Lon­don gold fix gets a Chi­nese touch

China Daily (Canada) - - FRONT PAGE - By ZHANG CHUNYAN in Lon­don zhangchun­yan@ chi­nadaily.com.cn

The pres­ence of a Chi­nese bank in the global gold pric­ing sys­tem will strengthen the na­tion’s ties with the global bul­lion mar­ket and in­crease trans­parency, ex­perts said on Wed­nes­day.

Ear­lier on Tues­day, Bank of China Ltd be­came the first Asian len­der to be a part of the auc­tion process that sets gold prices on the Lon­don mar­ket, ac­cord­ing to the Lon­don Bul­lionMar­ket As­so­ci­a­tion.

The bank, along with seven other lenders, will start par­tic­i­pat­ing in the twice-daily elec­tronic auc­tion, it said.

The move was not sur­pris­ing, con­sid­er­ing that there were re­ports ear­lier in the year that Chi­nese banks would be a part of the gold auc­tion process.

At that time, Ruth Crow­ell, chief ex­ec­u­tive of the Lon­don Bul­lion Mar­ket As­so­ci­a­tion, said that a new fix will help cre­ate a more di­verse pool of par­tic­i­pants, which in­cludes Chi­nese banks.

While China is the world’s largest bul­lion buyer, it has never played a di­rect role in de­ter­min­ing Lon­don gold prices till now. Gold prices in China are nor­mally fixed through trad­ing on the Shang­hai Gold Ex­change.

The Lon­don gold mar­ket is con­sid­ered as the global gold pric­ing cen­ter. Its gold prices are widely used in set­tle­ments be­tween pro­duc­ers, con­sumers and fi­nan­cial in­sti­tu­tions and is an im­por­tant pric­ing bench­mark for con­tracts.

A new elec­tronic auc­tion went live in March as a more trans­par­ent al­ter­na­tive to the cen­tury-old Lon­don Gold Fix. Un­der the old sys­tem, which was in­tro­duced in 1919, banks sim­ply called each other on the tele­phone to set the price on a daily ba­sis.

Bar­clays Plc, HSBC Hold­ings Plc, Bank of Nova Sco­tia and So­ci­ete Gen­erale SA were the ini­tial mem­bers of the Lon­don Gold Fix. In March, the pool was ex­panded to


de­riv­a­tives in­cludeGold­man Sachs Group Inc, UBS AG and JP Mor­gan Chase & Co, but con­trary to ex­pec­ta­tions, no Chi­nese len­der was in­cluded.

With the en­try of the Chi­nese len­der, the auc­tion process is ex­pected to bet­ter re­flect the gold sup­ply and de­mand trends from the Chi­nese mar­ket.

hina and In­dia are the largest con­sumers of gold glob­ally. The two coun­tries ac­count for more than 50 per­cent of the global de­mand. China is also the world’s big­gest im­porter of the yel­low me­tal and con­sumes more than three times the amount of gold it pro­duces.

With its new role in the gold pric­ing sys­tem, the Chi­nese bul­lion mar­ket is set to take on a more in­ter­na­tional hue.

The Bank of China’s de­ci­sion to join the gold pric­ing process has been widely wel­comed by bul­lion mar­ket par­tic­i­pants, who ex­pect it to boost trad­ing vol­umes.

What is more, a larger and more di­verse pool of par­tic­i­pants in the pric­ing sys­tem will help main­tain trans­parency of the sys­tem.

In the ab­sence of trans­parency, gold prices can be rigged to ben­e­fit banks at the ex­pense of pro­duc­ers, traders, in­vestors, jew­elry pro­duc­ers and other mar­ket par­tic­i­pants. It is ex­pected that more firms may join the auc­tion process soon.

Crow­ell is ex­pected to at­tend next week’s LBMA Bul­lion Mar­ket Fo­rum in Shang­hai and use the oc­ca­sion to en­cour­age more co­op­er­a­tion be­tween China and the world gold mar­ket.

Jes­sica Yang switched from taxis to chauf­feured cars for the com­mute into her Bei­jing of­fice as rides have be­come cheaper. These days, she of­ten goes for free, be­cause apps such as Uber Tech­nolo­gies Inc of­fer big in­cen­tives to win cus­tomers.

“I just go for what­ever is cheaper,” said Yang, 41, who does not drive and has taken free rides of­fered by Uber and lo­cal ri­val Didi Kuaidi. “There is no loy­alty here. Al­most all the cars are bet­ter than Bei­jing’s dirty and smelly taxis.”

Uber and the clones it spawned are widely con­sid­ered the next big thing for the tech­nol­ogy in­dus­try, with ven­ture cap­i­tal and hedge funds lin­ing up to bet on their prospects. In China, the race to win over hun­dreds of mil­lions of pay­ing com­muters has pushed com­pa­nies to put mar­ket share be­fore prof­itabil­ity, be­hav­ior com­mon dur­ing the dot-com bub­ble that peaked in 2000.

“The new round of price wars is about to start, and it’ll be a war of at­tri­tion,” said Zhang Xu, a Bei­jing­based an­a­lyst at Analysys In­ter­na­tional, which ad­vises In­ter­net com­pa­nies.

“Un­like pre­vi­ous price wars, where they were mainly at­tract­ing new users, they now need to fight to grab each other’s users. They’ll need to have enough cap­i­tal so that they can last.”

There has been no lack of will­ing back­ers in China’s ride-hail­ing com­pe­ti­tion.

The com­pany op­er­at­ing the Didi and Kuaidi apps is seek­ing to raise at least $1.5 bil­lion to fend off Uber in China, with fund­ing com­ing from new and old in­vestors, peo­ple fa­mil­iar with the mat­ter said this week.

Backed by Alibaba Group Hold­ing Ltd and Ten­cent Hold­ings Ltd, Didi Kuaidi an­nounced ear­lier it would give away 1 bil­lion yuan ($161 mil­lion) worth of rides to com­muters to com­pete against Uber and Yi­dao Yongche, which also op­er­ates in the es­ti­mated $1 tril­lion-a-year mar­ket for trans­porta­tion ser­vices in the world’s most pop­u­lous coun­try.

Didi Kuaidi dom­i­nates China’s car-hail­ing mar­ket with 78 per­cent of ride book­ings, while Uber has about 11 per­cent, ac­cord­ing to Analysys.

Uber plans to in­vest more than $1 bil­lion in China this year alone, ac­cord­ing to a let­ter to in­vestors fromChief Ex­ec­u­tive Of­fi­cer Travis Kalan­ick. Riders are com­plet­ing al­most 1 mil­lion trips a day in China, dou­bling in the past month.

In­ter­net com­pa­nies are “burn­ing the cash” to build scale for taxi-hail­ing, and now pri­vate-car book­ing, be­cause they are among the most fre­quently used ser­vices in daily life and can drive us­age of their other prod­ucts, such as mo­bile pay­ment, said Wendy Huang, the Hong Kong-based head of Asia In­ter­net and media forMac­quarie Bank Ltd.

“It will be chal­leng­ing for the new­comer to grab share from the ex­ist­ing play­ers,” Huang said. “But given Uber’s global pres­ence and their suc­cess in other mar­kets, the ex­ist­ing play­ers can­not re­ally take the com­pe­ti­tion from Uber lightly.”

Didi Kuaidi de­clined to com­ment on Uber’s plans to in­vest in China and on its own plans for driver and con­sumer in­cen­tives.

Huang Xue, Uber’s China spokes­woman, de­clined to com­ment on de­tails of its ex­pan­sion in the coun­try.

For taxi driver Chen Hairu, who has been driv­ing for seven years in Bei­jing, the ris­ing pop­u­lar­ity of pri­vate car-book­ing is prompt­ing him to think about a ca­reer change.

“Maybe it’s time for me to be­come a pri­vate-car driver for hire, but I don’t know how to be­come one,” said Chen, 42, who took in about 200 yuan dur­ing a re­cent five-hour shift.

“I heard there’s a for­eign com­pany that gives driv­ers a lot of money. I need to find them.”

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