LAWRIE WILLIAMS: Are China’s gold imports rising or falling?
A tale of two media headlines reporting on exactly the same data: China’s Gold Imports Fall for Second Month Before Rate Increase (Bloomberg); and China's November Gold Imports From Hong Kong Climb (Business Recorder). Both reports are based on gold import/export data from Hong Kong’s Census and Statistics Department. The Bloomberg report states as follows: ‘Net purchases declined to 66.8 metric tons from 68.2 tons in October and 87.2 tons a year earlier, according to data from the Hong Kong Census & Statistics Department compiled by Bloomberg.’ Meanwhile the Business Recorder article quotes data from Reuters, utilising, presumably, the identical statistical report and comes up with the following; ‘China's net gold imports from Hong Kong rose to 79.003 tonnes last month from 71.581 tonnes in October, data emailed to Reuters by the Hong Kong Census and Statistics Department showed on Monday.’
Looking back, Bloomberg data reporting on Chinese gold imports has, for the most part, been distinctly downbeat in tone while the Reuters reports tend to be far more neutral. One has to wonder if there is some kind of hidden agenda here. We also would point out that the bald Bloomberg statement in its headline – China’s Gold Imports Fall… - could be taken as misleading as it does not qualify this by saying that the figures only relate to imports from Hong Kong, which appear to be of decreasing significance in overall Chinese gold imports. Yes, Hong Kong still appears to be the principal conduit for Chinese gold imports, but nowadays probably only accounts for 60% or less as, since the beginning of 2014, much more gold has been imported into China directly, bypassing Hong Kong altogether, as pointed out in export statistics from Switzerland and the U.K. – almost certainly the two biggest gold exporters to both Hong Kong and to mainland China directly. Prior to 2014 80% or more of known Chinese gold imports were routed via Hong Kong making the Hong Kong figures a proxy for total Chinese gold imports. This is no longer the case, although plenty of media outlets still tend to present the HK data as though it is the total for China as a whole.
There is also a considerable amount of speculation that the Chinese Central Bank, the People’s Bank of China (PBoC), is also importing gold directly, but through channels which do not appear in any country’s import and export statistics. That reported as coming in via Hong Kong and from other countries directly is all destined to be handled through the Shanghai Gold Exchange (SGE) and is thus destined for retail sales and use by financial institutions and in industrial consumption. As we have pointed out, withdrawals from the SGE have already totalled over 2,500 tonnes up to December 18th and had already surpassed the full year record of 2,182 tonnes achieved in 2013 by early November (See: CHINA: SGE Gold withdrawals head for huge new record year.)
Data compiled by Koos Jansen of www.bullionstar.com who probably spends more time and effort analysing Chinese gold data than any other analyst, estimates this year’s Chinese gold imports as likely comfortably exceeding 1,400 tonnes based on known data from Hong Kong, Switzerland and the UK (up to October) and Australia up to August. However the Chinese base metals smelting and refining sector adds additional amounts of gold as a byproduct from their metallurgical activities, while there will be a number of other countries producing gold destined for China (probably mostly through Hong Kong which will be recorded in the HK statistics, but some almost certainly going in to the mainland directly, which remains unreported at either end. We would thus put the total Chinese import figure for the year at perhaps nearer 1,500 tonnes. This represents more than half of total non-Chinese new mined gold output.
A look at known Chinese gold import figures for 2014 suggests an annual total of perhaps around 1,200 tonnes that year so on that basis total Chinese gold imports are undoubtedly rising year on year, which ties in well with the record SGE withdrawals figures. 2013 imports were probably around 1,450 tonnes (import calculations are a bit of an inexact science given China does not disclose the figures, but these figures will be reasonably close to reality in terms of imports through Hong Kong and other known direct exporters, but none of these will take into account any direct movements of gold into PBoC vaults through undisclosed channels.
Thus Chinese gold imports would appear to be on the rise in relation to a year earlier, and possibly around the same level, or perhaps even a little higher, than in 2013 – the previous record year. With India reckoned to see imports of close to 1,000 tonnes this year, this means that the two countries are importing between them over 90% of the non-Chinese global supply of new mined gold, which begs the question as to where this gold is coming from given that the rest of the world is also a substantial net consumer of gold. The running down of gold inventories in the UK and the US certainly provides an answer as do sales out of the gold ETFs, but these are diminishing, hence our view that 2016 could be a crunch year for gold as supplies come under further pressure from seemingly ever-increasing demand (See: 2016 a crunch year for physical gold supply)