BEIJING(BullionStreet): World's second largest gold consumer and top producer China expect to crerate more demand for gold with the newly introduced interbank over-the-counter gold trading.

China allowed an initial batch of 20 banks to participate in trading bullion on the Shanghai Gold Exchange's newly-launched interbank platform.

The transactions involving bilateral price inquiry are performed on the China Foreign Exchange Trade System, and cleared and settled through the gold exchange.

The gold bourse charges both parties 0.04 percent of the traded amount. Analysts said the new system could boost China's gold market and attract more investors to the precious metal in the country.

The trading mechanism now used by individual investors still relies on a matching system. During the trial period for the new system, banks that have been approved to operate in the interbank market will be allowed to engage in over-the-counter trading, according to the exchange.

The banks allowed to trade include Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd, Bank of Communications Ltd, HSBC Bank (China) Co Ltd and Standard Chartered Bank (China) Ltd.

Buyers and sellers through the new system will each be charged a fee of 0.04 percent, according to rules announced by the exchange.

The introduction of interbank gold trading will enable gold investors to choose from among a wider variety of investments and make gold trading more subject to market forces, the exchange said.

The exchange said in early November that it will initiate over-the-counter trading, gold exchange-traded funds, Friday-night trading and take steps to improve the leasing market.

China is opening its domestic market for precious metals to the international community as Shanghai looks to offer gold exchange-traded funds, said officials attending a conference on gold in Hong Kong.