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China's Gold Imports: Grain Of Salt, Please
Adrian Ash, Contributor 0 comments, 0 called-out + Comment now
China began deregulating its domestic gold market a decade ago. Gold has proved to be a handy way of diversifying the nation’s fast-swelling savings since.
But like so much else in the world’s most populous and fastest-growing economy, off-the-charts growth in private gold demand now presents a problem for policymakers: China’s gold imports have overtaken its domestic mine output (the world’s largest, of course). So gold also risks denting the trade surplus, the central plank of Beijing’s economic model. Reconciling the two calls for a bureaucrat’s fudge.
By cash value, and based on the latest Gold Demand Trends from the World Gold Council, we make China’s private demand equal to more than 0.6% of its huge GDP in 2011 – still lagging India’s massive 2.7%, but trebling in just five years even as China’s GDP has risen by 140%.
So never mind that the Middle Kingdom’s miners unearthed a new national record of 361 tonnes in 2011. Its private gold demand has risen so much faster that imports through Hong Kong alone leapt above that level last year, rising three-fold from 2010 to total 428 tonnes.
Beijing’s response? The Financial Times says that the People’s Bank itself “may” have driven part of 2011′s surging demand, perhaps accounting for 130 tonnes or so of fourth-quarter purchases, figured as the gap between official import and mine-output data versus end-buyer demand reported to the Thomson Reuters GFMS consultancy.
But bullion banks and other importers look more likely candidates for stock-piling, we think. Hoarding by Chinese suppliers is common across base metals. Standard Bank’s commodities team now reckon silver stockpiles in China are equal to 15 months of fabrication demand. And if Beijing were really on the bid for imported metal, then why, immediately after January’s Chinese New Year celebrations – a big event on China’s gold buying calendar – did it set China’s gold importers a new hurdle?
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Gold imports aren’t capped, nor are they taxed more heavily. And they remain, for now, only a fraction of the trade surplus. But Bruce Ikemizu at Standard Bank in Tokyo told us this week that Chinese importers now need to get permission for each shipment from the bureaucrats of the State Administration of Foreign Exchange (SAFE) as well as from the People’s Bank of China. “So it takes longer to import gold,” notes Bruce.
Although this new rule is already frustrating those banks importing gold, it’s likely only to delay, rather than deter, the flow of bullion. But it’s a hat-tip to the potential drain on China’s foreign currency holdings which gold has become for India – still the world’s No.1 consumer, and importing twice as much as bullion as China in 2011 because it has no domestic mine output.
The timing of SAFE’s move, immediately after New Year – and only two weeks after India doubled its gold and silver import duties – suggests Beijing’s policy wonks are live to the trade-balance risks posed by Chinese households’ soaring demand.
India’s hunger for a metal it does not produce is plain to see in its trade balance. The only current-account deficit in the region as Morgan Stanley notes, gold also weighed on the rupee’s exchange rate in 2011, down 15% versus the dollar as the currency markets tried to force an adjustment. Because even then, and with Rupee gold prices pushed to fresh record highs despite a 20% drop for U.S. investors after September’s top, India’s full-year 2011 gold demand still rose from 2010 in Dollar terms, setting a fresh record of $46 billion on the World Gold Council’s data, and equal to more than three-quarters of the country’s current account deficit.
“[We hope to] discourage imports so that the rupee steadies against the dollar,” admitted a senior, unnamed official quoted by India Today after New Delhi raised import duties and handed a tax advantage to the domestic recycling lobby last month. Beijing’s policy wonks are being equally coy about trying to dampen gold bullion imports just ever so slightly.
China’s feint should remind precious-metals bulls that Asia’s massive demand growth can pose a risk to itself. First from high prices dissuading new buyers (as seen in Western jewelry demand since 2005) but more significantly from state interference in a market averaging 36% compound growth by value each year since 2001.
http://www.forbes.com/sites/greatspeculations/2012/02/17/chinas-gold-imports-grain-of-salt-please/
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