China Economy Forum

[Irajgholi]

Are you work in AI too?

I'm a mathematician part of my work is related to machine Learning

 

[TaiShang]

Bank of China VP Pan Sees Yuan As Next Reserve Currency

On May 18, in a headline out of Beijing from Bloomberg News, Vice President Pan Gongsheng of the People's Bank of China (PBOC) announced that he was confident that the Yuan would become the next global reserve currency, and will replace the dollar in world trade settlement.

This statement on Monday morning (Asian time zone) comes as talks between Russia and China move towards a climax in finalizing a ground breaking oil deal, which would bypass the Petro-Dollar and allow energy to be bought and sold in a currency other than the current world reserve.

China's move towards publicly announcing its intentions for the Yuan also comes as it seeks to install a new offshore oil platform in disputed water between themselves and Vietnam.

Alternative economists like John Williams, Dr. Paul Craig Roberts, and Dr. Jim Willie have each predicted that 2014 could be the year of a full currency reset, or the beginning of the end for dollar hegemony in the global financial system.

And with global chaos increasing in areas like Syria, Ukraine, and Venezuela, exported inflation from too much money printing via America's central bank is creating environments eerily similar to that of the Arab Spring uprisings of just a few years ago.

The following are some likely actual change agent factors, agents, and events, which could happen before year 2014 ends. The Jackass has stated that 2014 will not end as it began, as huge changes and disruptions come.

Also, my perspective on the rapidly reducing time between events is very evident, indicating a Great Quickening much like an earthquake building from minor tremors. If a few of the following probable events occur, the entire financial system will be altered.

1) Russian primitive payment system arrives, with an asset backed Ruble currency
2) Saudis accept non-USD for oil payments, actually any major currency
3) Yuan full convertibility hits the scene, to occur in Shanghai Free Trade Zone...

Several of these potential force majeures are already underway, with many being finalized in May, or over the next couple of months.

First, Russia has created the foundation for a Eurasian Trade Zone that will be opening very soon and will allow any nation to buy and sell goods in any currency or asset they desire.

Secondly is the expected Yuan convertibility event, which could become viable as early as this July.

China has not been shy in publicly declaring what their goals and agendas are for the future, especially when several months ago, their state run newspaper called for a new 'de-Americanized' world.

And when over 80 associated countries are signed on and ready for a a new global banking system run either by China, Russia, or a coalition of BRICS nations, the West needs to fear a loss to its power when the Yuan becomes fully convertible, and is only one step away from supplanting the dollar as the global reserve currency.

[Thank you to Huaqiao2013 at CDF for the post]

 

[TaiShang]

Work Smarter, Not Harder

China has overtaken the United States to become the world's biggest goods trading nation. What's the next step?

By Zhou Xiaoyan, Beijing Review

SUMEC Group Corp. is one of the largest exporters of machinery products based in east China's Jiangsu Province, an economic powerhouse in the Yangtze River delta. Founded in 1978, the company used to be a mere original equipment manufacturer for foreign big names. Facing faltering demand and decreasing profit margins after the financial crisis since 2008, the company made a tough decision to change its business model, which later enabled it to transform to an original design manufacturer and finally an original brand manufacturer.

By integrating resources with domestic research institutions and universities, SUMEC has developed many hi-tech products and greatly increased its profitability.

For instance, gasoline engine generators under the company's brand Firman have occupied the No.1 market share in Africa. High-pressure washers under the brand name of Cleanforce are the top seller in the North American market. To date, exports of products under the company's own brands have accounted for 30 percent of the total.

Cai Hongbo, Chairman of SUMEC, said industrial upgrade is the only way out for exporters. "Our core competitiveness should be based on technological innovation and better branding, instead of cheap prices."

Economic data released earlier this year showed that China had surpassed the United States as the biggest goods trading nation.

China's total goods trade volume in 2013 stood at a record high of $4.16 trillion. Exports reached $2.21 trillion and imports, $1.95 trillion. The World Trade Organization confirmed that China's goods trade in 2013 was $250 billion more than the United States.

As big as it is, China is far from a strong trading nation, experts and government officials argue. More needs to be done to improve the country's trade structure by adding value to exported goods and fostering trade in services.

A rising force

China's rise to dominance in world trade happened over a very short period, with the value of Chinese trade roughly doubling every four years over the past three decades.

Since the reform and opening-up policy was adopted in 1978, China's trade volume has surged from $20.6 billion to $4.16 trillion, representing a compound annual growth of 16.4 percent.

China accounts for 12 percent of global trade volume and is now the largest trading partner of 120 countries and regions. Foreign trade adds 180 million jobs to the country each year and contributing 18 percent of China's tax revenues. One out of every four employees in the country works in foreign trade-related businesses, according to the Ministry of Commerce (MOFCOM).

"Foreign trade has become the most dynamic driving force for social and economic development," said Gao Hucheng, China's Commerce Minister.

Bai Ming, a research fellow with the Chinese Academy of International Trade and Economic Cooperation, attributed the leapfrog development of China's foreign trade to the reform and opening-up strategy, a global industrial shift and China's low cost advantage.

"Since World War II, the global industrial shift has been accelerated. Many industries were transferred from the United States to Japan, and then to the Four Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) and later to the Chinese mainland. After that, China became the world's factory," Bai told Beijing Review.

Weak links

Analysts, however, said the top trader spot is no reason for gloating as China is far from being a strong trading nation due to a lack of hi-tech exports and the lackluster service-trade data.

"Among our exported goods, most of them have an economically low added value and we have few of our own brands. We still lag behind in global marketing networks and models," said Gao.

In 2013, China's exports of hi-tech products accounted for 29.9 percent of its total exports, but 73 percent of those products were made by foreign-invested companies, according to data from the MOFCOM.

Processing trade still occupies the bulk of China's foreign trade, said Liu Yuanchun, Deputy Dean of School of Economics at the Renmin University of China. A large amount of components are brought to China to be assembled and then re-exported. MOFCOM figures show the processing trade made up 32.6 percent of total imports and exports in 2013.

"The core technologies are in the hands of foreign companies or joint ventures while Chinese manufacturers are still at the lower end of the industrial chain, living off very thin profits," said Liu.

"For a long time, Chinese products have relied on quantity and price advantages for international competitiveness, while lacking core competitiveness and added value," said Bai. "China is making products that other countries are not willing to. Although it is the top trader of goods, profits belonging to China are definitely not in line with that status."

Besides the structural problem in China's trade of goods, another piece of evidence for China not being strong enough in trade is that its service trade still lags far behind the United States. International trade, however, is now edging away from commodities to services and intellectual property, which happen to be China's weaknesses.

China's shortcoming in service trade represents a stumbling block on the country's path to becoming a stronger trading nation. According to the MOFCOM, China's service trade reached $539.64 billion in 2013, accounting for 11.5 percent of its total trade volume, far below the world average of 20 percent. The amount is also less than half of that for the United States.

The country also saw a widening deficit of $118.46 billion in service trade in 2013, surging 32.1 percent from the $89.7 billion deficit in 2012. Overall, the country has witnessed a deficit in service trade for 12 consecutive years, according to the MOFCOM.

Zhang Monan, an associate research fellow at the China Center for International Economic Exchanges, said a structural upgrading is also happening in global service trade.

In recent years, service trade has become more dependent on the development of knowledge-, technology- and capital-intensive industries, such as telecommunications and finance, computer software and data processing, rather than on traditional labor- or resources-intensive service industries such as tourism and sales services.

In China, traditional industries like tourism and transportation still make up the bulk of its service trade, while knowledge- and capital-intensive sectors are relatively weak compared to developed countries. Despite the fact that high value-added industries like insurance and finance have registered robust growth in the past few years, they are far from being capable of playing a leading role, said Zhang.

"Compared with trade of goods, growth in China's service trade is much slower. Improving competitiveness in that regard is a must for China at a time when the country is marching toward being a stronger trading nation," Bai said.

"To support export-oriented service companies, the government should, under the rules of the WTO, grant preferential policies, such as more convenient registration procedures for businesses, introducing clients to them, holding exhibitions to enable them to meet with potential clients and helping to solve disputes between them and their foreign counterparts," Bai suggested.

Zhang Xiaoyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation, said a "strong trading nation" is not something that a country should deliberately pursue, but should be a natural outcome after having adjusted their domestic economic structure.

"A country's trade structure is in line with its domestic economic structure. Only when China carries out domestic industrial upgrades and economic rebalancing can it improve its overall trade structure," Zhang told Beijing Review. "It's bound to be a long process."

"High-end service exports, such as financial services, cultural products and technology transfer, are China's weakest links. Also, China's service sector is not as opened up as the manufacturing sector. This problem should be addressed."

A frequent target

China's foray into the global trade market has not always gone smoothly. It has been the most targeted nation in anti-dumping investigations for 18 consecutive years and countervailing investigations for eight consecutive years.

Bai said it's inevitable for a big trading nation to become a frequent target of trade disputes.

"It's not just an issue for China. When Japan and the Four Asian Tigers emerged as big trading nations, they were faced with the same problem. Till today, trade disputes between the United States and Japan or South Korea still occur frequently."

"The tallest tree is the one most swayed by the wind," Bai said. "Since the financial crisis, trade protectionism has become increasingly severe. Restrictions on import quotas from China imposed by other countries are aimed at saving their own economy."

Zhang said China should treat trade protectionism rationally.

"China's peaceful development has broken up the previously established balance. How to increase trading strength while getting along with trading partners is a tough issue China has to face."

"China does lag behind developed countries in terms of advanced trading concepts, environmental protection and labor protection standards. We should constantly learn from them and shoulder our responsibilities," Zhang said.

"As painful as it is, it will bring about a better outcome. China's trade development should be based on structural adjustment and should be healthy and sustainable. Only when we are willing to give up some current interests can future gains be secured," Zhang said.

 

[yusheng]

Volunteers finish their 105 days experiment in "Moon Palace 1"

Captain Xie Beizhen(C) and crew members Wang Minjuan (R) and Dong Chen (L) of the"Moon Palace 1" pose for photos in front of the chamber for cultivating plants after living in the closed lab for 105 days in Beijing, capital of China, May 20, 2014. Three Chinese volunteers on Tuesday ended an experiment that saw them live for 105 days in an enclosed capsule, eating only laboratory-grown plants and insects. This was China's first manned test of the "Moon Palace 1,"a 500-cubic meter module that is China's first and the world'sthird bioregenerative life support base. (Xinhua/Gong Lei)

A staff member introduces the interior condition of the "Moon Palace 1" from monitors in Beijing, capital of China, May 20, 2014. Three Chinese volunteers on Tuesday ended an experiment that saw them live for 105 days in an enclosed capsule, eating only laboratory-grownplants and insects. This was China's first manned test of the "Moon Palace 1," a 500-cubic meter module that is China's first and the world's third bioregenerative life support base.

 

[TaiShang]

China Halts US Dollar Transactions With Afghan Banks

The de-dollarization escalates. As Reuters reports, Chinese banks have halted dollar transactions with most Afghan commercial banks. Whether this is related to the terrorist operations in the Muslim-dominated Uighur region is unclear... also unclear is whether the Chinese banks will accept transactions with Afghan banks in CNY?

As Reuters reports,

Chinese banks have halted dollar transactions with most Afghan commercial banks, the central bank governor said on Thursday, making it difficult for businesses to pay for imports with one of the Afghanistan's biggest trading partners.

"China is a major country that was handling those bank transfers, and now they have told the banks they can't do it," governor Noorullah Delawari told Reuters.

The impact on business had been felt immediately, he said.

De-Dollarization or Anti-Terrorist action? The official story is as follows:

The Chinese move was part of the trend in which it was increasingly difficult for Afghanistan's commercial banks to execute international transactions, Delawari said. "Some of our banks cannot do any direct transactions because their correspondent banks in the U.S., Europe, Germany, or Turkey (have halted transactions)," he said.

"Now even transferring money to China to import goods has been affected."

The Afghan government's failure to pass key measures means that it could in June be blacklisted by Financial Action Task Force (FATF), an international body that sets standards on how countries combat money laundering.

Banks have been struggling since FATF threatened Afganistan with the blacklist early this year.

"That has been affecting our banks ability to transfer money for anything," Delawari said, describing how students abroad were unable to receive money from there parents as an example.

Chinese banks and officials were not immediately available for comment.

[Thank you to Huaqiao at CDF for the original post]

 

[Mao1949]

Super-fast approval bureau opens doors

Boosting Tianjin's plans for establishing a free-trade zone, the city's Binhai New Area has setup the country's first administrative approval bureau, gathering 216 items for approval under the 18 government sectors in the area and shortening the approval process.

The bureau can deliver an approval in one day, which is the fastest in the country.

The administrative service center that opened its doors on Tuesday boasts more than 200 counters offering diversified administrative examination and approval-related services, such as enterprise and tax registration, and foreign investment approval procedures.

Following a call by the government to integrate development among Beijing, Tianjin and Hebei provinces, the move to streamline administrative approvals will help attract an increasing number of private companies to invest in the Binhai New Area, said Zhang Tiejun, director of the Tianjin Binhai New Area Administrative Approval Bureau.

Zhang Lu, financial director of Tianjin Binhai Xianghengrui Metal Sales Co, was able to get her company's business license, organization code certification, tax registration certification and official seal in only 24 hours, as opposed to the average of four days that is standard in the rest of the country.

According to Zhang, she got a list of the items she needed to gather for the approval work from the Binhai administrative approval service center. Then she just had to complete the forms to finish the approval work the day after submitting the application.

"It is quite a bit more convenient than before," Zhang said.In the past, she had to go to a commercial bureau, a public security bureau and other government sectors, and the approval took more than two weeks to be delivered.

To further enhance its efficiency, the bureau established a new supervision system to oversee the approval work. According to the bureau, the service center received a total of 567 applications and completed 416 cases the day after it opened for business.

Reforming the administrative approval function will speed the transformation of government functions in the Binhai New Area, Zhang Tiejun said.

"The 18 departments, without the burden of administrative approval, will focus more on strengthening market supervision and business exploration," he said.

As a pilot area for transforming government functions, Tianjin's Binhai New Area's role is to promote trade and facilitate investment, Huang Xingguo, mayor of Tianjin Municipality, said on a visit to the bureau on Tuesday.

 

[TaiShang]

Why Are Western Rating Agencies Wrong?

By Guan Jianzhong
The global financial crisis has testified to the failure of the Western credit ratings system, with the entire world suffering from the ensuing consequences. Western rating agencies were widely criticized for having given their highest ratings to the debt instruments whose failure helped spark the global financial crisis in 2008. The incapability of disclosing the rules of the formation of credit risks is the reason for the fact that people are questioning and denouncing them.

China's economic rise and growing influence means it should have a commensurate voice in ratings. The irrational worship on the three big credit rating agencies (Standard & Poor's, Moody's and Fitch) should be abandoned. China is a creditor that sends out lots of capital. China should depend on its own credit rating institutions that are capable of doing the work. We cannot simply assume that Western credit rating institutions are always the best, or depend solely on rating agencies from a debtor country to make investment decisions.

The core theory of the three big rating agencies relies on the central tenets of default rate and sovereign ceiling. Default rate uses events of default in history to evaluate future risks. There is no logical link between previous default and future risks. A sovereign ceiling means the sovereign rating of a country is the limit of all debtors in the country. This is wrongheaded. There is no necessary connection between the debt-paying ability of the central government and other debtors in the country. Such a ceiling is overly simplistic.

The primary responsibility of a rating agency should be social responsibility and the value of a rating agency depends on whether or not it has an original rating theory and standard that can disclose and predict credit risks before they happen.

Therefore, as Western ratings don't seem to be able to shoulder the responsibility of global rating, they could instead be a source of future strife.

Only a correct rating theory can guide us in attempting to discover the rules for the formation of credit risks, and this can only be achieved by looking into the very core of this extremely complicated system.

Credit rating agencies should undertake this public responsibility by providing the market with impartial and independent credit-rating information.

The contradiction between production and credit and the contradiction between credit and rating are the driving force for the development of a credit-based economy.

The first pair of contradictions in essence demand infinite expansion of credit to satisfy the growth of production, making it a driving force for the pro-cyclicality of a credit-based economy. The second pair of contradictions demand control of credit expansion risks, making it a driving force for the counter-cyclicality of a credit-based economy.

Therefore, credit rating agencies should aim to prevent the exponential expansion of credit size through disclosing the risk of sources of repayment in covering debts.

The credit rating theory of China's Dagong Global Credit Rating takes the probability of wealth creation as the basis for credit ratings. It also takes into consideration factors such as political stability, credit environment, economic conditions, maximum debt of a debtor, the outstanding debts of the debtor and degree of deviation between the sources of repayment and wealth creation capacity.

The biggest theoretical innovation of Dagong lies in the degree of deviation between repayment sources and wealth creation capacity. The degree of deviation is in direct proportion to the debtor's solvency risk.

In reality there are various ways of repaying debt, and each source of repayment varies in its impact on solvency risk.

For instance, one debtor may repay debt with their profit while another debtor may repay debt by printing more bank notes. In each scenario, the debt is repaid; the decisive factor to differentiate the security degree of their repayment capabilities is the distance between the source of repayment and wealth creation capability, namely the degree of deviation.

Email us at: yushujun@bjreview.com

 

[Mao1949]

At the rate things are going, China may be the world’s biggest movie market just five years from now. By Wednesday, Chinese movie theaters had taken in 10 billion yuan ($1.6 billion) since the beginning of the year. Last year it took a month longer -- until June 19 -- to reach the same mark, according to M1905, the website for state-owned broadcaster CCTV6.

The country’s box-office grosses in 2013 hit $3.6 billion, and 2014 is headed for a take of $5 billion, according to the Hollywood Reporter. (Deadline estimates a slightly more modest $4.5 billion.) To meet growing demand, China added over 5,000 screens in 2013 alone, Variety reports.

The U.S. box office, by comparison, is expanding at a significantly smaller pace, hovering at $10.9 billion in 2012 and 2013, up slightly from 2011’s $10.1 billion.

China isn’t just an audience for film, it’s also a hugely profitable producer. Twenty-four movies made more than 100 million yuan ($16 million) in China this year, and only half of them were American-made.

The biggest box-office success in China this year was “The Monkey King,” a homegrown fantasy epic shot in 3D that took in $167 million after its January release. Starring Chow Yun-Fat, the movie was produced by Mandarin FIlms and China Film Group, companies that aren’t familiar to American audiences -- yet. “Captain America: The Winter Soldier” came in second with $116 million, and Chinese reality-TV adaptation “Dad, Where Are We Going?” brought in $111 million for third place.

“Godzilla,” one of the biggest U.S. releases of the summer, may underperform in China due to recent tensions between China and Godzilla’s country of origin, Japan. Other upcoming American movies -- “X-Men: Days of Future Past,” “Transformers: Age of Extinction,” “Dawn of the Planet of the Apes” and “Guardians of the Galaxy” -- are likely to do well in China this summer.

In the fall we’ll see a test of how Chinese movies fare in America. “The Monkey King” was successful enough across Asian markets to earn a U.S. release set for September, distributed by the small New Jersey-based Global Star Productions.

It might take some time for Chinese films to gain as strong a foothold in the U.S. as American films have internationally, but it probably won’t be long before one of the top 10 films in America is a blockbuster from Beijing.

 

[Mao1949]

Russia and China are planning to increase the volume of direct payments in mutual trade in their national currencies, according to a joint statement on a new stage of comprehensive partnership and strategic cooperation signed during high-level talks in Shanghai on Tuesday.

“The sides intend to take new steps to increase the level and expansion of spheres of Russian-Chinese practical cooperation, in particular to establish close cooperation in the financial sphere, including an increase in direct payments in the Russian and Chinese national currencies in trade, investments and loan services,” the statement said.

The two countries are also set to deepen dialogue on macroeconomic policy issues, as well as boost growth in mutual investment, including in transportation infrastructure, the development of mineral deposits, and the construction of budget housing within Russia.

Russian President Vladimir Putin arrived in China on Tuesday for high-level talks with President of the People’s Republic of China Xi Jinping. A large package of documents, including bilateral, intergovernmental, inter-departmental and corporate agreements are expected to be signed during the two-day visit, aimed at cementing Russian-Chinese relations.

The decision to switch to the national currencies, thus reducing dependence on the US dollar was first announced in 2010 by then-Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao. The announcement was followed by a deal struck by the central banks of the two countries that allowed bilateral trade in the ruble and renminbi, as well as in freely convertible currency.

 

[Edison Chen]

China has a huge audience, so there will be 100,000+ movie theaters by 2015. The box office will hit new record by then.

Godzilla (2014) is boring. X-men not bad, but still the old stories, some apart is similar to transformers and iron man - all about the robots. In the movie X-men, those Americans even said our enemies are Russians and Chinese. LOL! Can we have something new? The American scriptwriter is now too exhausted to write new stories. So they start to reproduce old movies, like Godzilla (1954 Japan) and Planet of Apes (1968). Actually China has many good elements and stories that can be produced into movies, but we still can't reach Hollywood's level, it's sad.

 

[TaiShang]

China to be largest seed market by 2015

Reporter: Ai Yang 丨 CCTV.com

China may surpass the US as the world's largest seed market next year as commercialization in the seed industry accelerates. These comments come from the Chinese Academy of Social Sciences just before the World Seed Congress kicks off in Beijing on Monday.

Chinese Vice Premier Wang Yang addresses the opening ceremony of the 2014 World Seed Congress in Beijing, capital of China, May 26, 2014. (Xinhua/Ding Lin)

The world seed congress is here for the first time in China—a premier annual gathering where the industry comes to exchange ideas to better crop harvesting. Organizers say that this comes as an opportunity to tackle food safety, an issue that is closely related to people’s health and quality of their lives.

"Getting the right seed is a crucial part for agriculture production. As people’s life quality improve they require better tasting vegetables and fruits. With import and technology innovation we have been upgrading our seeds in the past few decades." Zhang Lingjun, senior agronomist with Beijing Agriculture Technology Extension Centre, said.

With China, eager to better its food production, effort was ploughed into upgrading seed yield, quality and expanding volume. Just on Sunday the Chinese Academy of Social Sciences forecast that the country’s seed market volume will surge to 14.2 billion US dollars next year. That will make it the number one seed market globally. And more stock would likely translate into large volumes of seeds for exports.

China has been working to boost its seed industry, not only to feed its own population but also to trade overseas…with international platforms like this, it hopes to learn and exchange skills and knowledge in order ensure its stock growth and better food quality.

And as many in the industry increasingly gain new techniques from abroad, they quickly apply that knowledge to China’s specialities.

"China enjoys a vast natural resource of edible mushrooms in the south so it’s very easy to breed new seed varieties. Our technology in this area is quite advanced. So far China’s mushroom export accounts for more than 20 percent of the world total."Wu Shangjun, senior agronomist with Beijing Agriculture Technology Extension Centre, said.

But even as the industry develops, the country is still facing challenges in seed production. In the past three years, authorities found nearly 20,000 cases of fake and inferior seeds. Experts say insufficient innovation and loopholes in seed management still hamper the seed industry’s development.

 

[Mao1949]

(Reuters) - China has approached foreign banks and gold producers to participate in a global gold exchange in Shanghai, people familiar with the matter said, as the world's top producer and importer of the metal seeks greater influence over pricing.

The Shanghai Gold Exchange (SGE) got the go ahead from the central bank last week to launch a global trading platform in the city's pilot free trade zone, a move that could challenge the dominance of New York and London in gold trade and pricing.

Beijing's plans to open up gold trading comes at a time when the benchmark price-setting process for precious metals is under scrutiny. Barclays Plc (BARC.L) became the first bank to be fined over attempted manipulation of the 95-year-old benchmark London gold market daily "fix" last week.

State-backed SGE has asked bullion banks such as HSBC (HSBA.L), Australia and New Zealand Banking Group (ANZ.AX), Standard Bank (SBKJ.J), Standard Chartered (STAN.L) and Bank of Nova Scotia (BNS.TO) to take part in the global trading platform, two people approached by the exchange said.

SGE, the world's biggest physical gold exchange, where domestic banks, miners and retailers buy and sell gold, could also open up the international platform to foreign brokerages and gold producers, they said.

"China wants to have more voice in gold prices," said Jiang Shu, an analyst with Industrial Bank, one of 12 banks allowed to import gold into China. "The international exchange is the first step towards gaining a say in gold pricing."

"If you don't allow foreign players to participate in your market actively, or do not push Chinese financial institutions to participate in the international market, then China's strong gold demand is only a number, not a power," he said.

HSBC and Standard Bank declined to comment, while the other banks and SGE were not immediately available for comment.

The global platform will first host spot physical contracts for gold and other precious metals, before aiming to launch derivatives down the line, said a third source who is directly involved in the launch of the international exchange.

"We are not just encouraging foreign banks but also producers and other entities," added the source.

China, the world's biggest buyer of raw materials from copper to coal, is pushing hard to establish pricing benchmarks for a number of commodities.

Gold, along with oil, could be among the first to be opened up to foreign players. The free trade zone in Shanghai is set to see international energy trading by hosting the country's first crude oil futures.

ASIAN VOICE

The Shanghai exchange is looking to launch three yuan-denominated physical gold contracts, of 100 grams, 1 kg and the bigger London good delivery bar weighing 12.5 kg, said another source who has received a draft prospectus from SGE.

Contract specifications for silver, platinum and palladium were also being discussed, though the sources said specifications and participants had not yet been finalized. The exchange is expected to be launched by the fourth quarter.

Even if China lures foreign players, the exchange would still need to see full convertibility of the yuan and enough liquidity on the exchange before it can be considered to operate on a par with other hubs.

Currently, the London gold "fix" is the benchmark for spot prices, while New York's COMEX contract sets the futures' benchmark. SGE prices are tracked to gauge Chinese demand as reflected in premiums or discounts to spot rates.

Earlier this year, China's ICBC (601398.SS) - in conjunction with its acquisition target Standard Bank - indicated interest in buying Deutsche Bank's seat on the London gold fix but it is not interested anymore, sources previously told Reuters.

While physical demand has always provided underlying support to gold prices, speculative trade is what largely drives prices. With China's push for an international physical exchange, physical demand could begin to have a stronger influence.

China overtook India last year as the world's biggest gold importer and gold jewelry and investment demand was up about a third to a record 1,065.8 tons in 2013.

The influx of gold has made SGE the biggest physical exchange, with a turnover of 10,000 tons for its immediate and deferred delivery contracts, according to Thomson Reuters GFMS.

The Shanghai Futures Exchange has the world's second-most traded gold futures contract, though trading is largely limited to the domestic market with volumes of about 41,176 tons last year, still well behind COMEX's 147,083 tons.

The SGE's international board and the main exchange could eventually be merged when the yuan is fully convertible, Albert Cheng, managing director of the World Gold Council's far east region, said.

"That would become a very important exchange in the world, and Shanghai will truly become one of the three international gold centers after New York and London," he said. "No doubt, the participation in the international market is the key effort of the SGE and the current administration."

 

[senheiser]

good news, china holds 3 trillion dollars reserves who will become useless one day once america goes bankrupt and cant print anymore money. All hard earned chinese money, but with many gold in chinese hands they will also gain in one area that will be some kind of bargain for the loss.

 

[ChineseTiger1986]

good news, china holds 3 trillion dollars reserves who will become useless one day once america goes bankrupt and cant print anymore money. All hard earned chinese money, but with many gold in chinese hands they will also gain in one area that will be some kind of bargain for the loss.

We need at least 12000 tons of gold.

 

[Mao1949]

1. Shanghai Gold Exchange is the largest physical gold exchange in the world.

2. Shanghai Futures Exchange has the 2nd largest gold futures contract in the world.

Note: Futures contract drives gold prices which is why the American COMEX influences gold prices the most. US manipulates gold prices down using big banks from the backing of the Federal Reserve to support the US Dollar.