China’s real estate crisis worsens as A-shares continue to plunge, eroding confidence in the economy. Foreign investors have withdrawn from China, with six consecutive months of net selling of Chinese stocks.
Chinese people bought large amounts of gold in 2023, indicating that they, too, felt the chilling effect of the looming economic crisis.
Hong Kong and Chinese stock markets rallied briefly after news of Chinese authorities plans to raise a 2 trillion yuan (about $281 billion) bailout fund to rescue the stock market. However, the stock markets have seen a decline in performance for the past five consecutive trading days, with Friday’s drop being particularly dramatic, resulting in the markets closing at a five-year low.
Global Outflow of Funds
Since the start of the new year, foreign investors have been consistently selling Chinese onshore equities. Data showed that global fund outflows through the Hong Kong Stock Connect reached a net 14.5 billion yuan (about $2 billion) in January, marking the sixth consecutive month of record outflows and bringing the total to 201 billion yuan ($28.2 billion) since August last year.Chinese Individuals and Central Banks Are Both Buying Gold
Over the past year, China’s central banks and the Chinese people have been buying and hoarding gold in large quantities. Economists usually interpret this move as a preparatory measure in anticipation of a financial crisis.According to the Gold Demand Trends Full Year 2023 report released by the World Gold Council on Jan. 31, total gold demand in 2023 reached 4,899 tons, the highest ever. Central bank purchases exceeded 1,037 tons, second only to 1,082 tons, in 2022 and the second-highest figure since 1950. The Central Bank of China bought more than 225 tons of gold, the highest level since the statistics began in 1977.
The price of gold at the end of 2023 was $2,078.4 per ounce, a record high year-end closing, with an annualized rate of return of 15 percent, while the average price of gold in 2023 was $1,940.54 per ounce, also a record high and an 8-percent increase from 2022.
Investment demand for gold, including bars and coins, grew by 28 percent in China to 280 tons, largely offsetting a sharp decline in Europe, the report said. Although global demand remained flat, China’s consumption of gold jewelry increased by 10 percent to 630 tons last year.
Song Tao (pseudonym), a resident of the Haidian district of Beijing, told the Chinese edition of The Epoch Times that the majority of those who began buying gold suffered losses from falling home prices and financial product scams.
“They might think that now is a good opportunity to buy gold, as many still believe that gold, being a tangible asset, feels more secure in their hands. Generally, the average person does not pay attention to the price trends of gold stocks; therefore, they are more inclined to purchase gold bars [to preserve value],” he said.
According to Dr. Frank Tian Xie，John M. Olin Palmetto Chair Professor in Business and Professor of Marketing University of South Carolina Aiken, Chinese people buy gold because they worry about the future of the Chinese economy.
“They are worried that the Renminbi is at risk of depreciating dramatically as a result of the bursting of the housing bubble and the collapse of the stock market. In turbulent times, gold serves as a conventional means of preserving value,” Mr. Xie explained.
