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Deutsche Bank said on Tuesday that China’s new value-added tax (VAT) reform will likely have only a small effect on the country’s gold demand, even though jewellery sellers could see their costs rise.
According to the bank’s analyst Michael Hsueh, the rule change increases costs for gold jewellery retailers by about 7%, based on Bloomberg data. But he believes this won’t significantly hurt demand for gold imports because several factors are helping to balance things out.
For one, the Chinese government introduced the tax adjustment just as global gold prices had fallen. The price drop roughly matches the increase in costs for jewellers, meaning the overall price seen by consumers may not change much if sellers pass on the higher costs.
Another reason the impact is expected to be limited is that China’s gold demand tends to be steady even when prices move. Deutsche Bank noted that gold investment through exchange-traded funds (ETFs) actually increased after the Golden Week holiday, and imports were up 6% in September despite a 9% jump in gold prices.
The report also highlighted that investment products like gold bars remain partly protected under the new tax rules. These products can still claim a 6% offset from the 13% VAT, keeping them more affordable for investors. Additionally, some jewellers might temporarily absorb the higher costs themselves to stay competitive and avoid losing customers.
Overall, Deutsche Bank concluded that the VAT change is unlikely to have a major or lasting impact on China’s gold jewellery market or the pace of gold imports into the country.