Gold is big in China

From the right side blog:

With Chinese stock markets in a down phase which has caused a near 50% drop from last October, with banks paying almost no interest on savings accounts (moreover subject to income tax), Chinese are looking for new ways to make or preserve wealth. One is real estate.
The purchase of condominiums in Chinese cities is booming, with options across all levels and lots of speculative buying. I will write about real estate later.
By tradition, you invest in bricks of oolong tea to preserve your wealth. These bricks last for decades and can be traded. Like fine wines, older bricks command a premium. But a more tempting way to store value is gold.
Chinese people used to love gold. When Lily Liu was born in Shanghai in the 1930s, her mother rubbed two mung bean to numb her ears, and then made a hole (“eye”) in her ears with a needle. Then, girls all wore gold earrings, not only to exorcise evil spirits, but also as a symbol of family wealth. In the 1930’s, Shanghai was one of Asia’s major gold trading centers. Lily’;s family were not particularly rich and she worked in a factory as a clerk.
When Lily reached the age want to wear gold jewelry, nobody wore any and none was for sale under Mao. Lily, while formally a Communist, buried her gold earrings which her granddaughter Ellen, 31, now aspires to inherit. Ellen’s other grandmother, a landlord’s daughter and not a Communist, had to give up her jewelry during the Cultural Revolution.
To not let her ear “eyes” close, Lily often used a needle to keep the holes open. In the 1980s, she finally could put on her gold earrings again, and she also acquired other jewelry, all pure (24K) gold. But while she cherishes her jewelry, she knows that even pure gold jewelry in re-sale can lose money.
After 2001, China became the 4th biggest gold consumer market after India, the U.S., and Saudi Arabia. In China, gold jewelry accounts for 96% of the overall gold market. A large-scale survey of Chinese in 10 big cities showed that 80% of them purchase jewelry for decoration and only some 11.1% for storing value.
Contrast Japan, where only 20% of gold is bought for decoration or jewelry. After 1949, gold trading was suppressed by Beijing for over 50 years. Mao in 1950 turned over the management of gold and silver to the People’s Bank of China. It alone was allowed to purchase precious metals. This froze the popular gold business.
In 1963, China furthermore stopped supplying raw gold for making jewelry. Exports of gold and silver were blocked.
So the Chinese and gold were separated for almost 40 years.
In 1999 China opened the silver market. In 2001, China cancelled the gold fixed rate set by People’s Bank of China, and implemented a weekly market price tracking international markets. In 2002, the
People’s Bank of China authorized 4 large banks to perform services to the gold industry: gold spot transactions; gold transaction overview; gold project financing; gold material completion; gold lending and borrowing; gold purchase; and setting up retail gold investment products for sale to Chinese residents.
In 2002, the Shanghai Gold Exchange opened on the Bund and China Foreign Currency Trading Center officially began. On day 1 there were 98 transactions for 540 kilograms, valued at 45.08655 mn Yuan ($5.4584 mn). A recemt survey showed that 40% of Chinese families with income over 3,000 Yuan want to buy gold.
Gold is not what it was in Lily’s childhood. Since Deng Xiao Ping, Chinese are encouraged to seek wealth. But money is surrounded by lots of superstitions. Chinese love the number 8 because it sounds like the word for “rich” and hate the number 4 because it sounds like “death”. Just aas my NY apartment buildign lacks a 13th floor, many Chinese buildings don’t ahve a 4th floor. Feng Shui superstituions keep doors and windows from being aligned (lest the wealth fly away); but they also make it hard to get out of malls or department stores, which twist and turn.
Gold too has rituals assigned to it. But there is nothing modest about showing off your wealth in today’s China. Restaurants all over the country offer special show-off menus of pricey food and wine for parvenus to impress their friends or business associates. Gold and silver have become the “in” gift for Chinese New Year among the nouveau riche.
Collecting special gold bars for The New Year is the new Chinese hobby. For the past two years, the gold price rose again and again, so gold bars with the yearly symbol sold out in a few days and gold coins sold well. This year’s New Year of the Rat greeting money bar was a bestseller, in part because pre-orders were accepted. Some Chinese have already ordered next year’s Ox New Year’s greeting gold bars. People also buy animal commemorative coins for the year in which they were born.
The government tried to stop speculation in gold. It limited New Year’s greeting money bars this year to Rats weighing no more than 8,000 spindles. A new year rat bar is 99.9% pure gold, weight 20 grams; the silver bar front design quality is 99.9% pure silver, weight 120 grams.
China’s gold trades at world prices. So there is no reason to buy into a Chinese goldmine. Instead, put your money into gold ETFs. But in the interests of diversification, I did buy a brick of Oolong tea in China which is now part of my children’s patrimony along with my jewelry.

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