Why China is on gold buying spree?

Arguably China the largest producer of gold is not exporting but importing huge gold quantum from many countries. The irony is, it is buying gold from the second largest producer of gold that is Russia. What is the business strategy behind it and how this impacts geoeconomics?

Gold production was the key industry even in the ancient China. According to World Gold Council she produced about 368.3 metric tons of gold. A figure that works out to be 11% of the global count.  Most are used within the country and nothing much is exported unless in the case of jewellery that too in lower quantity. Ironically the second largest producer of gold Russia at 331 metric tons exports part of her gold to China. Even after the imposition of sanctions against Russian Gold, China continues to buy via intermediaries located in the Persian Gulf. By the way Russia is the 4^th largest gold exporter globally.

Not only Russia, several other countries are supplying Chinese requirements chiefly amongst them stand Switzerland with a value tag of US$ 27.5 Billion and UK at US$ 17.6 billion. In 2022 alone China imported gold to the tune of 67.6 Billion.

What is exactly happening?

About two decades ago China gold reserves was about 600 Metric tons whereas today officially China has slated to have reserves at 2,235 metric tons. But unofficial figures are as high as ten times of this conservative estimate. One thing is clear much of the imported gold is not put to use in factories but buried in the vaults of Chinese banks.

As regards to investment in US Treasuries, progressively China is downsizing. According to financial statistics this figure has declined from US$ 816.3 Billion end December 2023 to US$ 797.7 Billion end January 2024. That is within one month period a slicing off of US$ 18.6 Billion has taken place. Among the reasons trotted out the following seem to be plausible:

1. Evidently China is losing confidence over US Dollar as a reserve currency on one hand and the fear of her reserves being frozen at any time by US authorities on the other.

2. Increasing use of US Dollar as a geoeconomics weapon by America has alarmed China especially after Russia was shut out from the use of US$ in international trade and reserve holding.

3. As de-dollarization is slowly but steadily progressing in the multi polar world holding dollar as currency amounts to almost committing hara-kiri. Therefore converting Dollar to gold is a feasible and profitable solution not only for China but for many others in the Global South.

But I have a reason that could convince you more. China is on the verge of making Yuan a gold pegged currency for both trading & reserve purposes. Unveiling of digital Yuan and holding it under digital wallet requires backing & support of a peg and an efficient currency management system. This business strategy fulfils the age old maxim of Empires: ‘the largest trading nation must have the largest circulated currency’. And that fits smugly for the geoeconomics plan for the Imperial China then and now!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist