Talk of the most recent crackdown has circulated in the HongKong gold market in recent weeks, but there has been no official announcement of any new operation. Officials contacted at the Shenzhen Branch of the People's Bank of China, the central bank and the entity responsible for all of China's authorised gold imports, declined to comment on the crackdown rumours. "This one is more serious than in the past because of China'sentry into WTO," said Desmond Wong, senior manager at Standard London (Asia) in Hong Kong.

"The government has to do something to show that they are trying to stop this smuggling." The timing is important. In conjunction with its entry into the WTO, Beijing is taking steps to liberalise the gold industry. In November, it announced plans to set up a National gold exchange for physical gold trade among commercial banks by the end of the year.

Hong Kong's historic trade figures suggest this Special Administrative region (SAR) of China should be sinking under a mountain of gold. In 1999, Hong Kong imported 120 tonnes of gold and officially re-exported just 11 tonnes: consumption 109 tonnes. In 1998, it imported nearly 232.5 tonnes and re-exported less than 25 tonnes: consumption 207.5 tonnes.

The peak seems to have been in 1997, when the SAR imported more than 434 tonnes but re-exported just 7.5 tonnes: consumption a whopping 427 tonnes. By contrast, Taiwan imported 84.2 tonnes of gold in 1999,equal to 3.66 grams per person for its population of 23 million.

"Hong Kong is a transhipment center and the imports in the last few years have been quite a lot, but not like in the good old days," said Emily Li, manager of the World Gold Council's office in Hong Kong. "The market cannot absorb that big an amount so it would go onward to other markets in the surrounding area," Li said. The Hong Kong figures suggest an enormous unclassified gold trade with its neighbors. "The international houses are not involved, but each party participates in a certain part of the operation and they don'T want to ask questions about the next part," one banker based in Hong Kong said.

"But there is no way of stopping those people taking it to the secondary market," he added.

But if this year's trade figures are any indication, China's two-year (1998-99) clamp down on smuggling has had a dramatic impact on Hong Kong's gold trade. In the first eight months of 2000, Hong Kong imported about51 tonnes of gold and re-exported 18.5 tonnes. That equals consumption of about 32.5 tonnes for the territory's 6.6 million and its 12 million visitors or just 1.75 grams per person.

Gold and other precious metals have not figured in the biggest smuggling cases this year. Goods involved in the three billion yuan (US$360 million) smuggling scandal in Xiamen involved chiefly smuggled firearms, cars and crude oil.

"Cases of gold smuggling are very rare," said Peter Tiu,senior information officer for the Hong Kong Customs and Excise Department.

The Hong Kong authorities have a close working relationship with Shenzhen Special Economic Zone customs officials and meet frequently to assess operations and "exchange intelligence", Mr Tiu said.The Hong Kong side had not been informed of any ongoing crackdown on precious metals, he added.

(Reuters)