London gold fix gets a Chinese touch
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.”