FOR DECADES after the rise of Mao Zedong, Chinese were banned from purchasing gold. The central bank, its only buyer, allocated it to a few state-owned jewellers. Only in the early 2000s was the ban lifted, when Shanghai launched what is now the world’s largest physical gold exchange, and anyone was allowed to enter the gold business. It has flourished. During a Chinese gold rush created by jewellery buyers and bullion investors in 2013, bars in Western vaults were melted into smaller ingots and sent east. GFMS, a precious-metals consultancy, called this “the largest movement of gold, by value, in history”.
Chinese demand for gold jewellery has regularly surpassed that of India and America combined since then, accounting last year for 14% of physical gold demand globally. China has been the world’s largest producer since 2007. Yet it consumes even more gold (1,089 tonnes) than it unearths (426 tonnes). Flush with cash, its miners are moving to the high street: China Gold and Shandong Gold, two state-owned giants that are the country’s largest miners, have recently set up jewellery affiliates.
Roland Wang of the World Gold Council, an industry body that in September opened a Chinese chapter, says the gold-retail market has transformed since the rush. A younger generation of recently married consumers has more to spend on adornments. Shenzhen, a southern enclave where the private gold trade was permitted in one area in the ban years, remains the metal’s largest manufacturing base, but goldsmiths from Putian, a city in the coastal province of Fujian, have become a potent force in jewellery retail.
Today its merchants generate over one-third of China’s gold-jewellery retail sales of over 650 tonnes, says Lin Ruoxiang of the city’s gold-and-jewellery trade association, which counts over 300 members. For a sense of their industry’s promise, drive around the Putian peninsula, across the strait from Taiwan. Though the region is known for two other profitable industries—counterfeit trainers and private hospitals—the latter has been losing investors to gold, says the trade association.
On the city’s main street, 20 gold shops, including local chains like Goldwharf and Luk Luk Luck, vie with ubiquitous shopfronts advertising low-cost Oppo and Vivo smartphones, up from a handful a couple of years ago. Taiwanese television starlets grace jewellery billboards. For Chinese new year this month, a holiday week in which gold sales quintuple, music plays and lantern-shaped disco balls whirl.
In part of Beigao, a nondescript town of around 100,000 people in the Putian municipal area, nine in ten people work in the gold business, says Mr Lin. The place churns with construction activity. Rows of half-finished houses have a magic-beanstalk feel to them, sprouting columns, balustrades and flowery stucco. Mr Zhang’s home has eight floors. Over a lunch of puffer fish, gold-industry bosses recall days when the sweet potatoes, a staple crop, were too few to go around.
Today, young buyers “think nothing of spending a few thousand renminbi on a necklace” as a fashion statement, says Zhang Guowang, a fourth-generation jeweller who runs Huachang Jewellery, one of the largest in Putian, with a few hundred stores around China. They are forcing the industry to modernise. Their parents preferred the saturated yellow of 24-carat gold, evocative of ingots. Because gold at that purity is too soft for intricate designs and holding gems, clunky jewellery had long been the norm, chiefly sold by the gramme. Its main appeal was as an investment, recouped by selling the piece back to the shop.
But young Chinese find 24-carat gold tacky. Many shops have introduced a matt range for them. And jewellers are increasingly using lower-carat gold more creatively (and are thus able to charge a premium for design). Shanghai’s oldest jeweller, Lao Feng Xiang, has collaborated with Disney since 2016 to use its characters. Another shop, Chenghuang Jewellery, is selling tiny globular gold pigs to fix as charms on woven bracelets, for the Year of the Pig.
This month Beigao will open a gold industrial park, featuring factories, dormitories for workers and a gold-coloured 26-floor skyscraper, all costing 3bn yuan ($440m). It hopes to lure gold entrepreneurs home from Shenzhen; the region’s low labour costs may appeal—as could its keen consumers. Across town, locals crowd a Luk Luk Luck shop. Opposite, its new sister chain, Like You, has flamingo-shaped cushions, pale pink poufs and walls covered in fabric petals. Since the brand started selling last year it has opened eight shops, including in Shenzhen and Beijing. But for now, says a manager, sales are strongest here, in the capital of gold.
This post was originally posted at https://www.economist.com/business/2019/02/16/chinas-latest-gold-rush-has-transformed-a-fifth-tier-city.