Lu Wenyuan, secretary-general of the China Gold Association, told China Daily that with a legacy of 50-plus years of government monopoly of the gold market, China's gold jewellery trade lags far behind that of the international market.

"We are still accustomed to selling gold jewellery in accordance with its weight, but such a price-setting system caused the makers to ignore the value of technically creative designs in their products," Lu said.

However, on the international market gold jewellery is regarded as an artistic work and each piece needs to be priced on this basis, not simply its gold weight.

"The price of gold jewellery reflects the values both of the gold - the raw materials of the product and the design and manufacturing techniques," Lu said.

According to official statistics, for the world's leading gold jewellery makers, the cost of design and manufacturing usually makes up 30-40 percent of the cost as a whole.

"But in China, that cost may be nearly zero, as the producers compete to reduce the unit price of gold jewellery to attract customers," said Lu.

This short-sighted price competition on gold jewellery has resulted in rough and slipshod manufacture.

The government lifted its controls on the price of jewellery in 1998, but because of its control of gold, the jewellery market could not operate fully under market principles.

"That situation has changed, however, after the launch of the Shanghai Gold Exchange on November 1, a signal for China's full liberalization of its gold market," Lu said.

Gold jewellery processors should register to become members of the exchange and get gold at market price.

"The price on the gold exchange basically fluctuates in line with changes on the world's gold markets, mainly London's," explained Lu.

Under China's commitments to the World Trade Organization (WTO), the gold jewellery business is among the first batch of industries to open to the outside world. This means that the main players on the international stage will target China's rather backward domestic market bringing with them well-designed and elaborately crafted products.

Compared with foreign competitors, the majority of China's gold jewellery companies are small or medium-sized and still operate on a workshop-based style.

"The backward machines, skills and management methods leave them in a difficult position," added Lu.

The China Gold Association has decided to consolidate the industry via acquisitions, mergers and reorganization to enhance its comprehensive competitiveness.

The association was formed to help those competitive-minded gold jewellery manufacturers to bring in foreign capital, talent, equipment, along with the very latest technology, so that the domestic industry can more fairly compete with the inevitable international competition.

Last month, the first national gold jewellery design contest was launched, in a bid to encourage designers to be innovative and improve their skills and by so doing, better China's gold jewellery industry.

(China Daily December 9, 2002)