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Updated 03:08 19/01/18

China’s gold reserves didn’t grow in 2017… or did they?

12 Jan 2018 By Liam Sheasby

The People’s Republic of China has reported no increase in their national gold reserves for 2017, according to official statistics released by the IMF this month, which currently stand at 1,824.6 tonnes of gold bullion stored.

China currently boasts the fifth largest gold reserves in the world and are one of the top two producers of gold ore, but they have reportedly not added to their reserve levels since October 2016 – a time when coincidentally they were accepted by the IMF into the Special Drawing Right (SDR) group, aka the prestigious reserve currency group comprising the US, UK, EU, and China.

 

Why the disbelief?

There are two problems in believing these statistics however. Firstly, the IMF has no way of verifying the accuracy of the information given to them by the Chinese authorities – data is taken in good faith, and secondly zero increases in gold reserves goes against the Chinese state’s policy announcements over the past few years about seeking to increase their gold reserves.

Unlike Russia who are very public about their gold acquisition, China may be secretly expanding their reserves by tactically holding gold in accounts not answerable to the IMF.

 

Why the secrecy?

Russia and China both wish to distance themselves from the US dollar as the global reserve currency of choice; a shift that began 10-15 years ago as a long-term policy of financial security.

Russia’s public opposition to the US on a range of fronts has seen trade tariffs and other restrictions thrown up by the United States in response, so it’s likely that China’s secrecy about their gold reserves is to avoid any escalation with the US given how much business the two nations do with each other.

This may not be in China’s control though, with many US experts predicting a trade war to break out between the two nations in 2018 over the Chinese state subsidisation of the steel industry. It’s entirely possible that, after such a dispute, China would follow in Russia’s steps of publicly backing gold over the Dollar, and such a process may already be underway, with Bloomberg reporting the Bank of China’s predictions of $1400 per ounce of gold (£1,028 p/oz) by the end of 2018; bad news for the dollar but great for gold.

 

What does China stocking up on gold achieve?

The US dollar is unpopular with China (and Russia) due to the unpredictable nature of its value but also the behaviour of successive US Governments, who are accused of having used the reserve currency to bully nations into behaving as they wanted them to. China and Russia’s lack of dependence on the US dollar – even in so much as holding gold reserves – could weaken the currency enough for them and others to take advantage.

The latest rumour is that of a breakaway trade currency using physical gold. This ‘fire escape’ currency would be used by the BRICS nations (Brazil, Russia, India, China, South Africa) so that they can trade physical gold in their own market rather than operate in US Dollars and via the US/UK/Switzerland – areas they deem outdated or out of touch with the current world economy.

The Shanghai Stock Exchange in China - second largest in the country and fifth in the world

China as an economic superpower

The stature of China as a powerhouse within the world economy is another reason that their figures about zero additions to gold reserves makes no sense. Bloomberg reported that China’s economic growth surpassed expectations for the second half of 2017, with the nation placed almost top in the world for all its imports, such as crude oil, in terms of quantity.

The Shanghai Gold Exchange (SGE) also reported that demand for gold in China rose to over 2,000 tonnes for 2017 – an increase of 60 tonnes from 2016. Considering the current world economy's growth and the increased public demand for gold, China is clearly in a good place financially. It would be odd for the Chinese government to not take advantage of this period of prosperity and add to their gold reserves, unless of course it already is.

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