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China Gold

China's coming flood of wealth is set to revolutionize Chinese Gold Investment demand...

I HAVE JUST returned from a 10-day trip to Southern China and Hong Kong, writes Julian Phillips of The Gold Forecaster.

   While I was there, I explored the Chinese attitude toward Gold. If their demand for gold – per head – equaled that of other nation's average individual holdings, then we would see their tonnage demand well into four figures each year.

   I wanted to know if the Chinese would really move towards owning Gold as an investment asset.

China Gold: Economic Growth
   The Chinese government has set its sites on average GDP growth of 10% per annum. It's achieving this breakaway rate because it has the power to ensure it happens.

   The full, synthesized Chinese economy is under the firm control of the government. Is this control feared and resented? From our observations we saw a people that liked to be regimented and in synch with the government, which is regarded as a 'big brother' bringing wealth, prosperity and support to a large and growing number of its population.

   It also appeared that the inclination of the Chinese people is to forego individuality in favor of obedience to the government. This has so far brought them out of poverty over the last 25 years and more.

   In the midst of an urbanization program seeing 50 cities of 10 million people being built by 2020 (and almost certainly going to happen on time), the government also plans to lift the living standards and economic output of the remaining rural poor of 400 million. No doubt they will benefit from higher prices for food in the coming months and years, too.

China Gold: Government Control
    We found, incredibly, almost no stress in one mainland city we visited, Guanshou. The willingness to work hard, to obey and to subject oneself to the government – without question – is a prime reason why China's growth is so rapid.

   It appears that the main driving force is the financial empowerment of the people by the government.

   Can you imagine going to the bank with a potential order for a product, a business plan and an offer of machinery on credit from the best machinery companies in Europe? You would be able to project that workers receive in the order of $500 a month, lower supervisors $1500 and management at $2500 a month.

   You would have no union problems, no environmental issues, and a workforce that works hard and capably for long hours. The potential margins you would enjoy would be higher than any achievable in the developed world. Loans would come from any bank on that basis.

   If you can also undercut your competition's prices by 50 to 75% then you will have the banks panting after you, as well as foreign machinery sellers.

   The comment was made to us by one of our hosts that the Japanese took 20 years to get their cars right, but Korea took only 10 years; China should do it in the next five. When they do, you can be sure that most foreign competition will have to offer far more than they do to compete. Global manufacturing is moving to Asia with China in the lead!

China Gold: Investment Markets
    At this young stage of the economy – with business growing so fast – savings appear directed at increasing production and wealth and not in passing it to a fund for personal investment. The opportunities for developing wealth and industry are where the new wealthy are focused.

   Both the banking system and investment infrastructure need to be developed considerably further than at present. Otherwise they will lack as many mature markets as the developed world has at its fingertips. Preceding that, there also needs to be 'excess wealth' available to investors over and above development needs.

   The Chinese currency, the Yuan has not helped Gold Investment much either in recent years. The Gold Price has had to cope with a rising Yuan, which has appreciated 18% over the last year on the international currency markets.

   As a result, the Chinese Gold Price itself has not been a magnet for investors.

   The nearest mature set of markets to China is to be found in Hong Kong – the fifth largest financial market in the world. A glimpse into the crowded apartment blocks there showed selected light fittings with people dressed in true well-off Western style. In Guanshou the apartments had only neon lighting and the people dressed well but not affluently.

   At present, this gap reflects the state of the Gold Market in China.

   We now believe that although Chinese gold demand is healthy and rapidly growing, it is barely a trickle to what it will be in the future. We also think that in the upper echelons of Chinese society, where the wealthy reside, there is a great interest in Gold Investment and its long-term wealth-protection value.

   But this group is not large or capable of demanding so much gold that it even begins to achieve the full potential of China's total impact on the world Gold Market.

   As it is, in our research with local gold merchants, we found a lack of serious Gold Investment opportunities at present. We talked to one of the main Chinese banks, now offering gold and silver to the public, but this comes in the form of 24-carat gold-plated figurines and Olympic medals.

   Obviously, for the moment, China's gold dealers remain far from a serious investment attitude toward precious metals.

For our entire report from China, please visit

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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