Hello Jorj, << was the news that China was lifting the ban on owning physical gold, a well known piece of news? I was blissfully unaware that this was in the pipeline, let alone imminent>>
Blissful is the best of all ways to be unaware.
My short answer: China deregulating gold industry is old news, first with the opening of the gold exchange for institutions, followed by allowing private and foreign ownership of gold mines, and eventually, one fine golden day, retail ownership of monetary gold (as opposed to fabricated trinkets).
The precise ‘when’ of the retail ownership of monetary gold was not generally known by anyone I know or in the press until a few days ago. The happening was a complete and absolute surprise to me.
My longer answer: China deregulating gold industry is old news.
Message 15839776
May 22nd, 2001
I think gold vs. dollar vs. Euro vs. Yen, trade blocs vs. globalization, Islam vs. Christianity, Hindu vs. Islam, Israel vs. Arabs, Japan vs. Asia ex-Japan, India vs. China, Pakistan vs. India, Russia vs. EU, communism vs. capitalism vs. socialism, gun vs. butter, nuclear power vs. carbon energy, Republicans vs. Democrats, Tory vs. Labor, Marx vs. Adam Smith, inflation vs. price stability, US vs. China, China vs. Taiwan, Via vs. Intel, Legend vs. Dell, Linux vs. Windows, etc. are all dots on the same continuum of geopolitical, socioeconomic and ethnic tapestry. Any issue on this tapestry is related in every way to every other issue.
… <<He said there are also strong rumours that the Bank of China has become a big buyer of gold. It holds $130 billion (£92 billion) of foreign exchange reserves and as relations with the US deteriorate it is switching them out of dollars into gold.
"I suppose they don't want their reserves managed by the central banker of the enemy, Alan Greenspan," he said.>>
I believe the China official forex reserve is about 180 billion, but more importantly, there is quite a bit of private forex reserves also held at the bank, actually dwarfing official reserves at times. This is truer still in Hong Kong (official reserve about $110 billion) and Taiwan ($130-180 billion). China and Taiwan believes in gold as a reserve metal. Hong Kong does not. HK now holds a basket of currencies, and before now, only US$.
The simpler and previously truer explanation is that the Peoples Bank of China (PBOC, central bank) had always been the only buyer of monetary gold in China, by law. As China is planning on deregulating the gold industry, continuing banking reforms, and PBOC will be a seller of monetary gold to the general population from reserve in a few years time, it is not surprising that PBOC continues to stockpile more gold than required for official reserve when the getting is still good, and make a whopper of a gain later, partly to fund banking reform, partly to fund bonuses for a past monopoly job well done.
The complicated and newer reason …
As far as I am concerned, China’s gold industry deregulation is intricately linked with the political reform process that has yet to, to the masses, get under way. The communist Party is privatizing state-owned enterprises, and as privatization proceeds, the Party’s coffers will be topped up in ways other than simply taking it out of the banks. Once the Party secures convoluted control of the major gold mines and rights on possible gold bearing regions, the retail market will be incubated, releasing people’s USD and RMB savings to possible productive use, even as they secure their net worth in monetary gold, and the Party gets to benefit from mining activities, devoid of R&D, technology obsolescence, marketing and many concomitant management risks:
Message 16178484
August 7th, 2001
… Many matters are in motion here and the economic landscape is sprinkled with new and transferred concepts literally everyday. A revolution is happening.
One expected but not thought of wrinkle in all this privatization process is that the Communist Party already knows it will have to face a genuine election one day and is studying the ‘hows’ and ‘whats’. Village level election under US observation has already taken place across the country. Experiences are being collated and discussed at the highest levels. The ‘communists’ themselves noted that elections would be bad for them but the lack of elections would be worse. One issue of particular concern is party financing. To get ready for going to the electorate with a begging bowl in hand is not on the agenda, and so, like the KMT in Taiwan, the answer to the sustainable financing requirement lies within the state-owned enterprise privatization process. I believe this is one of many reasons why the gold sector has not yet been ‘reformed’. Currently, the Party, the Government and the State-owned Enterprises are one and the same. One day, and that day gets closer everyday, this will no longer be true. So, what equity ownership (through foundations on the Taiwan model) the Party wants to arrange for itself, it is starting now. The Communist Party is in fact taking lessons from the grandmaster, the KMT, right now.
…
Anecdote time. I had a meeting today with a lawyer at his office in Beijing. The office was located in a large complex. I went to a brokerage office’s public trading center in the office building after my legal meeting, out of curiosity and to sit and collect my thoughts a bit before heading to the airport.
The trading center is one of thousands, about 15,000 square feet, with electronic wall panels displaying the trading of the most heavily traded stocks. Roles of seats are placed in the middle of the hall. Trading computers are on the sides of the hall. The people there were comprised of the young, old, men, women, of all different social classes. Some folks wore no watch, some popular watch, a few fancy watches and one moon-phased equation of time machine retailing for around USD 80 grand. The stocks were falling around 5-7% today. The folks were talking, laughing, reading, looking pensive, trading, eating, and generally active.
I could not think about my issues because it was too much fun watching these folks. There were about 200 folks milling around. Yes, some of the girls were cute. My thoughts? These were the front line soldiers in the revolution. 90% of them will perish over time. The contribution of each soldier will be not at all noticeable. Their loss will be a cost to the revolution, for the greater good, never acknowledged.
The wall panels flashes the latest transaction price of retailers, appliance manufacturers, chemical companies, power generators, infrastructure investors, coal mines …
I saw the future, and it was flashing somewhere on that electronic wall panel. I edged out of the trading hall, knowing (to paraphrase Clint Eastwood) that I am the disease and there is no cure.
With the holding of the recent Party Congress in November, and the already trial balloon-ed intentions of political reform (elevating village elections to the county level), the retail monetary gold market is switched to ON.
Chugs, Jay
The progression of my madness
Message 18356763
P.S. I believe predictions that China annual gold demand will double from current 200 ton level is silly, because I am figuring, 'why not 10 fold? what makes a doubling so special in China'. |
