China’s VAT Overhaul Reshapes the Gold Market

China’s abrupt overhaul of value-added tax rules for the gold sector — announced on 1 November 2025 and valid through the end of 2027 — marks one of the most consequential policy shifts the domestic bullion market has seen in a decade. Although the reform does not alter the core principle of China’s VAT system, it fundamentally changes how different segments of the gold market handle tax liabilities, creating clear winners, losers, and long-term structural consequences for both investment and jewelry demand.

Under the old system, when gold was withdrawn from vaults of the Shanghai Gold Exchange (SGE) or the Shanghai Futures Exchange (SHFE), the tax authority issued a full 13% Special VAT Invoice (SVI). This invoice could be used as a complete tax credit, meaning VAT applied only to the value added beyond the metal’s price — a significant advantage for both wholesalers and the jewelry supply chain. The new rules retain VAT exemption for members trading gold on the exchanges, such as gold ETFs and banks running accumulation plans. But the treatment of physical withdrawals has been divided into two categories: investment and non-investment use.

For investment-grade gold, including bars and coins, member companies taking delivery will still receive the full 13% SVI and continue paying VAT only on value added. Retail consumers buying bullion directly from SGE- or SHFE-member banks and refiners will not feel any tax-related price increase. However, manufacturers and wholesalers who are not exchange members face a new burden: they now receive standard invoices rather than deductible VAT credits, effectively raising their VAT cost by 13% of the sale value. This shift has already tilted the competitive landscape, strengthening the market share of major banks, refiners, and leading retailers that hold SGE membership. Smaller jewelry retailers — traditionally responsible for a large share of bar and coin sales — have lost tax advantages and face increasing margin pressure. Metals Focus notes that although the policy does not materially reduce underlying retail investment demand, it is clearly reorganizing sales channels.

The impact on gold jewelry is considerably harsher. Withdrawals of metal for non-investment purposes now generate only a 6% input VAT credit, while output VAT remains at 13%. The resulting effective burden — roughly 7% — is being passed through the supply chain to consumers, lifting retail jewelry prices. This is especially painful in a market where more than 95% of jewelry demand consists of 24-karat products, many of which serve quasi-investment purposes and are sold by weight. Heavy plain pieces, which offer low labor markups and previously attracted value-conscious buyers, now face a structural disadvantage. Some consumers may attempt to bypass the tax by purchasing bars and commissioning goldsmiths to fabricate jewelry — a workaround authorities may later regulate.

Even before the VAT reform, the Chinese gold market had been undergoing a major transformation. Since 2024, consumers have increasingly favored bullion products over jewelry as they have become more aware of tighter buy–sell spreads on investment bars. Meanwhile, jewelry designers have shifted toward premium, high-margin collections, widening the price gap. In 2024, Chinese retail investment jumped 20% to 336 tonnes — the highest since 2013 — while jewelry consumption plunged 24% to 479 tonnes, the lowest since 2020. In the first nine months of 2025, the divergence deepened: jewelry demand has fallen another 25% year-on-year, while investment demand has grown by 24%.

Recent feedback from Shenzhen’s Shuibei wholesale district shows quiet foot traffic and cautious purchasing behavior. November is traditionally a slow month, which has softened visible fallout, but Metals Focus expects the VAT impact to become far more evident during the peak buying season. The shake-up is also accelerating consolidation: more retailers are applying for SGE membership, others are forming partnerships with member firms, and product strategies are shifting toward high-value, design-driven pieces less sensitive to price and tax changes. “Exchange-for-new” recycling promotions — exempt from the new tax — may help cushion sales.

These domestic shifts are unfolding against a global backdrop of renewed enthusiasm for gold. LSEG reports that global gold prices have surged over the past 18 months, attracting investors disillusioned with volatile equity markets and bracing for political uncertainty. Gold-backed ETFs, which lagged the rally last year, have rebounded sharply with inflows of nearly 400 tonnes in the first half of the year. In China, assets under management in gold funds have exceeded 16.5 billion dollars, and multi-asset funds typically allocate up to 15% to gold. With Chinese equities still nearly 40% below their 2007 peak, and persistent tariff tensions clouding the outlook, gold remains a cornerstone of portfolio diversification.

Looking ahead, China’s VAT realignment is likely to deepen the divide between investment and jewelry demand. Jewelry consumption faces mounting obstacles — from higher VAT costs and elevated gold prices to subdued consumer sentiment — and may continue to contract. Conversely, the forces pulling Chinese savers toward investment gold remain firmly in place: price momentum, diversification needs, and the People’s Bank of China’s ongoing accumulation of reserves. In effect, the new VAT framework accelerates an already-established shift: China is becoming a market where gold is bought less for adornment and increasingly for balance sheets.