"A nine-member panel has been formed in the central government to lead and plan details for the establishment of the exchange," said a source in Shanghai who declined to be named. "Another preparatory committee will be formed soon."

Shanghai is the most likely location for the exchange, though the central People's Bank of China (PBOC) would not confirm this early last month.

For years, gold trading has been strictly controlled by the central government. PBOC monopolizes the purchase and allocation of gold. Gold prices are separated from the international market and rarely fluctuate.

Pressure is mounting for opening the market.

"It is time for the market to be reformed," said a report by the Beijing-based China Business newspaper.

The NGE, which would mainly target gold producers and wholesalers, would introduce market prices to China's gold trade.

The PBOC would gradually withdraw from its monopoly position.

The retail market for gold would then be established, the source said.

China Business quoted Liu Shijin, a senior analyst of the Development Research Centre under the State Council, as saying, "The silver exchange taught us a lesson about how to levy value-added taxes on the trading of hard currencies."

"That's why the PBOC is considering giving preferences in value-added taxes for the trading of gold and gold products in its drafts," Liu said to the paper.

People in the industry in Shanghai welcome the possible establishment of an NGE in the city.

Mayor Xu Kuangdi ranked it a top priority in his speech about the 10th Five-Year Plan (2001-2005), delivered to the 11th local People's Congress.

Sources from the PBOC's Shanghai branch and Shanghai Economic Commission said their preparatory work is progressing, but they refused to disclose details.

People inside the industry also are excited about the future of the NGE in Shanghai.

"It will help Shanghai become established as an international financial center," said Mao Wen, a manager from the World Gold Council Shanghai Office.

Experience in other countries indicated that a stock market, a concentrated group of banks, futures and foreign exchange trading centers as well as a gold exchange center are essential for a city to become an international financial hub, she said.

"Shanghai already has most of them - except the gold exchange," Mao said.

China produced about 173 tons of gold and used about 207.5 tons last year.

(China Daily 03/05/2001)