James Burton, chief executive officer of the World Gold Council (WGC), believes the favourable policies decreed by the central government may make ownership of gold as an investment vehicle easier.

The China Banking Regulatory Commission gave the go ahead to the nation's four biggest commercial banks - the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank and the Agricultural Bank of China - to operate individual gold investment businesses at the end of last year.

Only the Agricultural Bank of China has not yet started promoting retail gold investment products for individual investors.

"Gold is an important part of an investment portfolio, as it maintains long-term value and is a good hedge against inflation," said the CEO.

Gold is among only a handful of financial assets that is not matched by a liability. It can provide insurance against extreme movements in the value of traditional asset classes in times of instability.

Official statistics show the combined savings of Chinese people top 1.3 trillion yuan (US$156 billion). Investment channels are limited while the stock market continues its downturn, so it is natural that investors are expressing great interest in physical gold bars and coins, as well as paper gold.

But Burton suggested Chinese consumers will have to be "patient."

"As renminbi is not fully convertible, gold investment in China cannot fully match up to the international market," he said.

In addition, "when China's gold market is completely opened, experienced foreigners will elbow in and introduce their mature products," said the CEO.

Mainland gold consumption, including retail and institutional investment and sales of gold jewellery, increased by 13 per cent and 21 per cent in terms of volume and price respectively during the fourth quarter of last year compared to the same period in 2003.

Demand for gold jewellery drove the surge, partly due to the efforts of the WGC, a London-based non-profit organization engaged in promoting gold consumption worldwide, according to Burton.

WGC teams up with local jewellery retailers and well-known brands to promote its recently developed K-gold, or 18k gold, products.

Partners include Caishikou Department Store in Beijing, Laofengxiang in Shanghai, as well as Hong Kong-based Chow Tai Fook and Chow Seng Seng, which owns a nationwide retail chain.

"Promotion of the K-gold series of jewellery, which started 18 months ago, is based on our research on young Chinese people, who attach more attention to design, fashion and workmanship rather than purity," said Burton.

WGC's figures indicate consumption of 18k jewellery accounted for 12 per cent of all gold jewellery last year, up from 5 per cent in 2003 and 2 per cent in 2004.

WGC's statistics indicate gold demand on the mainland was 70.9 tons in the first quarter of this year, up from 62 tons a year ago.

Meanwhile gold jewellery demand rose by 13.2 per cent year-on-year to 66.8 tons in the period, while retail investment climbed by 35.8 per cent to 4.1 tons.