As China doesn’t publicly disclose how much gold it imports, we have to
combine the foreign trade statistics from all large gold exporting
nations to figure out how much is flowing to China. The second
largest gold producer in the world is Australia with an annual
production of 270 tonnes, according
the US Geological Survey. The majority of Australia’s mine output is
exported.
When it comes to Australia’s net gold export to China we’ll have to do
some analysis, simply subtracting import from export won’t work in this case.
Strangely, Australia discloses gold shipments as “export to China” even when
it’s transferred via Hong Kong. Implying Australia records its gold export by
country of destination, not the first stop, which is not common to my
knowledge. To offset any double counting – Australia gold export to China
plus Hong Kong gold export to China – we need to cross-check foreign
trade statistics.
Let’s compare data from COMTRADE on Australia’s gross gold export to Hong
Kong with data from the Hong Kong Census And Statistics Department on Hong
Kong’s gross gold import from Australia. Normally, these two data
sets would be equal. But they’re not. Have a look at the chart
below.
Exhibit 1.
Australia reports to export a lot less to Hong Kong than Hong Kong reports
to import from Australia. I should mention these mismatches are not
unusual in global gold trade, though in this instance there is an
obvious explanation.
When we compare data from COMTRADE on Australia’s gross gold export to China
with data from the Hong Kong Census And Statistics Department on Hong Kong’s
gross gold import from Australia, remarkably we can see matching values in
nearly all months until January 2015. Have a look at the chart below (please
focus on the months until January 2015 for now).
Exhibit 2.
At this point we can conclude that Australia (COMTRADE) disclosed gold
shipments as “export to China” from January 2013 until December 2014 even
though these first arrived in Hong Kong. How do we know the exports from
Australia to Hong Kong were re-exported to China mainland (the SGE system)?
Because Australia does make a difference between Hong Kong and China
for its gold export, it just doesn’t reveal the transfer. If Australia’s gold
export to Hong Kong wasn’t re-exported to China mainland after its ‘initial
arrival’ Australia would not have disclosed the trade as “export to China”,
but as “export to Hong Kong” or “export to XXX”.
By the cross-check presented above we have established all
gold Australia exported to China from January 2013 until December 2014 was
shipped via Hong Kong. Subsequently, if we would add Hong Kong’s “export to
China” to Australia’s “export to China”, in order to compute Chinese gold
import, this would result in double counting.
At least for the past decades Hong Kong has been the main entry point for
(non-monetary) gold into China. This changed early 2014 when China openly
stated to stimulate direct gold imports from all over the world, bypassing
Hong Kong. Soon after, we’ve witnessed the birth of direct gold export
to China from the UK:
Exhibit 3.
The strategic move from Beijing to stimulate direct imports was also
mentioned on Chinese state television channel CCTV in early 2014, in the clip
below starting from 1:30.
Whenever Australia exported gold to China mainland before 2014 it was shipped
via Hong Kong (see exhibit 2). After early 2014 gold
exports from Australia to China could travel directly. Tellingly, what
Australia (COMTRADE) reported as “export to China” since January 2015 has
exceeded what Hong Kong reported as “import from Australia”. According
to my analysis the difference reflects what Australia has directly exported
to China mainland. In exhibit 2 we can see that for the
months after December 2014 Australia’s direct gold export to China increased.
By subtracting Hong Kong’s “import from Australia” from Australia’s
“export to China”, what remains is what Australia directly exported to China,
which is the figure we were looking for. (By and by, Australia’s
gross import from China and Hong Kong is close to nil.)
From the data shown in exhibit 2 we can compute Australia
directly net exported 61 tonnes of gold to China mainland In the first 7
months of 2015.
