By Greg Peel

It is clearly Beijing's intention for China to become the world's major trading hub, specifically through Shanghai, challenging the incumbent global trading centres of London and New York. As is the case with all Beijing policy, progress is achieved on a softly-softly basis in incremental steps. There is a lot to be said for autocratic government, ten-year regimes and five-year plans. Things get done, and done in a sensible time frame. If only that government were transparently benevolent. But then show me a democratic government today that is benevolent rather than self-serving.

China is the world's largest producer of gold and second largest consumer. Beijing increasingly views gold as the currency substitute in which to maintain sovereign wealth rather than debased fiat currencies backed by immeasurable debt. The government is encouraging its population to buy gold and is constantly topping up its own reserves from its own production, as well as a limited level of imports. Earlier this year physical gold trading commenced on the Shanghai Gold Exchange. From this week Beijing will allow "over the counter" gold transactions.

Despite these steps towards what one might call a "Western" open financial market, progress is very incremental. Beijing is determined to test the water and iron out any issues rather than rush headlong into that of which it has little previous experience, risking "loss of face" globally. Hence to date, gold imports are only permitted for a handful of designated banks. Membership to the Shanghai Gold Exchange is also limited, as will be licences to trade over the counter. The addition of OTC trading enhances exchange trading as it allows member banks to make their own markets in gold.