The Case of China’s Missing Gold

The People’s Bank of China Updates Its Gold Reserve Holdings

Chinese Gold reserves jump 604 tons from 1,054 tons last reported in 2009 to 1,658 tons.

Many gold observers ask – ‘Is that it’?

Since 2009 China has mined over 2,000 tons of gold and imported over 3,300 tons of gold through Hong Kong*.

Where did it all go?

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The Case of China’s Missing Gold

On July 17, 2015, the People’s Bank of China (PBOC) updated its gold reserves holdings for the first time since 2009. The PBOC reported adding 604 tons of gold to their reserves bringing the total from 1,054 tons to 1,658 tons.

The PBOC announcement was widely anticipated as a pre-requisite of China’s application for inclusion in the International Monetary Funds’ (IMF) Special Drawing Rights (“SDRs”).

China’s announced gold reserves are a respectible amount, but far lower than what many gold observers believe China has.

1,658 Tons of Gold – Good Enough For the IMF?

Having large gold reserves are not required to be in the SDR. England is in the SDR and has just over 310 tons of gold.

We have argued that China’s primary objective is not acceptance into the SDR but rather to establish a viable parallel international financial structure to rival the IMF.

We think China holds a portion of its gold at the PBOC as reserves with the rest held elsewhere in China.

The PBOC’s updated gold reserves are five times more than England’s and certainly enough to show the financial heft required for admission to the SDR. The PBOC doesn’t need to report thousands of tons of gold to get into the SDR and they don’t need to upstage their largest single country trading partner, the United States at this point (whose stated gold reserves are 8,135 tons).

Top 20 largest gold holding nations in the world

China’s recent update to its gold holdings put it in fifth place among gold holding nations.

How China Reported The Update to its Gold Reserves

The PBOC’s addition of more than 600 tons of gold to their reserves showed up as a single entry in June 2015!

Unlike Russia that reports increases in its gold reserves monthly (that we catalogue here), the PBOC chose to include all of the increase in its gold reserves since 2009 in just one month.

China's gold reserves chart

The People’s Bank of China supposedly added 1,943,000 ounces of gold (approx 600 tons) to its reserves in June.

How Much Gold is There in China?

The additional amount of gold that the PBOC reported doesn’t seem to square with publically available reports on the amount of Chinese gold production and imports.

Chinese Mining Production

China is now the world’s largest gold mining nation and exports virtually none of it.

Chinese mining production 2000-2014

China has produced over 2,000 tons of gold since 2009.

Chinese Mining Reserves

There’s plenty more where that came from!

On June 25, 2015, Zhang Bignan Chairman and Secretary General of the China Gold Association presented this slide at London Bullion Market forum indicating that China’s gold mining reserves were approximately 9,800 tons.

chinese mining reserves chart

According to the Chairman and Secretary General of the China Gold Association, China has over 9,800 tons of gold in mining reserves.

Chinese Gold Imports

China has also ramped up its gold imports significaly since 2009. From 2010 to May 2015 net Chinese gold imports through Hong Kong were well over 3,300 tons.

Chinese gold import chart  2000-2015

Chinese gold imports through Hong Kong have amounted to over 3,300 tons since 2009.

*China also imports an undisclosed, but large amount of gold through Shanghai.

Chinese Gold Trading on the Shanghai Gold Exchange

In addition to massive gold production and imports, China also operates the Shanghai Gold Exchange (SGE) a major physical gold trading hub. Withdrawals of physical gold on the SGE to date in 2015 are well over 1,200 tons and over 9,000 tons since January 2009.

Shanghai Gold Exchange withdrawals July 2015

Withdrawals of physical gold on the Shanghai Gold Exchange are well over 1,200 tons year to date in 2015.

Who’s Got the Chinese Gold?

If Chinese gold mining production and imports through Hong Kong and Shanghai don’t end up at the PBOC, where is it?

The Chinese People

A good portion of Chinese gold is with its citizens. The famed gold crazed “Da Ma” or Chinese housewives who buy any dip in gold prices supposedly hold a good portion of the nation’s gold. Some estimate that Chinese citizens hold thousands of tons of gold. One estimate claims Chinese citizens hold 6,000 tons of gold.

Chinese State Owned Banks

Perhaps another chunk of the Chinese nation’s gold is held in other state owned banks, not necessarily with the PBOC, such as the Agricultural Bank of China, Bank of China, China Construction Bank, China Development Bank and Industrial and Commerical Bank of China all located, like the PBOC, in Beijing, China.

Chinese Sovereign Wealth Fund

The China Investment Corporation (CIC), also located in Bejiing, is a sovereign wealth fund responsible for managing part of the People’s Republic of China’s foreign exchange reserves. The CIC has $746.7 billion in assets under management and reports to the State Council of the People’s Republic of China.

Off Balance Sheet Accounting?

The CIC lists $225.321 billion in finacial assets and about $3.130 billion of “other assets” on its balance sheet. It’s possible that some of these “assets” are in the form of gold.

The CIC has three subsidiaries: CIC International (responsible for internatonal equity and bond investments), CIC Capital (direct investments) and Central Huijin (equity investments in Chinese state owned financial institutions and state owned enterprises).

Central Huijin owns significant equity stakes in each of: Agricultural Bank of China (40.28%), Bank of China (65.52%), China Construction Bank(57.26%), China Development Bank (47.63%) and Industrial and Commerical Bank of China (35.12%).

For a gold backed Chinese Remnimbi 1,658 tons of gold reserves are insufficient, but for admission to the SDR are perfectly adequate.

If indeed China holds gold with the CIC and/or with any of the Chinese state owned banks, the PBOC could roll up that gold on to its own balance sheet in order to show more gold reserves quickly and easily in one month with a single entry.

Update Chinese President Xi Jinping recently confirmed the practice of moving the People’s Bank of China’s reserve assets to other entities in China

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Further Reading:

China and Gold

Gold Reserves by Country – Top Twenty

Russia and Gold

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