LAWRIE WILLIAMS: China world’s largest gold consumer but figures understate
According to the latest figures released by the China Gold Association (CGA), the nation was the world’s largest consumer of gold for the fifth successive year. The CGA puts total Chinese gold consumption at 1,089.1 tonnes in 2017, but as usual the quoted figure raises the perennial question as to what actually comprises Chinese gold consumption given that known gold imports plus the nation’s own gold production already tot up to more than the figure quoted.
Chinese gold imports from Hong Kong in 2017, according to official figures, totalled 628.2 tonnes while imports from Switzerland totalled 299.8 tonnes, while China’s own gold output during the year was, according to the CGA, 426.14 tonnes, so from these sources alone China will have absorbed 1,354.1 tonnes of gold. But these are not the only sources of gold imports. China also imports gold directly to the mainland from the U.K. , USA and Australia to name but three, which all publicise these figures, but for which full year 2017 figures are not yet available - and undoubtedly from other unpublicised sources as well. (Anecdotal evidence suggests that China also imports some gold directly from Russia.) So if all this additional gold is not being ‘consumed’ by China what is happening to it.
We can thus estimate ‘other’ gold shipments direct to mainland China at 100-200 tonnes plus annually and there’s no allowance here either for consumption from scrap sources. It would thus not be unreasonable to put China’s gold ‘absorption’ at at least 50% above the CGA’s gold consumption figures – probably quite a bit higher.
The other possible figure for Chinese annual gold consumption which comes to mind is the Shanghai Gold Exchange gold withdrawals figure for the year. This totalled 2,030.5 tonnes in 2017 and some official assessments of Chinese gold demand have equated the overall Chinese consumption figure to the level of SGE withdrawals, which would not seem out of place as a possible totalling of overall gold imports plus China’s own production plus supply from scrap sources. But whichever way one looks at the figures the CGA’s gold consumption figures are certainly well below what we have referred to above as Chinese gold absorption.
It has been stated that the anomaly between the CGA ‘consumption’ figure and the total of imports plus China’s own production is due to gold being taken into the banking/financial sector and thus not being treated as ‘consumption’ per se. But the higher totals we are showing undoubtedly represent gold flows absorbed by the Chinese and are certainly more appropriate to be used in trying to assess global gold movements and what is actually being taken out of the overall market than the CGA’s consumption figures alone.