Money Week: China Owns a Lot More Gold Than it's Letting on - and Here's Why
Article by Dominic Frisby in Money Week
It has been clear for some time that China has designs on the US dollar’s global reserve currency status. For China, this is simply a return to its rightful position on top of the world. To us Western usurpers, the implications of this are just enormous.
Nine in ten central banks are working on digital currencies, according to research by Fintech and IT Benchmarks 2021, but none are as advanced as China, which has been working on its since at least 2014. Word is, it wants it to be fully functional in time for the Beijing Olympics in 2022.
The Wall Street Journal, meanwhile, reports that Chinese broadcaster CGTN has been circulating an animation in English of a man in an American-flag shirt being knocked out by a golden coin with the stamp of the digital yuan. One word stuck out for me from that Wall Street Journal piece – “golden”. Gold is some useless, inert asset, right? Whose heyday was in the 19th century, as irrelevant to modern finance as the horse is to transport?
Today we return to a favorite theme of ours, one that we haven’t looked at since 2019: how much gold does China have?
Just how much gold does China own?
For those with short attention spans who don’t want to read to the end of the article, I’ll cut straight to the chase: China has much more gold than it says it does. In fact, China has more gold than the US. Its enormous gold hoards are all part of its grand global reserve currency status designs.
Official records show the US owns some 8,133 tons, most of it in Fort Knox. It is the world's largest owner (or so you thought) and gold comprises 77% of its official foreign exchange reserves.
China’s officially declared holdings of 1,948 tons make up just 3% of its $3.2trillion in foreign exchange holdings, but the real number is much larger than that. China has been the world’s largest gold producer since 2007 –this past decade it has produced about 15% of all the gold mined in the world; last year it produced 380 tons – that’s 20% more than the world’s second-largest producer, Australia.
Since 2000, China has mined roughly 6,500 tons. More than half of Chinese gold production is state-owned; the China National Gold Group Corporation alone accounts for 20%. Already that official 1,948 figure looks doubtful. Crucially, China keeps the gold it mines –exporting of domestic mine production is not allowed.
With reserves in decline at home, Chinese mining companies have also been buying assets abroad, across Africa, South America and Asia. International production exceeded domestic production by about 15 tons last year. As well as being the world’s biggest producer, China is the world’s biggest importer. It is hard to get precise import figures, but we do know that, for example, via Hong Kong alone, over 6,000 tons has entered the country since 2000. Add that to cumulative gold production since 2000 and you get a figure of 13,200 tons.
Then we have to add in gold held in China, whether as bullion or jewelry, prior to 2000. The World Gold Council estimates a figure of 2,500 tons in privately-held jewelry. If you add domestic mining and official reserves, you get a figure of around 4,000 tons.
Nick Laird of goldchartsrus.com, perhaps the world’s leading gold data expert, has cobbled it all together to produce this chart, showing cumulative gold held in China to be around 28,911 tonnes. I’ve spoken to numerous analysts – Ross Norman, Bron Suchecki and Koos Jansen – and they all arrive at similar estimates.
The army, too, owns gold and does not have to declare its purchases.
China almost certainly owns a lot more gold than the US does
How much of that huge hoard is state owned? 40%, 50%, 60%? Norman guesses 50%; Suchecki, formerly of the Perth Mint, says 55%
At 50%, the implication is that China owns roughly 14,500 tons. That is 1.8 times more than the US. It may be that only 20% or 30% is state owned – China has been famously encouraging its citizens to buy gold since 2008.
This encouragement to buy gold, as one reader resident in China reported to me, “kicked off a frenzy of laundry” as China’s citizens rushed to exchange the hoards of hooky cash they had built up. “In my local bank in Shanghai in 2009 I was standing behind a Chinese bloke unloading bundles of euros, US dollars, Singapore dollars and Swiss francs in exchange for five-kilo bars of gold across the counter.”
Gold ownership is registered, so the government knows how much its citizens have. The vast majority of Chinese people trust their government, especially when it comes to returning China to the top of the world. That means a considerable amount of extra gold can very quickly be mobilized to participate in whatever Beijing is planning.
Chinese gold holders do not necessarily share the same mistrust of government held by Western gold bugs – the Party is seen as a good housewife to the nation.
The disruption it would cause means there is no way China can declare such large official holdings. Not yet anyway. There would be an unwanted surge in both the yuan and the gold price. The government's $3.2 trillion of US dollar foreign exchange reserves would be devalued. To declare so much gold would be a direct challenge to American supremacy, which China is not yet ready for. Parity first, then supremacy.
For now they follow Deng Xiaoping's doctrine of “we must not shine too brightly” until everything is ready.
Chinese president Xi Jinping is known as a “man of destiny” and he may want the great ascension to happen on his watch.
But backing its money, if only in part, with gold, would give China great credibility in a world awash with money-printing.
That animation of a man in an American-flag shirt being knocked out by a golden coin with the stamp of the digital yuan may not be so fantastic. He who owns the gold ......
To read this fascenating article in Money Week in full and view the relating charts, click here.