Hong Kong’s China Gold and Silver Exchange Expands its Belt and Road Reach Using Shenzhen as an Asian Hub

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The China Gold & Silver Exchange, (CGSE) the Hong Kong based precious metals trading house, has announced significant expansion plans, based mainly on the development of China’s the Belt & Road Initiative.

CGSE already operates a gold trading hub in South China’s Greater Bay Area, the region including Hong Kong and Guangdong, representing a brand-new business model and designed to provide a fast, efficient and convenient entry point for industry players and retail investors.

Having commenced life in Hong Kong back in 1910, the CGSE has also planned to relocate its headquarters to Shenzhen’s Qianhai Free Trade Zone while keeping its trading platform in Hong Kong. The new operations include a trading hall, a clearing and settlement office, an assay lab, a logistics office, a bonded warehouse and customs facilities, as well as customer safety deposit boxes. There are additional plans to offer these services to more customers in Southeast Asia, thereby spurring business across the region.

South-East Asia is seen as offering significant opportunities, thanks to its strong economic fundamentals and far-sighted approach to value investing. And with China’s ambitious Belt and Road initiative providing extra impetus, now is the perfect time to implement growth strategies and capitalize on any first-mover advantage. “The aim of the initiative, which we see as groundbreaking, is to bring together all parties in the global bullion community,” says Haywood Cheung, President of Chinese Gold & Silver Exchange. “By doing so, it should be possible to expand markets, cut costs, and create win-win successes for all those involved. It can be a game-changer for the way we do business.”

“Looking at the big picture, we know that China’s Belt and Road initiative is already having an impact,” Cheung says. “We foresee that it will help to unlock potential and fuel economies. The nations concerned can realistically expect to achieve greater material wealth and, as a result, their people and governments will have greater demand for various types of investment in gold.”

Cheung adds that CGSE has a proud history, having operated as a respected gold exchange for the past 108 years. Some of its more recent corporate milestones include the launch of the world’s first yuan-denominated kilo bars in 2001; establishing operations in Shenzhen’s Qianhai Free Trade Zone in 2015; and rolling out the “Shenzhen-Hong Kong Gold Connect” scheme in November last year.

The latter also saw the first trade of CGSE’s “QH Gold” product, which served as a tool in raising the curtain on what was heralded as a new era for gold trading in Asia. Besides that, the CNH 9999 kilo bars are a way to invest in offshore renminbi and gold simultaneously. Because of that, the product is also expected to play an important role in further strengthening the internationalization of the renminbi in the months and years ahead.

All this goes to show that CGSE has the experience and scope to lead the latest project, which will open new doors and help traders gain a foothold in developing markets.

“With the regional gold hub, we aim to bring supply, demand and ancillary services together under the same roof,” Cheung says. “This platform will make the flow of gold more efficient for everyone including refiners, traders and banks, thereby promoting business and reducing operational costs.”

He explains that one immediate objective is to set stringent criteria to create a gold standard that is trusted across Asia and allows for mutual accreditation. Another is to work with accredited vaults overseas, so that physical gold can be delivered to anywhere in the world once a transaction is completed on a CGSE trading platform.

A third objective is to provide clear bank records for any transactions, so as to increase transparency and security for traders and underpin customers’ trust in the system. And a fourth is to impose rules which require “full payment and delivery” for each transaction in order to inspire confidence and give peace of mind.

“More specifically, a key attraction of the Qianhai bonded warehouse is that trading activities will fall under international law and arbitration, making it convenient for access to and withdrawals of gold,” Cheung says. “That is an obvious advantage for countries and multinationals which want to keep their reserves there.”

The broad market expectation is that demand for gold will only increase as China pushes ahead with its Belt and Road initiative and other nations start to benefit accordingly.

“As these countries become more affluent, they will need to buy gold for their reserves to back their currencies and economies,” Cheung says. “For that reason, we are in talks with countries along the Belt and Road corridor, and our progress in building the Asian gold hub is gaining pace.”

“Mainland China is massively acquiring gold and is actively building up its gold reserves,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “This is partially due to the massive consumer demand in jewelry, but also as a longer term ploy by China and Russia to overtake the United States’ own holdings and increase pressure on the US to back up the dollar with assets, which as a debt based economy it is unable to do. China also has set up the Silk Road Gold Fund, which assists Belt and Road countries in mining gold to support infrastructure development costs and build up their national reserves. This is important for nations such as Afghanistan and others in Central Asia who really need that kind of locally produced, asset support. The CGSE meanwhile has shown how to use Shenzhen’s Qianhai Zone in starting to expand its services reach and develop as a regional hub from which businesses can access all of South East Asia.”


About Us

Silk Road Briefing is produced by Dezan Shira & Associates. The practice advises foreign investors throughout China, South-East Asia and the Belt & Road nations, possessing 28 regional offices including Shenzhen. To contact us please email asia@dezshira.com or visit www.dezshira.com


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