Chow Tai Fook Jewellery Group Ltd. (1929), the world’s largest listed jewelry chain, and other gold shops in Shanghai are being probed by Chinese regulators for price manipulation amid increased scrutiny of consumer-goods prices.
Chow Sang Sang Holdings International Ltd. (116) was also identified as one of several companies “rectifying” their practices, after a National Development and Reform Commission investigation found wrongdoing, according to a report from People’s Daily, which was reposted on a website controlled by the Ministry of Commerce yesterday.
The investigation, the latest sign of increased scrutiny of business practices by Chinese authorities, prompted shares of the jewelry companies to fall. Global baby food brands are being investigated for possible price fixing, while GlaxoSmithKline Plc’s local finance chief has been unable to leave the country after allegations of “economic crimes” at the drugmaker.
“Chow Tai Fook has its own gold pricing mechanism,” the Hong Kong-based company said in an e-mailed statement yesterday. It denied manipulating gold prices and said its pricing “is not subject to the constraints or restrictions of any association or other jewellery retailers.” The company said it didn’t commit any violations of anti-monopoly rules.
Chow Tai Fook was invited to provide information to the investigation, a company spokeswoman said by phone yesterday. Chow Sang Sang, also based in Hong Kong, isn’t being probed and doesn’t know why it was identified in the report, Cathy Tam, a spokeswoman, said by phone yesterday.
“It looks like the investigation is targeting the Shanghai Gold & Jewellery Trade Association and the Shanghai-based jewelry retailers,” said Larry Cho, a Hong Kong-based analyst at CIMB Securities, said by phone yesterday. “Chow Tai Fook being a member of that trade union may inevitably be dragged into the probe.”
Shanghai-based gold companies Lao Feng Xiang Co. and Shanghai Yuyuan Tourist Mart Co. are also being probed, according to company statements. Many shops have admitted to authorities that they colluded on prices and hurt the interests of consumers, the People’s Daily reported.
Lao Feng Xiang (900905) will announce the results of the probe as soon as possible, it said in a statement to the Shanghai stock exchange. Shanghai Yuyuan also said it will give results of the investigation as earliest as possible, the company said in a filing to the exchange.
Chow Tai Fook fell as much as 6.3 percent before closing 1.7 percent lower in Hong Kong yesterday. Chow Sang Sang lost 1.2 percent at the close of Hong Kong trading. In Shanghai, Lao Feng Xiang’s A shares dropped 1.9 percent and Shanghai Yuyuan gave up 4.4 percent.
The investigation targets a rule by the Shanghai Gold & Jewellery Trade Association that limits the variation in gold and platinum prices to no more than 2 percent or 3 percent of the prices it sets for the products, according to the report.
The probe may not have a material impact on Chow Tai Fook because about half its sales come from Hong Kong and Macau and Shanghai accounts for less than 5 percent of its China business, Cho said.
Chow Tai Fook said in the e-mailed statement that its gold product prices are set based on the raw material and operating costs, and also take international gold prices as a major reference. The prices of its gold products are uniform across China and there are no regional differences.
The Hong Kong company added that it’s not subject to any association pricing guidelines and hasn’t submitted any “acknowledgment report.”
Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. Bullion fell 23 percent to $1,293.24 an ounce in London this year and reached $1,180.50 on June 28, the lowest level in almost three years. The plunge spurred purchases of jewelry and coins and demand from China is “incredibly strong,” according to Standard Chartered Plc.
Chow Tai Fook this month said first-quarter same-store sales rose 48 percent as Chinese shoppers rushed to buy gold products after the price of the precious metal dropped.
The company, controlled by Hong Kong billionaire Cheng Yu-tung, is betting China’s increasingly wealthy middle class will help boost profits. It plans to add 200 outlets this year, primarily in so-called third- and fourth-tier cities in China, Managing Director Kent Wong said at the company’s earnings press conference in June.
Companies including Nestle SA (NESN) have lowered baby-food prices after the National Development and Reform Commission, the country’s top economic planning agency, began an investigation this month into their pricing of milk powder.
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