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Zheng Bijian, a leading Chinese intellectual and reformer
said: “The most important strategic choice the Chinese made was to
embrace globalization.”
China has made a new most important strategic choice –
Asian Regionalization.
“In the past few years, both Chinese and foreign
analysts began to reach the conclusion that China has developed a fairly
consistent and coherent grand strategy… Because economic development is taken
as the only way for tackling all the pressing challenges that China is facing
and will face, China’s grand strategy must serve the central purpose of
development. Therefore, the central objective of China’s Grand Strategy in
the past two decades (which may well last to 2050) can be captured in just
one sentence: to secure and shape a conducive environment (security,
economic, and political) so that China can concentrate on its development
(economic, social, and political).” Tang Shiping
and Zhang Yunling, China’s Regional Strategy
Today, trade with the United States, the European Union
and the rest of the West is not the priority it use to be for China. Today
the SCO (aka the Asian NATO), chaired by Russia and driven by China, has been
ramping up its attention towards expansion and economic cooperation among its
members.
That little nugget of information is going to have
huge consequences for gold’s price. Let me explain.
Shanghai Cooperation Organization
Originally founded as the ‘Shanghai Five’ in 1996 it was reformed
as the Shanghai Cooperation Organization (SCO) with the addition of
Uzbekistan in 2001. The SCO is now an economic and security cooperation group
consisting of six Central Asian countries: China, Kazakhstan, Kyrgyzstan,
Russia, Tajikistan and Uzbekistan.
Afghanistan, India, Iran, Mongolia and Pakistan are
observers while Belarus, Turkey and Sri Lanka are dialogue partners. India,
Pakistan, and Iran will become new members in 2015.
At the end of 2013, the bloc had a combined economic
output of over 11 trillion U.S. dollars - representing 14.9 percent of the
global total.
The SCO seems to be completely off gold investor’s
radar screens. It definitely shouldn’t be because China (and Russia’s)
goal is to ‘create an Asian security architecture independent of the
United States and its allies.’
But the SCO, as China envisions it is so much more than
just security - China is going to mould Genghis Khan’s old stomping ground
into a new economic bloc. A single cohesive market with a shared security
blanket that will eventually encompass over four billion people.
The infrastructure and economic corridors have already
been planned for and in many cases have been successfully implemented and
built…
“Last year, China devised a ‘New Silk Roads’ policy
to enhance connectivity with neighbouring countries. This policy has two
components: a ‘Silk Road Economic Belt’ for land connectivity initially with
Central Asia and a ‘21st century Maritime Silk Road’ to connect China with
ASEAN and, ultimately, with the coastal cities of South Asia as well.
China’s actions have led to the revival of the
Northern Silk Road. Cities in inner provinces such as Kunming, Chongqing,
Chengdu, Xi’an and Xining have emerged as major metropolitan cities with
urban infrastructure projects paralleling those in coastal areas. China has
built an east–west railway line to connect far-flung cities like Urumqi and
Kashgar to Xi’an and the coastal cities. This railway line has been extended
to Moscow, using Central Asia as an economic corridor, and then on to
Duisburg (in Germany) to become the China–Europe railway line. East–west
pipelines such as the Kazakhstan–China and Central Asia–China pipelines have
also been built.
In conjunction with India, which is actively
implementing its ‘Look East’ policy, China is building the BCIM Economic
Corridor to connect the Yunnan province of China with Myanmar, Bangladesh and
India. This is an important segment of the less well-known Southern Silk
Road.
In June this year, the Chinese Ambassador to New
Delhi, Wei Wei, proposed the establishment of a ‘Trans-Himalaya Economic
Growth Region (THEGR)’ to promote the interconnection and joint prosperity of
China and India and neighbouring countries. As with many such proposals from
China, details are not known as yet. Nonetheless, the proposal is welcome as
it addresses an important missing link in connectivity in the region.” eastasiaforum.org
Silk Road Economic Belt, Maritime Silk Road
In May of 2014 China’s state-owned Xinhua News Agency
unveiled an ongoing feature entitled “New Silk Road, New Dreams.”
“According to the map, the land-based “New Silk Road”
will begin in Xi’an in central China before stretching west through Lanzhou
(Gansu province), Urumqi (Xinjiang), and Khorgas (Xinjiang), which is near
the border with Kazakhstan. The Silk Road then runs southwest from Central
Asia to northern Iran before swinging west through Iraq, Syria, and Turkey.
From Istanbul, the Silk Road crosses the Bosporus Strait and heads northwest
through Europe, including Bulgaria, Romania, the Czech Republic, and Germany.
Reaching Duisburg in Germany, it swings north to Rotterdam in the
Netherlands. From Rotterdam, the path runs south to Venice, Italy — where it
meets up with the equally ambitious Maritime Silk Road.
 
The Maritime Silk Road will begin in Quanzhou in Fujian
province, and also hit Guangzhou (Guangdong pronvince), Beihai (Guangxi), and
Haikou (Hainan) before heading south to the Malacca Strait. From Kuala
Lumpur, the Maritime Silk Road heads to Kolkata, India then crosses the rest
of the Indian Ocean to Nairobi, Kenya (the Xinhua map does not include a stop
in Sri Lanka, despite indications in February that the island country would
be a part of the Maritime Silk Road). From Nairobi, the Maritime Silk Road
goes north around the Horn of Africa and moves through the Red Sea into the
Mediterranean, with a stop in Athens before meeting the land-based Silk Road
in Venice.
The maps of the two Silk Roads drive home the
enormous scale of the project: the Silk Road and Maritime Silk Road combined
will create a massive loop linking three continents. If any single image
conveys China’s ambitions to reclaim its place as the “Middle Kingdom,”
linked to the world by trade and cultural exchanges, the Xinhua map is it.
Even the name of the project, the Silk Road, is inextricably linked to
China’s past as a source of goods and information for the rest of the world.
China’s economic vision is no less expansive than the
geographic vision. According to the Xinhua article, the Silk Road will bring
“new opportunities and a new future to China and every country along the road
that is seeking to develop.” The article envisions an “economic cooperation
area” that stretches from the Western Pacific to the Baltic Sea.” Shannon Tiezzi, China’s ‘New Silk Road’ Vision Revealed, The
Diplomat
Asian Infrastructure Investment Bank
China and 20 other Asian countries have signed a
memorandum of understanding (MOU) to establish a new multilateral development
bank, the Asian Infrastructure Investment Bank (AIIB). The AIIB was proposed
by China and is considered to be a serious challenge to the World Bank and
the Asian Development Bank (ADB),
China, who will be the largest shareholder with a stake
of up to 50%, will also provide the AIIB’s first president - the bank’s
headquarters will be in Beijing.
The AIIB will serve China well by:
- Helping China invest a large part of
its foreign exchange reserves (US$3.9 trillion) on commercial terms.
- Playing a vital role in the
internationalization of the yuan.
There are many Asian countries that have a significant
and unmet need for infrastructure investment to lay the foundation for
long-term economic growth. The AIIB acts as a complement to China’s already
existing and rapidly increasing bilateral development financing.
The 21 member countries of the new Asian Infrastructure
Investment Bank are: Bangladesh, Brunei, Cambodia, China, India, Kazakhstan,
Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the
Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam.
By fostering growth and encouraging cooperation between
OSC members, and future members, by establishing a development/infrastructure
orientated bank and by developing its Silk Road Economic Belt as well as the
Maritime Silk Road with other Asian states, China will place itself in a much
stronger position (as the Asian heavyweight) to lead in the ‘Asian century.’
Internationalization of the Chinese currency
“Since the late-2000s, the People's Republic of China
(PBC) has sought to internationalize its official currency, the Renminbi
(RMB). The RMB Internationalization accelerated in 2009 when China
established dim sum bond market and expanded Cross-Border Trade RMB
Settlement Pilot Project, which helps establish pools of offshore RMB
liquidity. By 2013, the RMB is the 8th most traded currency in the world. As
of May 2014[update], 1.47% of world
payments was settled in RMB, which ranked RMB as the 7th most traded currency
in the world.” Wikipedia
From The Diplomat we get the following…
“…China’s global integration is no longer limited to
trade, but is fast spilling over into the realm of finance.
The establishment of the Shanghai FTZ is expected to
provide a boost to the city’s ambitions of becoming a full-fledged
international financial center by 2020. While the FTZ was formally approved
in August this year, the draft plans pointing towards full convertibility of
the RMB within Shanghai were revealed more recently. This comes on top of
other plans to liberalize trade, interest rates and the establishment of
foreign and joint venture banks in the Shanghai FTZ. Already, foreign banks
such as HSBC, Standard Chartered and Citibank have expressed interest in
setting up branches in the Shanghai FTZ.
Importantly, the success of allowing RMB
convertibility within the Shanghai FTZ will enable the Chinese government to
gradually liberalize the RMB at the national level. This is in line with its
plans to make the RMB a global reserve currency, with Shanghai potentially
becoming a major center for RMB trade. However, plans to liberalize currency
controls within the Shanghai FTZ are merely part of an overarching RMB
strategy.
As early as 2004, China had tapped Hong Kong to
become an offshore RMB center, designating the Bank of China Hong Kong as an
RMB clearing bank. This was followed by announcements in 2009 that London
would follow suit. By mid-2012, both Hong Kong and London had become offshore
RMB centers catering to a variety of institutions and enterprises. Singapore
was next in 2013, with the Industrial and Commercial Bank of China designated
as the RMB clearing bank in the city-state. Plans to liberalize currency controls
within the FTZ suggest that Shanghai will become the fourth city to
facilitate the RMB’s internationalization, albeit as an onshore center.
Through the establishment of the three offshore RMB
centers and full RMB convertibility in Shanghai, China can now encourage RMB
use in several key markets. First, London provides an important bridge to
European markets. Similarly, Singapore connects the emerging Southeast Asian
economies to RMB funds and trade settlements. Given Hong Kong’s highly
internationalized financial sector, it plays a particularly important role in
connecting China to the rest of the world. This is a role that will be shared
by Shanghai, with its pending emergence as an international financial center.
As such, these four cities represent nodes through which China can expand its
participation in global financial markets and encourage RMB trade and use.”
The first ever Renminbi sovereign bond will be issued by
the UK Treasury.
The International Monetary Fund (IMF) is going to review
the composition of its Special Drawing Right (SDR) monetary unit. It’s very
possible that since the Chinese currency has met a sufficient number of
standards for convertibility it will be become one of the constituent parts
of the SDR, joining the dollar, the euro, yen and sterling.
Golden Dragon
In 2013 China was officially crowned the world’s largest
gold market
accounting for around a third of global gold demand.
Consumer demand soared 32 percent to 1,066 tonnes (up 160% from five years
ago) of gold in the form of bars, coins and jewelry topping India’s 2010
record of 1,007 tonnes.
Note - India has once again overtaken China as the
world's biggest gold consumer, buying 225.1 tonnes of gold jewellery, coins
and bars Q3 2014, compared to 182.7 tonnes in China.
China is the world’s top producer of gold, mining 437
tonnes in 2013, with the largest annual increase globally for 2013. Gold
production in China, over the last decade, has more than doubled as the
country produced 6,827,000 ounces of gold in 2004. In 2014, gold production
estimates are expected to be around 14.5 million ounces. The Chinese keep all
of the gold they mine and the export of gold bullion is banned.
SGE & CGSE
The Shanghai Gold Exchange (SGE) was launched in
September 2014 inside the city’s free-trade zone. The Chinese government
backed SGE offers yuan-denominated contracts backed by gold held in Shanghai.
The SGE currently has a network of 58 certified vaults, 55 of which are for
storing gold and three that store silver.
The Shanghai Gold Exchange launched its International
Board gold trading platform Sept. 29, 2014.
Forty members, including global banks UBS, Goldman Sachs,
HSBC and Standard Chartered, will participate in trading eleven yuan
denominated physical gold contracts including: 12.5 kg (400 oz) bar, 1 kg bar
and a 100 gram contract.
The Chinese Gold and Silver Society (CGSE) has received
permission from the Chinese government to build a new precious metals vault
in Qianhai. The CGSE is the first non-mainland entity to be given such
permission. The CGSE’s vaulting facility will have a 1,500 tonne capacity and
will be completed by late 2016 or early 2017.
“Singapore continues its push to be a global gold
hub. Further details emerged on the weekend about the planned
launch by Singapore of a new 1kg physically deliverable gold contract for the
Asian wholesale gold market.
This new gold contract differs from others in that as
well as acting as a price discovery benchmark for 1kg gold bars in the Asian
region, it has been specifically designed to actually deliver gold to
wholesalers, because settlement of the contract is in gold 1kg bars and not
in cash. A 1kg gold bar is 32.15 troy ounces.
The Singapore contract will be in lots of 25 kgs,
denominated in US dollars, and it will trade for three hours in
the Singapore morning time. Singapore is 7 hours ahead of London and 12 hours
ahead of New York, and 2.5 hours ahead of the Indian market, but is in the
same time zone as both Hong Kong and Shanghai.The US based CME Group who run
the Comex gold futures exchange in New York and also host the new LBMA Silver
Price auction in London have also announced plans for a new 1kg gold product
in Hong Kong.
The CME’s new Hong Kong 1kg product is a US dollar
denominated gold futures contract. It will trade on the Comex in New York and
not in Hong Kong, but it will be settled and deliverable in Hong Kong at
exchange-approved vaults. This is significantly different to the SGX
physically deliverable 1kg gold contract in Singapore.” SprottMoney
The following graph show where Switzerland’s (Switzerland
is a global hub for gold refining, with more than two-thirds of global gold
transiting through the country) gold comes from and where it goes.
Kingworldnews.com
A great percentage of the West’s gold has hemorrhaged
East and continues to do so. The top five countries getting mostly U.S &
UK gold out of Switzerland are Hong Kong, China, India, Singapore and Saudi-Arabia.
Asia accounted for 63 percent of total consumption of gold jewelry, bars and
coins last year, up from 57 percent in 2010.
China is also importing massive volumes of gold from Hong
Kong.
Per capita gold holdings in China are five grams compared
to a developed nation 20 gram average.
Conclusion
China’s commercial, economic and financial focus is now
centered on Asia.
“Beijing has learned to incorporate regionalization
as an effective approach and embrace regional institutions as important
platforms to advance China’s economic, political and strategic interests.
Regionalization now plays an increasingly significant role in China’s overall
foreign policy strategy that aims to maintain a peaceful and stable
environment for its long=term economic development.” Dr. Emilian,China and the Global Politics of Regionalization
A regional currency is needed, in Asia gold is synonymous
with money so China makes all the moves necessary to dominate the global gold
market.
The internationalization of the Chinese currency means
acceptance on a global scale.
FACT -The
importance of gold as an investment, and as a backing to its currency, is
being signaled by the Chinese authorities.
FACT - When
China succeeds in establishing a Chinese Asian gold standard, it will propel
gold prices to new heights.
China and the SCO, while rejecting western dominated
financial institutions and a U.S. inspired status quo, are increasingly
embracing a regional coordination of Asian economic and security concerns. An
Asian gold standard should be on all precious metal investors radar screens.
It’s on my screen, is it on yours?
If not, maybe it should be.
_________________________________________________
Richard lives with his family on a 160 acre ranch in
northern British Columbia. He invests in the resource and
biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com.
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Richard Mills has based this document on information
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independently verified.
Richard Mills makes no guarantee, representation or
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