China has long stressed the value of gold as a fiscal reserve, so it will not open up the market for fear that speculation in gold trading will affect its currency exchange rates, the state-run ``China Daily Business Weekly'' quoted an unnamed official as saying.

Rampant smuggling of gold forced China's apex bank, the People's Bank of China, to adopt a new pricing strategy in February last, allowing it to alter the domestic gold price promptly in response to changes in the international market, the report said.

However, the quantity of privately-owned gold in China is estimated to be around 4,000-5,000 tonnes, constituting an important hedge against financial risks, analysts said.

That is equivalent to a foreign exchange reserve worth $48-60 billion, according to Gold EconomicDevelopment Research Centre deputy director Liu Shanen.

The report admitted that China's gold market remained highly regulated and hefty taxes on gold jewellery, import duty, value-added tax, consumption tax, and a fixed price structure based on weight of the jewellery, were impeding growth of the sector. Last year, Chinese consumption of gold was 214 tonnes, according to figures from the World Gold Council (WGC). There are about 340 gold jewellery wholesalers and manufacturers, and 10,000 retailers across the country.

In 1997, state gold mining enterprises reported a total output of 166 tonnes, of which less than 100 tonnes were sold to jewellery producers.China permitted individuals to buy gold jewellery only in 1984 and since then it has risen as the world's third largest consumer of the precious metal.