China to kick-start interbank gold market trade

China, Beijing: In a picture taken on June 18, 2012, a worker holds a pair of gold bars to mark the launching of China's Shenzhou-9 spacecraft at a gold shop in Beijing. (AFP Photo)
China, the largest consumer and now the largest producer of gold in the world, has aspirations to become a major gold trading center on a par with London and New York.

China has proposed to broaden trading of precious metals in its local market in order to help China become a "major gold trading centre", reports The Wall Street Journal.

"A person involved with the matter" revealed China’s ambitious plans to the WSJ, saying that "the move could increase liquidity and help Beijing gain stronger pricing power for key commodities like gold".

China is the fifth largest holder of gold reserves in the world after the U.S., Germany, France, and Italy.
Chinese officials say China hopes to have gold reserves as large as the U.S. in order to help position the yuan as a global reserve currency. 

In the longer term, being a major gold trading center would make China a more powerful financial and economic player and indeed could allow them to influence commodity and other important market prices. Reuters reported that becoming a gold trading center "would boost the country's clout in setting global prices".
The journal reports that “Beijing's tight grip on commodities trading and rigid capital controls are among the obstacles in the way.”

The move is also part of the broader financial reforms that Beijing has launched in recent weeks, loosening some of the restrictions on securities investment and allowing banks to price loans at cheaper rates than in the past, that seek to grant market forces a bigger role in both the economy and the capital market.

According to the draft rules, the authorities are aiming to launch the interbank trading on August 31, starting with gold contracts, said the person.