【China】China, the ‘Big Hand’ That Was Buying Gold, Has Moved… ‘Stirring’ Due to Reduced Tax Benefits

Prospects have emerged that gold demand in China, the world’s largest market, could shrink after the Chinese government halved the value-added tax (VAT) deduction for gold retailers.

According to Bloomberg, starting from the 1st of this month, China lowered the VAT deduction for non-investment gold used to produce items like jewelry or electronics from the previous 13% to 6%. Gold bars, gold ingots, and precious metals using gold fall under the new measure.

As a result, jewelers and small businesses in China’s gold sector are expected to be hit. Bloomberg predicted that while the exact impact of the new regulations is not yet clear, jewelers and companies not registered with the Shanghai Gold Exchange and the Shanghai Futures Exchange will be hit the hardest.

The stock market reacted swiftly to this on the 3rd. Chow Tai Fook Jewellery Group plunged 8.67% on the Hong Kong stock exchange, while Chow Sang Sang Holdings and Lao Feng Xiang Gold also fell by 6-7%.

This could dampen demand in the gold retail market.

For investment products like gold bars, the tax benefit remains fully applicable if member companies of the Shanghai Gold Exchange and the Shanghai Futures Exchange sell metals purchased directly from the exchange. Trading in gold without physical delivery and investment in gold-backed exchange-traded funds (ETFs) also remain tax-free.