Chinese People Are Buying Gold, Taking Money Out of Banks and Stock Market

July 3, 2019 Updated: July 11, 2019

Chinese people are starting to feel the pressure of economic slowdown. As China’s yuan continues to devalue, and several small- and medium-sized banks have recently filed for bankruptcy, many Chinese are choosing to buy gold or take their money out of banks to protect their assets. 

Additionally, the Chinese government issued an unusual notice in late June to encourage Party members and cadres to invest in stocks, which is interpreted by many as a desperate move to rescue China’s economy. 

Currency Devaluation

China’s yuan or renminbi (RMB) fell sharply on July 2, hitting its weakest level against the U.S. dollar in a week. By 4:30 p.m. Beijing time, the onshore RMB closed at 6.8835 against the dollar, a fall of 391 points from the previous trading day. Offshore RMB closed at 6.8856, which was a drop of nearly 300 points. 

Reuters’s Chinese-language edition quoted a currency trader as saying that investor optimism continues to wane upon seeing the ups and downs in the previous rounds of trade negotiations. They rush to trade Chinese yuan into U.S. dollars whenever the dollar weakens a little bit. Therefore, presently, the dollar is very stable and the Chinese currency still faces further downward pressure. 

The trade tensions between the United States and China have seriously affected China’s economy. In particular, after U.S. President Donald Trump announced to increase the tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent on May 5, the yuan depreciated by about 2.5 percent. 

Deutsche Bank has predicted that the tariff increase from 10 percent to 25 percent would lead to a devaluation of the yuan to 7.1 against the dollar. If the United States decides to impose tariffs on the additional $300 billion worth of Chinese goods, the yuan may further depreciate to 7.4 against the dollar.

Ming Chu-cheng, a political science professor at National Taiwan University who specializes in Chinese politics, predicted on his YouTube channel that if the Chinese yuan ever drops below 7 yuan per dollar, it will trigger a confidence crisis of the Chinese economy. Devaluation of Chinese currency will accelerate and capital outflows will occur in both China and Hong Kong. If the standoff between the United States and China on trade relations continues for a long time, China will fall into a financial crisis. 

“Eventually, China will become the second Venezuela,” Ming said.  

Buying Gold to Preserve Wealth

Chinese people are seeking to preserve their wealth by buying gold as the Chinese currency continues to depreciate in value.

According to a June 24 report from Chinese news portal Sina, the manager at Gold Hangzhou’s flagship store revealed that the sale of gold increased significantly since May. The store is seeing more and more big transactions recently. A big transaction refers to more than 1 kilogram of gold in a single purchase. 

“A customer bought 3.5 kilograms of gold bars just two days ago. Sales volumes for both gold bars and gold ornaments exceeded our expectations in these two months,” the manager said.

Mr. Zhu, a businessman from Hangzhou, told Radio Free Asia that local people are buying gold because they are worried that the Chinese currency will continue to depreciate.

“We wish to exchange yuan into U.S. currency, but the foreign exchange control is getting stricter. So we have to buy gold instead. Although every Chinese citizen is allowed to exchange $50,000 worth of currency a year, banks are using all kinds of excuses to reject our request when we need to exchange a relatively large amount. Sometimes, they even refuse to exchange $5,000. If there is no such foreign exchange control, holding U.S. dollars is the best way for us to hedge against inflation,” Zhu said.  

Zhang Li, a resident of Wuhan, told Radio Free Asia that the recent news about Baotou Commercial bank being taken over by China’s Central Bank due to insolvency has made many people worry about the money they keep in bank accounts. 

“Some people have chosen to store money in the most primitive way, that is, storing money at home,” Zhang said. “A lot of people I know of took money out of the bank, as they fear that they may lose the money if the bank files bankruptcy.”

Party Members Encouraged to Buy Stocks 

The Central Discipline Inspection Commission, China’s anti-corruption watchdog, published an article on its official website on June 24, saying that Party members and cadres can engage in legitimate securities trading activity, and by doing so they are supporting China’s economic development.

In October 1993, China’s State Council stipulated in its regulation that government officials at or above the county level were not allowed to buy or sell stocks. It wasn’t until April 2001 that the State Council gradually lifted the ban on stock trading by Party or government officials. 

A long-term stock investor, Mr. Zhou from Hubei Province, told Radio Free Asia that the majority of stock investors in China have suffered huge losses, and the number of people interested in stock trading is diminishing drastically. Now that the central government has called on Party and government officials to enter the stock market, “we are wondering, does that mean there is no more money going into the stock market and the stock market will collapse soon? Maybe they encourage Party members and cadres to put their money in, because the stock market needs money desperately to sustain it.” 

Epoch Times staff member Jiang Wangchao contributed to this report.