Gold and Silver Snips

October 22, 2009 06:20 ET (10:20 GMT)

HONG KONG (Dow Jones)--China imported 112 metric tons of gold in 2008, an executive at China Minsheng Banking Corp. (600016.SH) said Thursday.

A rise in net imports was driven by 176% growth in investment demand for the yellow metal, which hit 68 tons, and 21% growth in jewelry demand to 326 tons, said Lila Lu, the Beijing-based head of precious metals at China Minsheng Bank.

According to official estimates, China's gold mine production reached 282 tons in 2008, making the country the biggest producer in the world.

But that hasn't been enough to meet rising demand in the country, which is increasingly looking to gold as a means to diversify its large foreign exchange reserves.

"Exploration investment has only picked in the past two years, so mine supply output growth will not keep pace with (rising) demand," Lu said at Gold Outlook 2009, a gathering of industry participants.

"For the next five years, China will still be a net importer," she said.

Gold demand was boosted in 2008 by the spectacular collapse of the Shanghai stock market, which tumbled more than 60% over the year, she said.

"Some of that money went into gold," Lu said, noting that one of her high net worth clients had bought 3 tons of gold late in 2008, worth over $100 million at current prices, in order to preserve capital.

Demand growth in 2009 would not match 2008 levels, partly because of the recovery in the stock market seen this year, but the long term trend is still upward, she said.

Hong Kong is the major conduit for China's gold imports, as gold shipped to depositaries at Hong Kong Airport can be exported to China directly without paying Hong Kong's 3% import duty.

Hong Kong effectively acts as a shock absorber for seasonal demand fluctuations in China, said Sunil Kashyap, managing director and head of Asia at ScotiaMocatta.

"What we find in Hong Kong is that in a particular month when Chinese demand is low, then that surplus comes to the market here. Hong Kong takes care of (China's) demand and supply gaps," he said.