China reduces its imports of gold


by Peter Hobson and Yawen Chen

LONDON/BEIJING (Reuters) – China significantly reduces its imports of gold since may, said Reuters sources directly to the fact of the record, the decision of which the purpose could be to curb the outflow of dollars and boost the yuan.

Imports declined from 300 to 500 tonnes compared to last year, which represents an amount of 15 to 25 billion dollars at current prices, added the sources.

China is the second world importer of gold, had absorbed around 1,500 tonnes of the precious metal in the past year, to a value of sixty billion dollars, according to its customs statistics, the equivalent of a third of the world’s supply.

The gold reserves of China have increased five-fold during the last two decades, reaching nearly 2,000 tonnes, according to official data.

The customs statistics show that China imported 575 tonnes of gold in the first half-year as against 883 tonnes in the first half of 2018.

In may, 71 tons have been imported against 157 tonnes in may 2018 and June, the last month of available data, the decline is even more net: 57 tons compared to 199 tonnes in June 2018.

Chinese imports from Switzerland, Australia, South Africa, among others, are paid in us dollar and are going through a group of local and international banks to which the people’s Bank of China (pbc) assigns quotas on a monthly basis.

But it’s been several months that these quotas have been significantly reduced or have not been assigned, said the seven sources in the area of London, Hong Kong, Singapore, and China.

“There are virtually no import quotas issued by China currently,” said one of them. The banks were imported “almost nothing” in June and July, noted the sources.

The PCB has not responded to a request for comments written.

Imports are not purely and simply adopted because some banks receive may still be quotas and other import channels remain open, for the refining of the metal, for example, have explained four of the sources.

It is likely that Beijing wants to be through this restrict capital outflows even as the yuan has lost value.

This is not the first time that China takes steps to control capital outflows when the domestic currency is weakening and it has already reduced the quotas to import gold by the past, the last time in 2016.

But the restrictions are this time of a magnitude “unprecedented”, said an industrial source in Asia.

“All of this has to do with the way the central bank manages the currency,” observed one of the sources.

The yuan has lost more than 10% against the us dollar since the beginning of 2018, and the PCB has let out this month, below the important threshold of seven per dollar, and for the first time in more than ten years.

The capital outflows out of China are not recorded in official figures dedicated but are inferred often from the component of the balance of payments called “errors and omissions”, which provided outputs from 88 billion dollars in the first quarter, a record.

With foreign exchange reserves represent the equivalent of 3,100 billion dollars, the largest in the world, China has the means to defend its currency.

But to restrict imports of gold is a simple way to reduce the outflow of capital without affecting the everyday life of the population, explain the bankers.

For the time being, the effects on the gold market are shy.

The slowdown in global economic growth is pushing many institutional investors, mainly in Europe and North America, to gold, usually considered as an asset course, while the central banks have never bought yellow metal in the past half-century.

However, the cost of gold may increase in China if the increased supply of recycled metal was losing momentum before the import restrictions are lifted, and the supply could quickly outstrip demand outside of China if institutional investors weren’t buying as much as now.

(Wilfrid Exbrayat for the French service)

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