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Koos Jansen

Koos Jansen

Koos Jansen is a precious metal analyst from the Netherlands. Koos
mainly provides unique insights about Chinese gold market.

An Insight Into China’s Gold Hoarding Strategy

  • Date
  • Author Koos Jansen

This article appeared in Qiushi magazine (August 2012), the main academic journal of the Chinese Communist Party’s Central Committee. Sun Zhaoxue, president of China National Gold Corporation, explains why China needs to ramp up its gold reserves.

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Build a strong China’s economic and financial security barrier – Actively build and implement national strategies gold


Published: at 9:00 on August 1, 2012
Source: “Seeking Truth" Issue: 2012/15

Gold because of the intrinsic value of a stable, both national credit currency cornerstone of global strategic resource. Throughout the world economic power, without exception, at the national level to develop and implement a strategy for gold. China is the world’s second largest economy, to be in a relatively short period of time quickly enhance the core competitiveness, an important aspect is that the scientific construction of gold exploration, production, trade, consumption, and investment integration policy system, for this strategy to strengthen national resource control, thus effectively in the globalization process to safeguard national economic and financial security, and enhance the ability to resist external shocks that.

First, from a strategic height rediscover the status and role of gold reserves

In the 1970s, after the disintegration of the Bretton Woods system, the implementation of the collapse of the previous century gold standard, gold dollar hegemony under the influence of a stabilizing effect on the economic and financial widely questioned by the people, “Golden useless" start spreading around the world. Many people think that gold is no longer the monetary base, will increase gold reserves storage costs. Therefore, some central banks began to sell gold reserves, gold prices continued to slump. Affected by this point of view, China’s the world’s largest gold producer, began a trend of slow growth in gold reserves.

Indeed, since gold has been found in humans, it is because of its good stability and scarcity, become exchange value of labor reserves scales and an important means of wealth. With the deepening global economic integration, as an important international reserve asset, gold in a stable socio-economic and prevent inflation, improve the national credit, exchange rate stability, etc., but also with other financial assets irreplaceable special status. Especially since the outbreak of the international financial crisis, gold’s safe-haven against inflation increasingly prominent, and its strategic position in the reserves of wealth to regain world attention, net purchases of gold by central banks begin. Currently, there are more and more people realize that the “golden useless" contains too many lies, in fact, owns 74% of the world official gold reserves of the United States, in order to suppress the other currencies in order to maintain dollar hegemony designed a " Smoke. " Tracing the source, the U.S. dollar and British pound, and later the euro currency has been able to rise from a single country or region of the world currency, because these countries are huge gold reserves do support.

Especially noteworthy is that in the course of the international financial crisis, the United States appeared to huge deficits, but it is not utilized gold reserves to reduce debt, but printing money to increase the supply of dollars to make it massive devaluation, so that those U.S. dollar as the main reserve currency countries and regions rapidly shrinking wealth, so as to achieve the purpose of the automatic debt reduction. Sharp depreciation of the U.S. dollar in stark contrast, the international price of gold continued to rise in 2011 exceeded $ 1,900 / ounce, gold assets should be preserved function and depreciation of assets for credit risk hedging functions vividly. Naturally, the more devalued dollar, gold prices rose more, America’s huge gold reserves, hedging becomes. Although the seat of the international financial crisis in the United States, but the crisis failed to shake the dollar’s status as an international currency, U.S. net wealth did not appear with the same degree of depreciation of the dollar’s decline, an important reason why the United States 8,133 tons of gold reserves play a role. In the global financial crisis, countries in the world political and economic game, we once again clearly see the gold reserves as financial stability, national economic security “anchor" special important role.
After 30 years of reform and development, China has become a highly open countries, not only with the world economy with the cold, but the pattern of changes in the world economy is playing an increasingly important role. Therefore, in order to win after the international financial crisis brought about new changes and new challenges, especially in effectively promoting the process of internationalization of the RMB, China’s huge economies of scale not only have the support, but should also have the gold reserves can not be ignored as an important parameter efforts to achieve gold reserves and reasonable proportion of total economic output. This requires us to scale the gold reserves were prospectively judged as soon as possible to build and implement the scale of China’s economic development strategy is suitable national gold.

Second, efforts to increase domestic resource integration is our main channel to increase gold reserves

Because gold is a monetary nature, either from the protection of national economic security, or from accelerating the process of RMB internationalization perspective, increase its gold reserves should become a central pillar of our development strategy one. International experience shows that the average country, gold ownership accounted for 10% of foreign exchange reserves in order to safeguard financial stability in the economy while achieving high efficiency. Currently, the United States, France, Italy and other countries the proportion of foreign exchange reserves, gold reserves were accounted for around 70%. Entering the new century, our country in 2001 and 2003 to increase its gold reserves from 394 tons to 500 tons and 600 tons, after the outbreak of the international financial crisis has increased 1,054 tons, but the ratio of foreign exchange reserves of gold reserves still account less than 1.6%, the disparity with the developed countries.

Of course, due to the large foreign exchange reserves in the short term is difficult as the United States and Europe, as foreign exchange reserves of gold reserves to become the main channel. Especially in the current international price of gold hit record highs, but also increased the difficulty of increasing gold reserves. Scenery long vision, we need to develop a clearer strategy for national gold, from the long-term interests, the full use of the two markets and two resources, gold reserves continued to expand the scale, and gradually became one commensurate with its economic strength of the country’s gold reserves . Look from the current conditions, in addition to choose the gold reserve increase through the international market, the implementation of the national strategy for the main channel of gold should increase domestic gold resource integration efforts, through increased gold production and rational use of reserves to do large-scale, build a strong all-round in the process of opening the country’s economic and financial “breakwater."

In the new century, under the guidance of scientific concept of development, China’s gold industry ushered in a period of accelerated development, in one fell swoop get rid of the “poor gold country" hat. From 2007 to 2011, China’s gold production for five consecutive years, ranking first in the world, and established a complete industrial system of gold, effectively supporting the national gold strategy. But together, the current China’s gold industry, there are still many shortcomings, such as mining generally smaller scale, less proven reserves, mining dispersed in resource utilization, development order, environmental protection and other aspects of uneven development, mining enterprises are mostly small Scattered other problem is particularly prominent. Statistics show that in 2011 China’s gold mining counties and regions, more than 500, a total of more than 700 gold mines, the average yield per seat is only 0.5 tons. The world’s largest gold producer Barrick Gold Corporation of Canada, 2011 gold production reached 239.5 tons.

To address this situation, in recent years, China is also increasing gold resource integration efforts. However, due to long-standing lack of development of gold resources on strategic planning, and in recent years gold “bull market" will bring wealth illusion, a variety of aspects of social capital have been involved in mining. To fundamentally solve these problems, the state will need to upgrade to gold and oil and energy are equally important strategic resource perspective and from the whole industry chain to develop industry development planning and resource strategies. First, we must strictly trade access, from a technical, financial, security, environmental protection and other areas to improve the access threshold for exploration and development of gold, the gold from the source to improve the efficiency of resource development; Second, to further improve the mining management, increase resource integration efforts, further develop and expand the main gold exploration and development, and promote enterprises to focus resources on competitive, achieve economies of scale; Third, we should encourage the international competitiveness of key enterprises to participate in international division of labor, to avoid domestic industry concentration is low due to the loss of our country in the world gold market should have the right to speak.

In addition, as the national gold reserves system is an important component of our country should also encourage individual investment demand for gold. Practice has proved that folk national reserves of gold reserves is an effective supplement for the maintenance of national financial security is very important. World Gold Council statistics show that China’s civil less than 5 grams of gold per capita, with more than 20 grams compared to the global average gap significantly. This shows that China’s gold reserves space for civil society and potential.

Three, committed in the implementation of the national strategy for positive and promising gold

Formed in early 2003 China National Gold Group Corporation, China’s largest gold both production and marketing enterprises, but also the only gold industry central enterprises. 10 years, under the guidance of scientific concept of development, China National Gold Group always adhere to the stronger and excellent business and guard against financial risks, the service overall national situation as a top priority, is committed to promoting China’s gold industry from exploration, mining, processing, consumption and investment all the coordinated development of the industrial chain for the healthy development of China’s gold market and the effective implementation of national strategies gold made its due contribution. In 2012, China National Gold Group’s total assets will be more than 60 billion yuan, sales revenue will exceed 100 billion yuan. Currently, the Group has a daily processing capacity of 150,000 tons of ore, business scope covers the entire gold chain, has grown into China’s gold industry leader. Currently, the gold in building national strategy, we should effectively assume responsibility for the central enterprises to actively play a leading role in efforts to build a gold industry and stable development of the national economy an important support.

Implementation of technological innovation, promoting industrial upgrading gold. “Twelve Five" period, we will target the gold industry, cutting-edge technology, continue to increase investment in science and technology, the implementation of technology-driven strategy to promote the optimization and upgrading of the gold industry. At present, China National Gold Group has three R & D projects selected “Twelve Five" National Science and Technology Support Program, and commissioned by the Ministry of Science and become a “green large gold mining, processing technology research and demonstration" feasibility study project organization and management units. “Twelve Five" period, China National Gold Group to play a good role in promoting major research projects, through independent innovation and integrated innovation, efforts to address the constraints of gold exploration, mining, smelting and other areas of industry challenges, and continuously improve the comprehensive development and utilization of mineral resources capability. Meanwhile, we should focus on projects as an opportunity to revitalize the national equipment manufacturing industry as its mission, to explore mining companies and equipment manufacturers “win-win" model of cooperation, actively supports localization of major equipment, mining equipment manufacturing industry to promote the continuous improvement of independent innovation capability .

Commitment to national responsibility, increase national reserves of gold resources. “Twelve Five" period, China National Gold Group must firmly grasp the lifeline of resources to exploration and reserve, merger integration, base construction, development of offshore gold resources, to accelerate the national gold resource reserves. On the one hand, we should make full use of their own research and talent advantages, concentrated talent, capital and equipment to carry out prospecting Conference battle to fight in a short period of time to maximize the level of reserves of gold resources; hand, we should actively seek local government support, greater integration of resources within the region, multi-point breakthrough, scientific development, efficient development, as soon as possible to solve China’s gold industry, “small, scattered, partial, far" brought low resource utilization, environmental damage and serious problems. Recently, the China National Gold Group in the domestic production base planning 20 gold, based on accelerating the integration of small mines around the base of the progress towards the early completion of a number of technologically advanced, energy-saving and environmental protection, with an annual output of 3-8 t gold benchmark for corporate . At the same time, actively implement the “going out" strategy, development of overseas resources, broaden the channels of China’s gold resource reserves.

Advocate “the gold of the people", and guide the healthy healthy development. In recent years, China’s gold market has developed very quickly, both for gold to play a variety of functions to create favorable conditions for the industry to accelerate development opened up a vast space. China National Gold Group to seize the favorable opportunity to expand the supply of scale, while vigorously promote the implementation of the “golden people" strategy, and actively extend the industrial chain, increase in gold investment products, to encourage and guide people to rational investment, reasonable consumption. At present, it is important to fully utilize nearly 1600 “Chinese gold" stores, by broadening the marketing channels, improve the marketing network, and strengthen brand promotion and other measures, the practical realization of “the gold of the people", “possession of wealth to the people," the prime strategic objectives.

Currently, the world economic turmoil and instability are still accumulating, uncertainty also increases. Faced with many new changes in the world economy, new challenges and new opportunities, we rediscover the gold from a strategic position and role, early gold to build and implement national strategies to enhance our ability to deal with complex situations. Also the only way to promote the scientific development of China’s gold industry and accelerate the power of gold from gold power to leap.

(Author: China Gold Group Corporation, China Gold Association)

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