Recently, the Chinese Communist Party (CCP) has been accumulating gold reserves at a record pace. The current value of China’s gold reserves is $170 billion, causing concerns among observers. Experts believe that the CCP’s increased gold purchases are politically motivated and could be a preparation for economic measures related to a potential invasion of Taiwan.
Despite historically high gold prices and a weakening yuan, the CCP’s central bank continued its significant gold purchases in March, marking the 17th consecutive month of increasing gold reserves. Data from the World Gold Council shows that in the first three months of this year, the People’s Bank of China (PBOC) purchased 27 tons of gold, reaching a historical high of 2,262 tons in reserves.
Since October 2022, China has been steadily buying gold, marking the longest period of precious metal purchases since at least 2000. The consistent purchases over the 17-month period have increased their gold reserves by 16%.
The current trading price of gold is close to a historical high of $2,343 per troy ounce, with Beijing’s gold reserves estimated to be worth $170.4 billion.
According to a report from The Telegraph on April 30, experts suggest that China’s gold reserves may be a strategic move to mitigate economic sanctions in case of a conflict in the Taiwan Strait.
Jonathan Eyal, Associate Director at the Royal United Services Institute (RUSI) in the UK, stated, “The continuous purchase of gold in large quantity clearly indicates a politically motivated project, given high priority by the Beijing leadership, as they see it as an urgent matter in their confrontation with the United States.”
Eyal added, “Of course, this is also related to the plan for a military invasion of Taiwan.”
While the CCP has never governed Taiwan, it has continually claimed sovereignty over the island. The Taiwan government maintains that only the Taiwanese people can determine the island’s future.
On the other hand, Taiwan is a long-time ally of the United States, with President Biden stating readiness to send US forces to defend Taiwan in case of an invasion.
In light of recent events such as the freezing of Russian foreign currency reserves by Western countries as a response to Russia’s invasion of Ukraine, the CCP’s gold purchases have surged. The Western sanctions caused Russia a loss of $350 billion in foreign exchange.
Eyal pointed out, “Undoubtedly, the timing and continuity of these purchases are part of the CCP’s efforts to learn from the situation in Ukraine.”
With gold prices rising nearly one-fifth compared to last year and reaching recent record highs in recent weeks, concerns about escalating conflicts in the Middle East have come to the forefront.
Data from the World Gold Council shows that since October 2022, China has increased its gold holdings as a percentage of its total financial reserves from 3.2% to 4.6%. However, China’s gold holdings still pale in comparison to the United States, which holds precious metals valued at $602 billion.
Currently, China’s gold reserves are also lower than Russia’s.
Political commentator Li Linyi believes that one of the purposes of the CCP’s gold hoarding is to counter potential US financial sanctions in the future. However, the effectiveness of such a strategy remains uncertain. Russia, which has been excluded from the US dollar system, has also been buying gold, yet the UK, US, Japan, and Canada jointly announced a ban on importing gold from Russia in April this year, demonstrating Western nations’ ability to counter Russia’s attempts to evade sanctions using gold. Additionally, many gold bars and bullions have serial numbers, making them easier to track by Western countries. Relying on gold to circumvent Western economic sanctions may not be as effective for the CCP.
Michael Studeman, former director of the US Naval Intelligence, recently noted in a column for “War on the Rocks” that CCP leader Xi Jinping appears to have studied Western sanctions imposed on Russia due to the Ukraine crisis and subsequently initiated long-term protective measures to withstand similar pressures.
Studeman also pointed out that the CCP is taking other actions to reduce the risks of food and energy embargoes, setting up strategic oil reserves, and “rebuilding coal-fired power plants” with enthusiasm.
When comparing global responses to China’s crackdown in Hong Kong and a potential invasion of Taiwan by the CCP, Studeman emphasized, “Xi Jinping may be aware that attempting to assimilate Taiwan will lead to more intense global resistance and stricter societal impacts, which could last for several years.”
Eyal further stated that the CCP is preparing for a long-term confrontation with the United States.
The US has long viewed the CCP as a significant long-term threat. US military officials have warned that the CCP aims to possess the military capability to invade Taiwan by 2027.
Yao Yuan, Associate Professor of Chinese Studies at the University of St. Thomas in the US, commented in March this year that the CCP cannot guarantee a swift victory in a war against Taiwan.
He added, “Moreover, many Chinese have business partners, friends, and family in Taiwan and do not wish to see any harm come to Taiwan and its people.”
Regarding the buying of gold bars and jewelry by individuals and private businesses in China, Andreas Steno Larsen, CEO of Steno Research, wrote last week that this trend may be driven by domestic policy risks as a means to move capital out of the Chinese financial system.
Data from the World Gold Council indicates that the amount of gold purchased by central banks worldwide in the first quarter of 2024 surpasses any other year on record.