Peking curbs illegal gold sales

CHINA'S sometimes over-enthusiastic embrace of free market economics has finally broken the government's tolerance in an area close to most Chinese people's heart - the sale of gold.

The central government yesterday said illegal gold sales must come to a halt and announced measures to curb the thriving black market. By law, all gold produced in China must be sold to the state-owned People's Bank of China; in reality, nearly 40 per cent disappeared on to the black markets in the first five months of the year, according to figures published yesterday.

Gold fever has swept China over the past two years as rising incomes permitted consumers, particularly young people, to indulge the traditional Chinese appetite for buying gold. In 1993 shoppers purchased 300 tons of gold jewellery and ornaments, more than one-seventh of world gold jewellery sales, according to the World Gold Council (WGC). Shops selling only gold products are now common in southern Chinese cities, and gold jewellery counters in department stores do a roaring trade. A WGC survey found gold-buyers in Shanghai were the most lavish spenders, averaging about pounds 150 each in 1993.

The Chinese government is now desperate to re-establish control over the trading of gold. Last month it announced plans to reassert the state monopoly on all domestic purchases from mines and said 1 July was the deadline by which black market gold trading must stop.

The government gold price is lower than the world market price so gold mines make more money by selling production illegally. Consumer demand has also created a buoyant market for smuggled gold.

In yesterday's official China Daily, Ai Dacheng, vice-president of the national Gold Bureau, said loans and tax breaks for gold mines would be scrapped if mining companies persisted in selling gold to customers other than the People's Bank of China.

China is now hoping to increase domestic gold production by allowing foreigners to invest in low- grade and hard-to-dig mines.