OpenAI’s lead under pressure as rivals start to close the gap
Three years since the debut of ChatGPT, the $500bn start-up is facing significant challenges to its dominance in AI
OpenAI’s huge early lead in the race to dominate artificial intelligence is under the greatest pressure since ChatGPT’s launch, as rivals Google and Anthropic gain ground in the cutting-edge technology.
Three years on from the debut of its popular chatbot, the $500bn start-up is grappling with the reality of soaring data centre costs, the technical challenges of remaining at the frontier of AI and the constant battle to retain key talent.
It is also facing a resurgent Google, with the release last week of Gemini 3, Google’s latest large language model, which is considered to have leapfrogged OpenAI’s GPT-5 and achieved gains from the model training process that have eluded OpenAI in recent months.
“It’s quite a strong difference with the world we had two years ago where OpenAI was leading ahead of everyone else,” said Thomas Wolf, co-founder and chief science officer of open-source start-up Hugging Face. “It’s a new world.”
Even before the launch of Gemini 3, OpenAI’s chief Sam Altman told staff in a memo last month that the company would “need to stay focused through short-term competitive pressure . . . expect the vibes out there to be rough for a bit”. The memo was first reported by The Information.
A year ago many had written off Google’s flailing efforts to narrow OpenAI’s colossal lead. Fears that its cash-cow search engine would be cannibalised by ChatGPT and other new AI powered search apps such as Perplexity left parent company Alphabet’s stock price lagging far behind its Big Tech rivals in the AI-driven rally through 2023 and 2024.
But Google’s turnaround began earlier this year, after a confident slate of updates at its IO developer conference in May and the viral popularity of its Nano Banana AI photo-editing tool this summer. This helped boost monthly users of the Gemini mobile app to 650mn, up from about 400mn in May.
The developments have seen Alphabet’s shares surge in recent months, with its market capitalisation now approaching $4tn for the first time, amid confidence on Wall Street that Google can combine its dominant positions in search, cloud infrastructure and smartphones to serve new AI capabilities to billions of existing users.
Koray Kavukcuoglu, Google’s AI architect and DeepMind’s chief technology officer, told the Financial Times that the Big Tech group had “pushed our performance quite significantly” by training its AI models using Google’s own bespoke chips.
“Being able to connect with consumers, customers, companies, at that scale is really something that we can do because of that full stack integrated approach that we have,” he added.
That “full stack” includes its custom tensor processing unit chips, which allowed Google to train Gemini 3 without needing to rely on the costly Nvidia chips that most of the AI industry uses. “I think we have a unique approach there,” said Kavukcuoglu.
Google “always had these muscles to flex”, said Michael Nathanson, co-founder and analyst at MoffettNathanson, an equity research firm, adding that the IO event showed that “they really managed to find their product footing”.
“The pressure has definitely flipped to Sam Altman and his ability to monetise and keep all the plates spinning,” said Nathanson.
AI researchers and users have been quick to praise Google’s advancements. The model outperformed GPT-5 on several key benchmarks.
Marc Benioff, Salesforce chief executive, said in a post on X: “Holy shit. I’ve used ChatGPT every day for 3 years. Just spent 2 hours on Gemini 3. I’m not going back. The leap is insane . . . It feels like the world just changed, again.”
Publicly, OpenAI has welcomed the competition. “We’re always excited to see progress in the field — competition pushes the whole ecosystem forward,” said Mark Chen, OpenAI’s chief research officer.
“Our models continue to set the standard in performance, reliability, and real-world usefulness, and we will continue to release even more capable models,” he added.
But internally employees are feeling pressure to compete on multiple fronts with deep-pocketed rivals with tens of billions of dollars to throw at building AI. “The arc of any fast-growing start-up is not just going to be up and the right,” said one person close to the company.
Some experts say OpenAI has overextended itself in its pursuit of scale at all costs. The group has spent the past year pushing out new products at a breakneck pace, from automated computer programming tools to its viral video app Sora.
“OpenAI is getting spread too thin. It’s impossible for them to do it all well,” said a partner at a Silicon Valley venture capital firm that has backed several AI model developers but not OpenAI.
The San Francisco-based company has pledged to spend $1.4tn over the next eight years on computing power, striking huge deals with Nvidia, Oracle, AMD and Broadcom. That is orders of magnitude more than OpenAI’s current sales, requiring its partners to use debt to finance the build-out.
“That’s a really, really tremendously risky bet for any company to make,” said Sarah Myers West, co-executive director of the AI Now Institute, a non-profit.
OpenAI’s biggest challenge is finding a big enough revenue stream to sustain that extraordinary investment.
The company believes it can attract hundreds of millions of paying subscribers to ChatGPT in the coming years. But its near-term plan to spin up more revenue from advertising, something Altman has hinted it will explore with Sora, will take it into a market already saturated by big players such as Meta and Alphabet.
ChatGPT has yet to dent Google’s strong lead in the ad market, and the start-up is only just starting to integrate ads and shopping features into its chatbot.
Meanwhile Anthropic, which was founded in 2021 by former OpenAI staffers and is currently raising a new round that is expected to value the company at more than $300bn, has built a large and fast-growing enterprise business.
Anthropic’s Claude chatbot has been overshadowed by the massive consumer hit of ChatGPT. But its long-standing focus on AI safety has helped Anthropic create a more reliable tool for corporate customers, its backers argue, and its coding tools are widely seen as best-in-class.
With more than 800mn weekly users, OpenAI still has a hugely dominant market share in overall chatbot usage but people are now spending more time chatting with Gemini than ChatGPT, according to data from web analytics company Similarweb.
The launch of Gemini 3 pushed Google’s AI app higher in the US and UK iPhone app store rankings. Still, ChatGPT has held on as the top AI app, according to Sensor Tower, which tracks mobile usage.
Erik Brynjolfsson, author and professor at the Stanford Institute for Human-Centered AI, said that it was too soon to count OpenAI out, with its vast array of new applications a good way to find new revenue sources that will fund its core research capabilities.
“All these companies have a surplus of very profitable opportunities all around them,” he said. “There’s room for multiple companies to do extremely well because the opportunity is so large.”
*JIANGXI COPPER: AQUISITION MATTER STILL AT INFORMAL OFFER STAGE
*JIANGXI COPPER: UNCERTAIN WHETHER CO. WILL MAKE FORMAL OFFER
*JIANGXI COPPER SAYS IN RESPONSE TO SOLGOLD BID
China's Jiangxi Copper Rejected by SolGold in $1 Billion Takeover Approach
Investor Synthesis Note: DroneShield Limited (ASX: DRO)
Date: November 30, 2025
Ticker: DRO (ASX)
Sector: Counter-Unmanned Aerial Systems (C-UAS) / Defense Technology1
Conversion Rate: A$1.00 $\approx$ US$0.64
I. Executive Summary: Governance Risk Creates M&A Opportunity
The November 2025 events—marked by executive share sell-offs and operational missteps—have created a significant governance gap at DroneShield, causing a sharp devaluation. This volatility, however, presents a strategic M&A entry point for large defense primes seeking to acquire a pure-play, market-leading C-UAS company at a steep discount. The underlying business fundamentals, driven by urgent global and Asia-Pacific demand, remain robust.
II. The Governance Crisis & Valuation Reset
The executive departures and disclosure errors have created a governance risk that has repriced the company.
| Event | Impact on Investor Confidence | Magnitude (USD) |
| Executive Share Sale | Crisis of Confidence: CEO & Chairman sold entire holdings. | ~$45 Million ($\text{A\$70M}$) |
| Contract Error | Transparency Issue: Mistakenly announced a "new" contract. | ~$4.9 Million ($\text{A\$7.6M}$) |
| Market Cap Plunge | Valuation Reset: Wiped out two-thirds of value from peak. | >$2.0 Billion ($>\text{A\$3.1B}$) |
Key Takeaway: Any strategic buyer will require heightened due diligence ("no cooked books") to validate the $1.63 Billion ($\text{A\$2.55 Billion}$) sales pipeline and ensure forward guidance is accurate.
III. Growth Driver Spotlight: Asia-Pacific (APAC) Exposure
DroneShield’s Australian base and deep integration with allied nations in the APAC region provide a critical, high-growth revenue channel, reducing reliance solely on North America and Europe.
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Massive APAC Contract: In April 2025, DroneShield announced a package of five contracts totaling $20.6 Million (2$\text{A\$32.2 Million}$) from a sophisticated Asia-Pacific military customer and close ally of Australia.3 This was a repeat order and demonstrated the customer's move from small trials to a large-scale rollout of both vehicle-mounted and fixed C-UxS systems.
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Australian Sovereign Capability: The company's products, like the RfPatrol Mk2, are manufactured with an 85% Australian supply chain and are being deployed through the Australian government's Land 156 program for the Australian Defence Force.4 This "sovereign capability" is highly prized by regional allies.
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Regional Geopolitical Tensions: The APAC region is projected to exhibit the fastest CAGR in the global anti-drone market due to rising defense modernization and escalating geopolitical tensions.6 This confirms that the company is ideally positioned to capitalize on sustained regional defense spending.
IV. Financial & M&A Outlook
The core C-UAS sector presents a "highway of growth," with the global C-UAS market forecast to reach $12 - $15 Billion by 2033.
- Urgent Civilian Orders: Incidents at European airports and critical infrastructure sites drive quick, high-margin orders, while the larger, complex anti-missile shield systems (like those Taiwan is modeling on Israel’s Iron Dome) are multi-year deployments that still require immediate C-UAS technology as a foundational layer.
- M&A Logic: The current ~$1.15 Billion ($\text{A\$1.8 Billion}$) market cap is a significant discount from its $3.2 Billion peak. A large defense prime seeking to gain immediate, market-dominant exposure to the booming APAC and C-UAS sectors can now acquire the company's patented AI technology and established customer base at an opportunistic valuation.
Recommendation: The governance vacuum is a short-term risk, but the intrinsic value of the technology and the APAC growth opportunity make DroneShield a highly compelling, time-sensitive M&A target.
breakdown of the information regarding technology, accounts, and the legal/suing risk:
1. Technology Issues
There is no widespread evidence or confirmed reports of fundamental technology failure in their deployed systems. On the contrary:
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Market Confidence: DroneShield's systems, which use AI-driven RF sensing and electronic warfare, have been utilized by militaries globally, including in the Ukraine conflict.1 The fact that the company continues to win repeat orders from major customers (including the large Asia-Pacific military customer) strongly suggests that their technology is effective and meets operational needs.
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Evolving Threat: The main technological risk mentioned is the constant evolution of drone threats.3 One specific report noted concerns that the company's radio-frequency jamming systems might struggle against newer fibre-optic-guided drones being deployed on the battlefield.4 However, DroneShield management has countered this by citing experts who describe these fibre-optic drones as "sluggish and rarely used."
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Conclusion on Tech: The company is seen by analysts as having a competitive and in-demand product portfolio.6 The technology risk is the inherent R&D cost required to stay ahead in a rapidly evolving threat environment, not a current failure of existing deployed systems.
2. Account and Financial Issues
The primary issue is one of disclosure and control, not evidence of "cooked books" on the scale of a full accounting scandal (like the one unfolding at Corporate Travel Management, which involves massive restatements).
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Contract Error: The key financial error was announcing a 8$4.9 million ($\text{A$7.6 million}$) contract as "new" when it was actually a revised or reissued order due to an administrative change on the customer's side.9 The company quickly retracted this, but the damage to confidence was done.
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ASX Scrutiny: The company has been sent a long, detailed letter from the ASX (Australian Securities Exchange) compliance team asking questions about the massive share sales and the contract error.
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Remedial Action: In response, DroneShield has announced significant actions to improve governance:
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They are rolling out new ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management) software in early 2026 to automate and strengthen order processing and reduce manual errors.
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They have engaged external auditors and advisers to conduct an independent review of their disclosure and financial control processes.
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They plan to increase their contract disclosure threshold from 14$\text{A\$5 million}$ to 15$\text{A\$20 million}$ from 2026 to focus investor attention on only the most material contracts.
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- Conclusion on Accounts: The issue is a severe governance failure and disclosure mistake, leading to doubts about the reliability of their order-to-revenue tracking. There are no public reports confirming an ongoing investigation into accounting fraud or massive revenue restatements by a regulatory body like ASIC (Australian Securities and Investments Commission).
3. Are the Managers Going to Be Sued?
While no formal class-action lawsuit or regulatory charges have been publicly announced, the risk is significantly elevated following these events:
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Regulatory Scrutiny: The ASX's deep scrutiny of the share sales and the retracted contract is a precursor to potential regulatory action. The proximity of the retracted contract announcement to the share sales creates a challenging optics issue, even if the sales followed official trading rules.
- Lawsuit Risk (Class Action): Whenever a stock experiences a massive, rapid decline following a governance crisis, the risk of a shareholder class-action lawsuit against the directors for breaching continuous disclosure obligations or misleading the market becomes high. The goal of such a suit would be to recover investor losses tied to the stock plunge.
- CEO Absence: CEO Oleg Vornik's decision to not attend scheduled events following the crisis further fueled concerns and provided a poor image of leadership handling the situation.
Current Status: As of now, the managers have not been charged or formally sued in connection with the share sales or disclosure errors. However, given the scale of the share sales ($\sim \$45$ Million) and the resulting market plunge, legal action remains a material risk until the independent governance review is complete and the regulatory bodies (ASX/ASIC) conclude their inquiries.
1. 🔍 Status of the ASX Inquiry
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Ongoing Scrutiny: The Australian Securities Exchange (ASX) initiated a "Price Query Letter" and subsequently an "ASX Aware Letter" in mid-November 2025. This is a formal process where the ASX demands detailed explanations from the company regarding significant changes in price, disclosure compliance, and trading activity (specifically the director share sales).
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Company's Response: DroneShield has provided detailed responses, stating they believe they have fully complied with their disclosure obligations. They assert they were only notified of the share disposals after the market closed on November 12, 2025, and that the directors followed the approval process under the company's trading policy.
- No Public Timeline: The ASX does not typically announce a conclusion date for these compliance reviews. The process is one of back-and-forth communication until the ASX is satisfied or decides to take further action (which could involve a referral to ASIC, issuing a formal reprimand, or imposing conditions).
- Likely Duration: Given the complexity of the massive share sales, the retracted contract, and the associated governance review, the ASX's oversight is likely to remain a shadow over the company for several more weeks, if not months.
2. Risk of ASIC/Legal Action (Suing)
- No Public ASIC Investigation: There is no public information confirming that the Australian Securities and Investments Commission (ASIC) has launched a formal investigation into the directors for insider trading or accounting fraud. However, ASIC is the body responsible for corporate law enforcement and can investigate matters referred by the ASX or those involving continuous disclosure breaches.
- High Lawsuit Risk: As noted previously, the risk of a shareholder class-action lawsuit is high. The rapid disposal of all fully-paid shares by key executives, in close proximity to a confusing contract announcement, is exactly the kind of event that triggers shareholder loss claims.
3. The Technology and Accounts
- Technology is Sound: The consensus remains that the company's core technology is effective and in high demand (supported by repeat large orders globally). The operational success of the technology is not the issue.
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Accounts are Under Review: The issue is a governance and disclosure failure, not a confirmed case of "cooked books." The company's announced move to new ERP/CRM software and an independent review of disclosure policies is a direct attempt to reassure the market and the ASX that their financial controls will be tightened.
The key uncertainty for investors right now is the delay in restoring governance confidence, which will persist until the ASX inquiry fades and the independent review results are released.
Taiwan’s plan to acquire drone ‘takeover’ technology sparks security debate
Network would protect key infrastructure from incursions by small commercial drones but there are concerns over use of takeover function
Taiwan’s plan to acquire Israeli “takeover” technology as part of a counter-drone network has set off a debate over its use and the island’s security strategy as it tries to keep pace with rapidly evolving unmanned threats.
At a briefing for suppliers on the procurement requirements earlier this month, Taiwan’s homeland security office outlined specifications for a new system to protect the island’s airports, power plants and other critical infrastructure from incursions by small commercial drones.
The system – separate from the military’s programme – would require equipment capable of electromagnetic jamming and spoofing as well as a takeover function that could seize control of an intruding drone and land it using hacking techniques.
Slides presented by the government-controlled National Chung-Shan Institute of Science and Technology (NCSIST), Taiwan’s top weapons developer, at the November 14 briefing said equipment “must possess decoding functions” for OcuSync versions 2, 3, 4 and 4+ – the drone transmission system used by DJI.
Mainland Chinese company DJI accounts for an estimated 70 to 75 per cent of the global civilian drone market, including Taiwan.
The requirement prompted concern that the government was tailoring specifications around a single commercial brand, and questions over whether decoding DJI’s encrypted links was technologically feasible.
Local media later reported that the DJI-specific requirement could be removed from the tender documents, citing unnamed security officials.
The defence ministry also distanced itself from the requirement, stressing that the NCSIST’s briefing was for civilian critical infrastructure protection, not military procurement.
Taiwan’s military also plans to adopt drone takeover technology, alongside soft- and hard-kill functions.
In a separate government procurement notice on November 3, the defence ministry said it planned to buy 635 counter-drone systems worth NT$9.66 billion (US$307.2 million).
It said the systems would need a jamming range of at least 2km (1.24 miles) in all weather conditions, and that they would also need takeover and spoofing functions. They must also be mountable on light tactical vehicles or civilian platforms and be compatible with naval vessels.
Ma Wen-chun, a Kuomintang lawmaker who sits on the Foreign Affairs and National Defence Committee, said the use of drone takeover technology raised concerns over issues like privacy, property rights, freedom of communication, and the boundaries of criminal investigation.
She said if it was to be introduced for the island’s security then it would need to be clearly set out in legislation when the technology could be used.
“Civilian airspace and ordinary photography activities must not be arbitrarily taken over [by the counter-drone technology],” Ma said.
The KMT lawmaker also questioned the emphasis on OcuSync, saying security planning must be based on big-picture thinking, not brands.
“On the battlefield, Taiwan will face black- and grey-market DIY, modified, protocol-evading and non-DJI [first-person view] drones – not just the commercially available models shown in government slides,” she said.
Po Hung-hui, Taiwan’s defence vice-minister, responded that many drone-related issues still required cross-ministry coordination.
“Any use of takeover functions must be handled prudently,” he said, adding that legislation on drone incursions into protected facilities was being drafted.
In a statement on Monday, the NCSIST said the November 14 briefing was intended only to help critical-infrastructure operators understand requirements. It said the specifications would be submitted to cabinet for approval before they became common procurement standards and stressed that the briefing session was not related to military procurement.
William Wu, chairman of the Taiwan Drone Association, told reporters on Monday that the focus on DJI was understandable given its market dominance, though it was politically sensitive given the tensions across the Taiwan Strait.
He also noted that drone takeover technology would not always work.
“It only works if the target drone’s communications protocol is unencrypted or weak, and most drones have safety features that force them to hover, land or return home when the control link is jammed,” Wu said.
Su Tzu-yun, a senior analyst at the Institute for National Defence and Security Research in Taipei, said the requirement for OcuSync detection should be viewed as “inclusive but not exclusive”.
He said systems that could scan broader spectrums across multiple brands would be more valuable and performance indicators would “not be limited to DJI”.
The drone takeover technology was also the subject of a commentary in Taipei newspaper United Daily News that argued it was labour-intensive and required one operator per target, and manual retrieval after landing.
It said that in wartime, swarming attacks, low-altitude incursions or explosive-laden drones would still require hard-kill methods. It also warned that guiding a drone carrying explosives into a friendly facility using takeover technology would be tantamount to “leading the wolf into the house”.
The debate comes as Taiwan prepares for its largest-ever drone procurement. The defence ministry is set to buy 48,750 drones in the next two years as part of a broader effort to boost the island’s asymmetric capabilities.
The Armaments Bureau will brief suppliers on the tender on November 27. All of the drones must be produced or assembled in Taiwan, with no components from mainland China allowed, while companies with capital from mainland China, Hong Kong or Macau are prohibited from taking part.
Five types of drones are included in the plan: immersive first-person view drones, bomb-dropping multirotor drones, medium-range loitering munitions, small loitering munitions, and littoral reconnaissance drones.
Beijing sees Taiwan as part of China, to be reunited by force if necessary. Most countries, including its main international partner the United States, do not recognise self-governed Taiwan as an independent state. However, Washington is opposed to any attempt to take the island by force and is legally bound to supply it with weapons to defend itself.
Black Friday sets online spending record of $11.8B, Adobe says
American consumers spent $11.8 billion online on Black Friday, according to data from Adobe Analytics, which says it tracks more than 1 trillion visits to U.S. retail websites.
That’s a new record, and up from $10.8 billion spent on Black Friday last year, Adobe says. Between 10am and 2pm, online shoppers were supposedly spending $12.5 million every minute. Forbes reports that Adobe said in a statement that the numbers show Black Friday has become “a major e-commerce moment, as more shoppers opt to stay home and take advantage of deals.”
The company projects that Cyber Monday (coming in two days, on December 1) will be even bigger, with $14.2 billion spent online, according to Reuters.
Black Friday data from companies like Adobe and Salesforce can provide an early indicator of broader holiday shopping trends. Adobe is projecting a total of $253.4 billion in holiday spending this year, compared to $241.1 billion in 2024.
Salesforce said it tracked $79 billion in global spending on Black Friday, with $18 billion of that in the United States, year-over-year increases of 6% and 3%, respectively. But this growth may have less to do with increased consumer demand and instead reflecting higher prices — Salesforce data also shows that prices were up an average of 7%, while order volumes were down 1%.
And both Adobe and Salesforce claim to see a growing influence of AI on holiday shopping. For example, Salesforce said that between Thanksgiving and Black Friday, AI and AI agents influenced $22 billion in global sales, though it’s not clear how broadly that’s defined.
The data is less clear about how online trends compare to in-person shopping at brick-and-mortar stores, with RetailNext telling Forbes that in-store traffic appears to be down 3.4% nationwide, while Pass_by said foot traffic is up 1.17% overall, and up an even more impressive 7.9% in department stores.
China Manufacturing Gauge Shows Slightly Firmer Growth Momentum
China’s official factory gauge edged up on stronger production and demand in November, but remained in contraction for an eighth straight month.
The official manufacturing purchasing managers index rose to 49.2 in November, compared with 49.0 in October, said the National Bureau of Statistics on Sunday.
The result undershot the forecast of 49.3 made by economists in a Wall Street Journal survey.
It also marked the eighth consecutive month below the threshold of 50, which signals a contraction in activity, while a reading above 50 indicates expansion.
The production subindex rose to 50.0 in November from 49.7 in October. The subindex for total new orders increased to 49.2, compared with October’s 48.8, while new export orders rose to 47.6 in November from 45.9 in October.
Meanwhile, China’s nonmanufacturing PMI, which covers both service and construction activity, fell to 49.5 in November from 50.1 in October, the statistics bureau said.
The subindex tracking service activity fell to 49.5 in November, compared with 50.2 in October, as holiday effects faded, the statistics bureau said. The construction subindex rose to 49.6 from 49.1, but still in contraction territory amid the country’s prolonged property slump.
Gold rally dents sales at China’s jewellery retailers
High prices and a new tax regime have deterred buyers and led to hundreds of store closures
China’s jewellery retailers are reeling from gold’s blistering rally and the reduction of a tax rebate as high prices have deterred buyers and led to hundreds of store closures in one of the world’s largest consumer markets for the metal.
Large retail chains have reduced their footprint in mainland China this year, while a number of small sellers told the Financial Times that rising prices and a growing tax burden had torpedoed sales.
The price of gold has jumped by half this year to more than $4,000 a troy ounce as investors pile into the asset as a hedge against geopolitical uncertainty, growing levels of global government debt and concerns over a falling dollar.
In China, where gold jewellery is traditionally purchased as a wedding gift or as a store of value, high prices for the commodity have run up against weak consumer sentiment amid slowing economic growth.
Retailers are also adapting to new rules introduced this month that increase taxes on gold jewellery purchases by cutting a long-standing rebate. The higher tax burden has pushed sellers to raise prices further, they said.
“This industry is quite difficult at the moment, especially after the tax increase,” said Fifi Zheng, who helps run Aiyisheng, her family’s business based in Shenzhen’s gold trading district Shuibei. “Lots of Chinese consumers aren’t buying, so it’s quite hard to accept [the tax], even though it only adds a couple dozen renminbi per gramme.”
While gold purchases for weddings were holding up, everyday purchases had “fallen maybe 40 to 50 per cent” since the new rules were introduced, she added.
Chow Tai Fook, China’s biggest jewellery retailer by sales, has closed about 1,000 mainland stores this year, a reduction of 15 per cent. The company on Tuesday reported net profit of HK$2.5bn (US$320mn) in the half-year to the end of September, unchanged from a year earlier, on HK$39bn of revenue, its lowest in five years.
Chow Tai Fook managing director Kent Wong said in an earnings presentation that the company had closed underperforming stores as part of a shift away from lower-tier to more affluent cities, which were experiencing a “better recovery in consumer demand”.
Over the past year, rival operator Lukfook has closed more than 200 mainland stores, reducing its total store count since the start of the year by 7 per cent. The company on Thursday said half-year revenue to the end of September increased 26 per cent to HK$6.8bn compared with the same period last year, while net profit rose by 42.5 per cent to HK$619mn.
Lukfook said: “Despite the high gold prices, the retailing business in the mainland market showed continued improvement.” It added that it was still evaluating implications of the tax policy change.
Carlton Lai, an analyst at Daiwa Capital Markets, said the store closures followed a period of overexpansion during Covid-19 when spending was more robust.
“As consumption slowed, the productivity of these stores declined significantly,” he said, adding that the issue was compounded by growing competition from newer brands and surging gold prices.
In Shuibei — where thousands of shops crammed into multistorey malls handle transactions equal to 70 per cent of the Shanghai Gold Exchange’s annual deliveries of the metal, according to state media — sellers were dour. Many complained the new tax had come at the wrong time.
“Our prices were already high and now they’re higher after the tax,” said Chen, a Shuibei seller who declined to give her full name. “If [customers] want to get married, there’s no other choice: they just buy less.”
Daiwa’s Lai said the tax change aimed to curb speculative purchases of gold jewellery and could push low-quality retailers out of the market.
They could also reduce unregulated over-the-counter transactions in favour of trading through the Shanghai Gold Exchange and close tax refund loopholes, he said.
While jewellery sellers are struggling, demand for gold investment products has risen as retail traders search for ways to gain exposure to the metal. The new tax rules do not apply to investment products.
Holdings of domestic gold exchange traded funds increased 164 per cent to 194 tonnes in the first three quarters of this year, according to the China Gold Association.
“The panic caused for people in the industry by this tax policy hasn’t yet subsided,” said Li Zhaofeng, a Shuibei retailer and wholesaler. “This is because gold has been tax free for the past 20 years . . . the future direction remains unclear
Morgan Stanley and Goldman dominate Hong Kong equity deals
A wave of Chinese companies raising money has revived dealmaking in Asia’s financial hub
Western banks have been the biggest beneficiaries of Hong Kong equity sales this year, shrugging off US-China tensions as dealmaking booms in Asia’s financial hub.
Morgan Stanley helped raise $11.6bn in equity offerings in the year to the end of November, according to data compiled by Bloomberg. Goldman Sachs was in second position after raising $7.4bn, followed by Chinese banks Citic and CICC and Switzerland’s UBS.
The data includes both initial public offerings and follow-on share sales by companies already listed in the territory, including a $4.6bn share sale by the world’s largest battery maker CATL and the IPO of mining company Zijin Gold.
Hong Kong’s capital markets have been revived by a wave of Chinese companies raising billions of dollars in the city, which is on track for a four-year high in IPO fundraising. Foreign investors are showing renewed interest in Chinese equities after years of shunning the market.
“For huge deals you still need these global brands,” said Alicia García Herrero, chief Asia-Pacific economist at Natixis. “The reason why they still need Goldman or Morgan Stanley is they want to attract foreign investment, especially into the big deals like BYD,” she said, referring to the Chinese electric vehicle and battery maker that had a $5.6bn share sale in March.
Hong Kong-listed ECM activity hit $73.1bn so far this year, up 232 per cent on the same period in 2024, according to data from LSEG.
“We’ve seen quite a strong turnaround with respect to equity issuance from Chinese companies in Hong Kong,” said Saurabh Dinakar, head of Asia Pacific global capital markets at Morgan Stanley.
Rising US-China tensions have put the banks’ operations in Hong Kong under more scrutiny. This month, a US congressional committee wrote to Morgan Stanley’s chief executive Ted Pick to request more information on the bank’s underwriting of Zijin Gold, the offshore arm of China’s Zijin Mining.
The committee alleged that Zijin Mining is associated with human rights abuses in the Xinjiang region of China and has “deep ties” to the communist party.
Morgan Stanley declined to comment on this matter.
Federico Bazzoni, executive chair of Eight Capital Partners, said Chinese companies “need these [western] banks to reach out to international investors”. He added: “Of course, you’ve got the trade war and political tension but I think the markets are opportunistic.”
Chinese banks have expanded in Hong Kong, with the goal of taking a larger share of advisory fees in the territory, where deals often have bigger fees compared with mainland China.
CICC, a prominent mainland investment bank, recently announced a plan to acquire two smaller brokerages.
“We are seeing Chinese securities firms expanding aggressively in Hong Kong,” said Rowena Chang, a director at rating agency Fitch. “Typically they want a US investment bank and a local investment bank as joint sponsors.”
Chinese banks CICC, Citic Securities and Huatai Securities top this year’s Hong Kong deal volume for IPOs alone.
They have established relationships with Chinese companies that are already listed on a mainland bourse, said Jean Thio, a partner in the capital markets group at law firm Clifford Chance, which has advised on 18 IPOs in Hong Kong this year.
Chinese banks are important partners for mainland companies seeking to list in Hong Kong because of their close channels of communication with regulators in Beijing such as the China Securities Regulatory Commission, which must give mainland companies approval before they list offshore.
“Communication with the CSRC is important and that’s where the PRC banks have strengths,” Thio added.
Could the ‘JFK model’ keep down the cost of Heathrow’s third runway?
Civil Aviation Authority is studying airports round the world for inspiration for a new regulatory system
Heathrow airport must overhaul the way it operates before proceeding to build a third runway as part of its £49bn investment programme, the UK’s Civil Aviation Authority has said.
The regulator, which has spent the past six months studying the airport’s business model, published its early assessment earlier this week after the UK government backed Heathrow’s proposals for expansion.
“The scale and complexity associated with the forthcoming expansion at Heathrow airport means it is a particularly important time to consider whether the current regulatory model is effective in protecting the interests of consumers,” the CAA said in a 91-page report.
Its team looked at airports around the world — from New York and Paris to Saudi Arabia and Singapore — as well as other major infrastructure projects, to get inspiration for what a new regulatory model could look like.
What is wrong with Heathrow’s current system?
For now, Heathrow has to sign off its five-year budget under the “regulated asset base” or RAB model. This allows it to recoup money invested from airlines, its principal customers, through landing fees. Significant projects, such as the third runway proposal, require additional sign-off.
If costs overrun, Heathrow is liable for 25 per cent of the overspend — but airlines say this is not enough to incentivise the airport’s owners to remain disciplined. The proposal for a third runway, which involves moving the M25 motorway, has raised concerns from airlines.
Heathrow is already one of the most expensive airports in the world for carriers, which it blames in part on local energy and construction costs.
Airlines warn that if fees becomes too expensive, it will hamper Heathrow’s competitiveness and passengers will opt to fly via Amsterdam, Paris or Frankfurt.
The CAA conceded that “it is not straightforward” to compare costs, but said that fees at Heathrow did “appear high compared to other airports that are subject to a greater degree of competition”.
It found “There is sufficient evidence to warrant revisiting the current regulatory model to determine whether it can be improved or whether an alternative model can better serve the interests of consumers.”
What are the alternatives?
In total, the CAA drew up nine alternatives, ranging from minor tweaks to a radical overhaul.
Options could include giving airlines a veto over projects, rather than their current advisory role. Increasing the amount Heathrow has to repay if it overspends was another possibility — although the CAA warned this might disincentivise risk and make it harder for the airport to raise money in the future.
Another suggestion was extending the time over which it can claw back spending through charges to airlines — a proposal being considered at Charles de Gaulle airport in Paris.
“There are benefits from providing comfort to investors that the regulatory framework will not be inappropriately amended once capital has been committed,” the CAA said.
Airports such as Istanbul in Turkey, Newark in New Jersey and Changi in Singapore require the airport owners to tender to third parties for some design and construction work.
Heathrow could also be forced to contract out the running of its operations, as is the case with both London’s Elizabeth Line, and a system used by UK water regulator Ofwat to commission new infrastructure projects.
“Consumers would benefit from competition from third parties putting forward bids reflecting their lowest possible costs and/or highest possible service quality terms,” the CAA said.
However, a more radical example is the JFK model used by New York’s central airport.
What is the ‘JFK model’?
JFK, which is owned by the Port Authority of New York and New Jersey, has one of the world’s most competitive airport regulation models.
Though the airport was publicly owned, each terminal building was run by rival companies that awarded leases based on the quality of their bids, the CAA said.
“Operators compete to attract airlines and passengers”, it added, which kept prices lower
At Heathrow, Terminal 5 is run by British Airways. Arora group, which had its rival runway proposal rejected this week by ministers, is keen to build its own independent terminal at Heathrow.
The UK government has indicated it is open to such competition.
However, there is a problem. “Service quality at JFK has historically been criticised when compared to global peers,” the CAA found.
This was a result of “passenger congestion and a lack of cohesion between terminals when being run by different operators”.
What happens next?
Heathrow Reimagined, a campaign group supported by British Airways owner IAG and Virgin Atlantic, welcomed the CAA’s review.
“Fundamental reform will deliver better value for money for passengers and UK plc,” it said. “Better approaches exist at other airports globally.”
A consultation on its findings will run until January 20.
The CAA noted that modest changes to Heathrow’s regulatory model “will be more straightforward to implement” as radical options could require new legislation — although people with knowledge of the process say this can be sped through the system by government if required.
There is political pressure to hasten the project: Rachel Reeves has made clear she wants “spades in the ground” by 2029, the expected date of the next election.
The CAA concluded that examples from other airports “demonstrate that challenges with competitive models are surmountable but require parties, including [Heathrow], to work together to achieve the intended outcomes”.
What does Heathrow think about all of this?
The airport has chafed at the CAA’s process, warning it risks further delaying the goal of having a third runway operational by 2035.
“It’s been 10 months since the Chancellor said Heathrow must be expanded to drive growth for the economy and lower airfares for consumers and the CAA is only just now launching a six-month sequence of consultations on complex regulatory models for Heathrow expansion,” Heathrow told the FT.
“This will be another six months of delay to private investment in the UK economy and the realisation of UK-wide benefits.”