Core Viewpoint - UBS reports that China's adjustment of the gold value-added tax (VAT) deduction policy aims to centralize regulation of investment product demand, which may lead to a shift in some demand towards gold ETFs due to reduced liquidity [1] Industry Summary - The new 7% tax will likely be passed on to consumers in the jewelry consumption sector, whether through direct sales or franchise channels [1] - The increase in VAT is expected to exert pressure on recent demand for gold products and reduce the arbitrage opportunities between investment and non-investment demand, such as converting gold bars into jewelry [1] - With enhanced regulatory scrutiny, the market is anticipated to further consolidate, with consumers potentially shifting from smaller shops to larger brands [1] Company Summary - Short-term demand for companies like Lao Pu Gold (06181) and Chow Tai Fook (01929) may face pressure; however, both are expected to further consolidate the market in the long term [1] - Assuming the VAT refund rate decreases from 13% to 6%, Lao Pu Gold's gross margin may experience a pressure of 3 to 4 percentage points; however, the company has already raised prices by over 20% recently, which may offset some of the impact [1] - Chow Tai Fook has recently increased the prices of weight-based gold products by 5%, transferring the margin pressure to consumers [1]

Core Viewpoint - UBS indicates that China's adjustment of the gold value-added tax (VAT) deduction policy aims to centralize regulation of investment product demand, with reduced liquidity potentially driving some demand towards gold ETFs [1] Group 1: Impact on Investment Demand - The increase in VAT will exert pressure on recent gold product demand and reduce the arbitrage opportunities between investment and non-investment demand, such as converting gold bars into jewelry [1] - The tightening of regulatory scrutiny is expected to lead to further market consolidation, with consumers likely shifting from smaller shops to larger brands [1] Group 2: Effects on Jewelry Consumption - UBS believes that the new 7% tax will be passed on to consumers, impacting the jewelry consumption sector regardless of whether sales occur through direct or franchise channels [1] - Short-term demand for Lao Pu Gold and Chow Tai Fook may face pressure, but both companies are expected to further consolidate the market in the long term [1] Group 3: Financial Implications for Companies - Assuming the VAT refund rate decreases from 13% to 6%, Lao Pu Gold's gross margin is estimated to face a pressure of 3 to 4 percentage points; however, the company raised prices by over 20% recently, which may offset some of the impact [1] - Chow Tai Fook has recently increased the prices of weighted gold products by 5%, transferring the gross margin pressure onto consumers [1]