Gold By Country:
2013 Demand: 1,065.8 tonnes
Jewelry/Coin & Bar: 668.7 tonnes/397.1 tonnes
Reserves: ~2,700-5,000 tonnes
% of Total Forex Reserves: ~0.91%-1.69%
2013 GDP: $13.4 trillion
China is the world's largest producer, as well as the most prolific lender. The rapid growth of the central government's foreign reserves, particularly in U.S. dollars, lead to China having a negligible proportion of their foreign reserves being held in gold. In an age where fiat money is spent as quickly as it is printed, and devalued almost as quickly, it is not hard to understand why this is an untenable long-term position for the Chinese. With wealth comes power, and with power comes prestige. Over the last several years, China has made targeted efforts to acquire gold for the purpose of increasing and augmenting the wealth, power, and prestige of their government, as well as their population. The rapid growth of their economy has lead to large increases in consumption by their ever-expanding middle and upper classes. Maintaining and expanding this consumption is key to maintaining and expanding the aggregate growth of China's economy, its global influence, and its power.
Unlike the other great powers in world, China is very secretive about many details with regards to their positions on gold. Through acquisitions of South African mines, we know that China has assumed the role as the world's largest producer of gold. And due to recent reforms of domestic policies that pertain to owning physical forms of gold, we know that they have also become the world's largest consumer as well. However, it is unclear exactly how much gold is held in their official government reserves, or by what volume it is being increased on an annual basis. What we can glean is China's intention to promote private ownership of gold, through the development of the Shanghai Gold Exchange, as well as their intention to gain influence over the global price of gold through the development and promotion of gold futures contracts. Later this year, the Shanghai Gold Exchange, which denominates gold in yuan, is set to open up to foreign investors. Many see this as a move to internationalize the yuan, and increase its attractiveness as a reserve currency.
The recent liberalization of laws pertaining to the private ownership of gold have lead to expansions of every avenue of the gold sector in China. The number of jewelry retailers has grown exponentially. However, competitive forces, and the need for economies of scale, have caused the number of mining firms to actually shrink by more than half through the processes of merging and acquisitions. However, the largest gold mining corporation in China, China National Gold Group Corporation, is owned and operated by the central Chinese government, not private commercial interests.
Due to the unprecedented expansion of the Chinese middle and upper classes, the need for investment vehicles has also increased dramatically. However, due to a lack of access to financial products, such as stocks, bonds, and mutual funds, the Chinese people have turned heavily to gold in an effort to preserve their wealth. In 2004, China officially legalized and openly promoted the private ownership of gold, leading to the largest expansion of privately owned gold in human history. In 2013, China's demand for gold surged past India's, making it the number one consumer of gold in the world.
Did You Know?
As a dominant cultural force of East Asia, China not only has an array of distinctive gold items, but has also exported these cultural forms to many of its neighbors. For example, intricate “boat bars” like the one pictured are a traditional shape for gold in Chinese culture, dating back to antiquity, but can also be found in Hong Kong and Thailand. Gold “biscuits,” or flat tael bars, are perhaps the most commonly seen gold bars in China. Among Chinese gold coins, the Chinese Gold Panda is far and away the most popular with Western investors. It is not only .999 fine gold (24 karats), but also distinguishes itself from most other gold bullion coins by its annually updated reverse designs and artistic flair. Nonetheless, jewelry is the predominant form of gold in China. Because gold jewelry is bought avidly as a quasi-investment in China, about 85% of all Chinese gold jewelry is a remarkable 24 karats.