By Sreekumar Raghavan
For a long time it was South Africa which led the gold production figures world wide but in 2007 they were dethroned by the emerging China and looks set to surpass India in gold consumption in 2009 as higher prices have led to falling imports into India.

The natural question that emerges is how did China suddenly emerge as gold super power? China has 1200 gold mines and still striving to increase gold output. The country is ramping up output of the yellow metal by 6 to 7 percent annually. In 2008, China produced 288 tonnes of gold in 2008 up 3% and has targeted 290 tonnes of gold for 2009. On the other hand US in second position saw its output drop 2% to 234 tonnes while South Africa was a distant third at 232 down 37 tonnes from 2007. South Africa has already seen its output drop 9.3% in September this year, according to wire reports.

According to Research and Markets, China is a natural world leader in terms of both reserves and the production of several metals and minerals. It joined the WTO in 2001, and has since become an economic force to reckon with - doubling its manufacturing output and in the process accumulating over US$1trn of foreign exchange reserves. Endowed with abundant mineral wealth, the country leads in the production of copper, coal and aluminium.

The national government is taking active steps to make the mining industry more competitive. Although it is a communist state, China introduced market reforms in the 1980s and today only about a third of the economy is directly state-controlled. The government is encouraging mergers and acquisitions (M&As) as a means of ensuring optimal use of mineral resources, and barriers to foreign investment are gradually being done away with, Research and Markets report said.

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In July a Bloomberg report quoting World Gold Council said that China may overtake India to become the world’s top gold consumer this year as the the nation became the first of the major economies to rebound from the global recession. Jewelry demand in China expanded in the first quarter while dropping in India. China consumed 400 metric tonnes of gold in 2008 compared to 650 tonnes according to World Gold Council. In the first quarter, India’s gold consumption fell to 17.7 tonnes as against China’s 105 tonnes.

China had gold reserves of 1054 tonnes as on April, 2009 and is all set to increase it following the Reserve Bank of India purchasing 200 tonnes of IMF gold to bolster its reserves.

Rising jewelry consumption in China won’t necessarily boost imports of the metal as rising production may be able to satisfy additional consumption, according to some analysts.China’s economy grew 7.9 percent in the second quarter after a 4 trillion yuan ($586 billion) stimulus package spurred record lending and consumption

According to analysts, electricity, labour problems and shortage of capital led to fall in South African production and the trend is likely to continue thereby China continuing to hold top position. South Africa which produced 1000 tonnes of gold in 1970 has seen its ouput plummeting all these years to 230 tonne levels.

With competition from South Africa falling and China already encouraging more foreign investment into untapped mining field, it’s position as leading gold producer is firmly entrenched for years to come. The recent surge in China production was attributed to several Canadian and Australian-led projects. On the other hand, its neighbour India continues to depend on imports to satisfy its demand as its own mines produce insignificant quantity of the yellow metal.

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