Giuseppe Sandro Mela.
Il problema delle riserve auree cinesi è alquanto complesso: da una parte la Banca Centrale rilascia i dati solo quando lo ritenga opportuno, dall’altra assieme alla riserva ufficiale dovrebbe essere conteggiato anche l’oro comprato dai privati. Nella maggior parte delle regioni cinesi, infatti, il possesso di oro monetato o come monile dovrebbe essere denunciato: la proprietà resta ed è garantita tale nel tempo, ma lo stato potrebbe avocarsi il diritto di confiscarlo in caso di particolarissimi eventi. In un certo qual senso, l’oro detenuto dai privati è una specie di estrema riserva di sicurezza.
My best estimate as of June 2017 with respect to total above ground gold reserves within the Chinese domestic market is 20,193 tonnes. The majority of these reserves are held by the citizenry, an estimated 16,193 tonnes; the residual 4,000 tonnes, which is a speculative yet conservative estimate, is held by the Chinese central bank the People’s Bank of China.
To substantiate my estimates on above ground gold reserves in China mainland, we’ll first discuss private gold accumulation in China through the Shanghai Gold Exchange (SGE), after which we’ll address official purchases by the People’s Bank of China (PBOC) and its proxies that operate in the international over-the-counter market.
Chinese Private Gold Accumulation
A few days ago, you could read on the BullionStar Gold Market Charts page that withdrawals from the vaults of SGE in June accounted for 156 tonnes. Year to date SGE withdrawals have reached 984 tonnes, which is 16 % shy of the record year 2015 when 1178 tonnes were withdrawn by this time. Since 2013 gold demand in China has remained extremely elevated – don’t let the World Gold Council tell you anything different – which exposes spectacular years of physical gold accumulation by the Chinese.
The amount of SGE withdrawals provides a fairly good proxy for Chinese wholesale gold demand, although not all gold passing through the SGE adds to above ground reserves. In China, most scrap supply and disinvestment flows through the Shanghai bourse as well, next to mine output and imports. Needless to say, recycling gold within China doesn’t change the volume of above ground reserves. So, simply using SGE withdrawals won’t fly for calculating above ground reserves. What we’re interested in are net imports and mine production in the Chinese domestic gold market.
Although gold exports from the Chinese domestic market are prohibited, exports from the Shanghai Free Trade Zone (SFTZ) where the Shanghai International Gold Exchange (SGEI) is located, are permitted. Before calculating Chinese net imports, let’s have a brief look at exports from the SFTZ – which reflects to what extent the SGEI is developing as a physical gold hub in Asia. As far as I can see, China’s gold bullion export from the SFTZ is still negligible. From the United Nations’ international merchandise trade statistics service COMTRADE, it shows the only countries that have imported tiny amounts from China in 2017 are the UK and India. But the amounts are so small, they carry little importance for our analysis.
There is one region that is importing significant amounts of gold from China, which is Hong Kong, though, this likely isn’t exported from the SFTZ but from the Shenzhen Free Trade Zone. The vast majority of China’s jewellery manufacturers are in Shenzhen, and for quite some years gold jewellery, ornaments, industrial and semi-manufactured parts are being exported from this Chinese fabrication base to Hong Kong. These events haven’t got anything to do with the SGEI in my opinion. Thereby, Hong Kong exports far more gold to China than vice versa.
For computing net gold export from Hong Kong to China we’ll subtract “imports into Hong Kong from China” from “exports and re-exports from Hong Kong to China” (as you know China doesn’t disclose gold trade statistics itself). Imports into Hong Kong accounted for 23 tonnes, while exports and re-exports to China accounted for 333 tonnes. Accordingly, China net imported 311 tonnes from Hong Kong in the first five months of 2017.
Exhibit 2. In 2016 rumours circulated Hong Kong’s elevated gold exports relative to gold re-exports possibly hinted at fallacious trade data. This year the numbers show no sign of such activities.
If we apply the same math to Switzerland’s customs data, it shows China net imported 172 tonnes from the Swiss in the first six months of this year.
Most definitely Australia has exported gold bullion directly to China in 2017 as well, but the Australian Bureau of Statistics (ABS) has changed its methodology regarding this data somewhere in 2016 and is reluctant to share the details with me. Using my old way to compute Australia’s export directly to China results in 23 tonnes (this number is provisional and will be amended).
The UK, a large gold exporter directly to China in 2014 and 2015, hasn’t shipped any gold directly to China year to date, according to Eurostat.
Domestic mine production in China is not allowed to be exported, effectively all output can be added to above ground reserves. The China Gold Association (CGA) wrote on April 28, 2017, that Chinese domestic mine output in the first quarter accounted for 101 tonnes. Lacking the data for the second quarter, makes me estimate mine production from January until June by doubling 101, which is 202 tonnes.