financial stability," he told reporters, adding that gold prices are bullish in the long term.

But many officials and analysts have pointed out that buying gold would do little to diversify China's forex holdings, since even buying a large amount would only account for a fraction of its reserves.