China Not Only Imports Gold Through Hong Kong
There are some gold analysts that create presumptions about Chinese gold demand by looking at how much gold Hong Kong net exports to the mainland, as if the mainland only imports gold from Hong Kong. I think this a misconception; just because China doesn't officially disclose their gold trade numbers doesn't mean they only import gold through Hong Kong.
The mainland has 22,117 kilometers (13,743 miles) of border, and I can't think of one reason why gold could not enter through ports located anywhere at the border. To give you a small example, this is an article from the China Gold Association which reports on gold ore imports from Kazachstan in 2012.
Translated by Soh Tiong Hum:
Gold Ore Imports Surge Through Port Of Alashankou, Xinjiang
Between January and September 2012, 16,800 tons of gold ore worth USD 6.5 million entered Alashankou, Xinjiang port of entry, an increase of 1173 % over the same period in 2011. The sharp increase in volume is mainly due to rise in gold price and an increase in profit margin for imported inferior gold ore. China maintains its strong emphasis on the import of resource commodities and provides enterprises with encouraging policies. In the meanwhile port of entry inspection units and transport departments take convenient and speedy measures to ensure that goods clear customs quickly, in turn lowering cost of logistics. In the same year, the port commission attracted investments in a gold ore processing plant and a gold smelter so as to value-add to imported gold ore thereby increasing demand for the raw material.
Alashankou (A on the map) in the Xinjiang province is the main port from Kazachstan to China. 16,800 tons of gold ore is approximately 4000 ounces of fine gold, not much. However, it's an example of the Chinese buying all the gold they can get their hands on. If you read the website of the port Alashankou it states the import of metal ores is still increasing. Gold is not only coming in through Hong Kong, it can be imported from anywhere. CME started to recognize this in September 2013:
The vast majority of bullion inflows into China emanate from Hong Kong which still serves as the main conduit into the mainland and often serves as a proxy for Chinese demand (although direct imports through Shanghai are increasing).
According to my findings the best way the calculate China's total net gold import is by taking SGE withdrawals as a reference, read this for a full analysis.
In 2013 the exact amount of gold withdrawn from the SGE vaults was 2197 tons. This can only have been supplied by domestic mine production (430 tons), scrap (200 tons, my guess) and import. So..
Import = 2197 – 430 – 200 = 1567
China roughly (because I cant be sure on the scrap number) has imported 1567 ton of gold in 2013.
Some news outlets have been reporting on falling net imports by China in November, from 130 tons in October to 61 tons in November, thereby suggesting demand is fading.
This suggestion ignores the fact that the mainland doesn't exclusively import gold from Hong Kong. It's true that most of China's gold imports emanate from Hong Kong, but this is not an accurate reflection of Chinese demand. Let's have a look at the next chart.
We can see big differences between the red line (SGE withdrawals = Chinese demand) and the height of the blue bars (all known supply). The gaps had to be filled by additional import (illustrated in November on the chart). Note, Honk Kong trade numbers from December haven't been released yet.
By looking at SGE withdrawals we can see that demand hasn't been dropping since October, au contraire, it has increased! From 139 tons in October, to 168 tons in November, reaching 218 tons in December. Chinese demand for physical gold was clearly visible on retail level around new year when there was a national shopping spree which I reported on here. The upward trend continues in January; 99 tons of gold were withdrawn from the SGE vaults in the first 10 days of 2014. One of my sources in the mainland notified me on scarcity in storage capacity for consumers, January 7:
HSBC, Bank of China, Dah Sing Bank, Bank of East Asia, Shanghai Commercial Bank, ANZ, Citibank and Hang Seng Bank; NONE have available Safe Deposit Boxes – all occupied and there is a waiting list.
Having said that, lets quickly go through to the other numbers from the Hong Kong Census and Statistics Department on gold trade up until November, as this is still valuable information.
For clarity, the following charts are all based on trade numbers from Hong Kong. With these numbers we know how much gold ends up in Hong Kong itself (import minus export) and how much gold Hong Kong trades with other countries (net import or export). The “China net inflow charts” are only about the amount of gold that China mainland net imports through Hong Kong.
Hong Kong net exported 1017 tons of gold to the mainland in 11 months.
Hong Kong itself net imported 573 tons of gold in 11 months. I hope I can write more on this in the future because there is mainland demand hidden in these numbers.
Hong Kong net imported 66 tons from Switzerland in November, down from 85 tons in October, – 22 % m/m. A second monthly decrease, this could signal that the main vein (the gold route from the UK to Shanghai) is drying up. Year to date (nov-2013) Switzerland has net exported 848 tons of gold to Hong Kong.
From January – November Hong Kong and the mainland net imported 1590 tons.
In Gold We Trust