Editor’s Note
Recent policy adjustments in China’s gold market, as analyzed by UBS, highlight a regulatory shift toward centralizing oversight and managing liquidity. This change may redirect some investment demand toward gold ETFs, while the added tax burden is expected to be absorbed by end consumers across all sales channels.
According to a research report released by UBS, China’s adjustment of the value-added tax (VAT) policy on gold aims to centralize regulatory oversight of investment product demand and reduce liquidity, which may prompt some demand to shift towards gold ETFs. Regarding the end-consumer sector, the bank believes that regardless of whether it’s through direct sales or distribution channels, the newly added 7% tax item will ultimately be passed on to consumers.
The bank believes that raising the VAT will put pressure on the demand for gold products in the near term and reduce the arbitrage space between investment and non-investment demand, such as processing gold bars into jewelry. As regulatory scrutiny intensifies, the market will further consolidate, and consumers may shift from small-scale jewelry stores to large brands.
The bank points out that the short-term demand for Chow Tai Fook Jewellery (06181) and Chow Tai Seng (01929) may face pressure, but in the long run, both companies are expected to further consolidate their market positions. Assuming the VAT refund rate is reduced from 13% to 6%, it is estimated that Chow Tai Fook Jewellery’s gross profit margin will face pressure of 3 to 4 percentage points. However, the company had already raised prices for about 20% of its products last month, which may offset part of the impact. Chow Tai Seng has recently raised the prices of its heavy gold products by 5%, shifting the pressure on gross profit margin to consumers.
