China, set to surpass India as the world's top gold consumer this year, is keen to further open up its domestic market for the precious metal to the international community, with Shanghai looking at gold exchange-traded funds as the market matures.



Hoping to tap resilient Chinese demand for bullion as gold prices head for their twelfth straight year of gains, the Shanghai Gold Exchange (SGE) also said it would launch an interbank market early next month.




«As the domestic market matures and opens up, the exchange will launch over-the-counter trading, gold ETFs, Friday night trading and improve the leasing market,» SGE Chairman and President Wang Zhe told a precious metals industry conference in Hong Kong on Monday.




The gold ETFs will be traded on the Shanghai and Shenzhen stock exchanges, said Zheng Zhiguang, general manager at Industrial and Commercial Bank of China Ltd




«There is no doubt that gold ETF products will be launched in China. It's entered a study phase on regulation and operation,» Zheng said on the sidelines of the event.




«It will begin as a domestic market, but with future development it can become a global market,» he said, adding some of the gold investment products that the bank offers would be linked to ETFs in the future. But immediate focus is on the launch of an interbank market that will start with spot contracts and gradually offer forward contracts.




All banks trading on the China Foreign Exchange Trading System and National International Funding Centre will eventually be able to trade in the market, including foreign banks, Wang said.


China's gold market is expanding because of strong domestic demand for the metal, said Xie Duo, g eneral director of the financial market department of the P e ople's Bank of China. The central bank's policy is to encourage residents to hold physical gold, he said, but declined to comment on the PBOC's own gold buying activity.


«Later on, we will further open up the market and quicken the steps to integrate into the international market,» said Xie, without providing details. «We should actively create conditions for the gold market to become integrated with the international gold market.»



But Xie said the central bank has not set a timeline for issuing more gold import licences. Beijing strictly regulates gold imports and exports and has so far only given licences to nine commercial banks, including Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank.



Still, Chinese banks have been increasing their gold trading on the domestic over-the-counter (OTC) market. Chinese banks are also allowed to trade gold on the international OTC markets for their own books but not allowed to trade on behalf of their clients, Xie told Reuters.



For now, the central bank has no plan to look into when and how China would allow commercial banks to trade gold through the international OTC markets for their clients, Xie said. «That is not the development direction,» he added.



China has official gold reserves of 1,054.1 tonnes, the world's sixth-largest, which account for under 2 percent of its total reserves, according to the World Gold Council. Top gold holder the United States has more than 76 percent of its reserves in its 8,133.5 tonnes of gold holdings.