Within three years Hong Kong will see a new building at its international airport housing some 2,000 tonnes of gold bars worth about HK$2 trillion (US$260 billion) at today’s prices.
The super vault and its contents are part of a government plan to make Hong Kong a leading international gold trading centre. And already it’s making good progress in this direction.
Earlier in the year the Shanghai Gold Exchange (SGE) opened its first offshore delivery vault in Hong Kong and the London Metal Exchange in September approved three storage facilities in Hong Kong. China is the world’s biggest bullion consumer and the move by the SGE is seen as a step towards reducing the reliance on the US dollar and promoting the wider use of the yuan in international trade.
In his annual policy address last month, Chief Executive John Lee unveiled policies to increase the city's capacity for holding bullion and establish a central clearing system for gold to revive Hong Kong's status as a global hub for gold trading. He reiterated his ambitious plans at the British Chamber of Commerce (Britcham) summit earlier this month by inviting gold traders to set up refineries here and by supporting the creation of a local gold industry trade association.
Currently, local gold is stored in bank safe deposit boxes and in the Hong Kong International Airport Precious Metals Depository which has a capacity for 150 tonnes. The depository has been providing secure storage and physical settlement services to central banks, commodity exchanges, bullion banks, precious metal refineries and issuers of exchange-traded funds (ETFs) since 2009.
The depository, located near the airport’s cargo facilities, is expanding its capacity step by step initially to 200 tonnes and eventually it will reach its goal of 2000 tonnes by 2028, ranking it among the top 10 largest gold storage facilities in the world. The big ones, of course are the Federal Reserve Bank of New York with 6,000 tonnes and the Bank of England with 5,000 tonnes. The famed Fort Knox in Kentucky holds about 4,000 tonnes.
The international gold trading platform, CME Group has approved and licensed three warehouse facilities in Hong Kong – Brink’s Inc., Malca Amit Secure Logistics and Loomis International (HK) – for storage of kilo gold bars which can be used in settlement of CME gold kilobar futures contracts. Their storage facilities are located at the Hong Kong International Airport (HKIA), Tsuen Wan and Kwai Chung.
The Chinese Gold and Silver Exchange (CGSE), founded in 1910, is Hong Kong’s only physical gold and silver exchange, and is run by its members as a society, hence the name Chinese Gold and Silver Exchange Society. The Exchange is operated through a subsidiary company called ‘Hong Kong Precious Metals Exchange Limited’, established in 1994.
The gold industry in Hong Kong is much larger than one envisages and involves more than trading and storing but also includes processing. There are, for example, 13 CGSE accredited refineries in Hong Kong for its various deliverable contracts.
Gold refining is the process of purifying raw gold to remove impurities and separate it from other metals or materials with the goal to produce high-quality gold, often reaching 99.9 per cent or higher. This process is crucial for ensuring that gold meets the highest purity standards for various applications, including jewellery and electronic appliances.
All of the refineries are locally owned, except for one and most are accredited to produce 99 Tael Gold bars and 999.9 One Kilo bars, and a smaller subset of the refineries are accredited to produce 999.9 Five Tael bars.
Internationally, two gold refineries in Hong Kong that are also on the London Bullion Market Association (LBMA) Good Delivery List for gold: German refiner Heraeus which operates a refinery in Fanling, and Swiss refiner Metalor operating a precious metals refinery in Kwai Chung. Both have an annual gold refining capacity of 200 tonnes.
In keeping with its reputation of being the financial hub of Asia and a world player in international finance, the gold industry is poised to strengthen Hong Kong’s position in world rankings. Hong Kong is competing with established hubs like London and New York, as well as emerging markets in Singapore and Dubai. By expanding its gold storage and trading capabilities, Hong Kong is positioning itself to capture a greater share of the global gold market, especially in Asia.
Gold industry publication, BullionStar noted that the local operations of the international bullion banks, the vaults and transport providers, and the futures exchanges have all benefited from Hong Kong’s strategic position as a gateway to the Chinese Mainland and the SAR’s use by China as a gold trade entrepôt. A robust gold market would complete Hong Kong’s financial ecosystem and attract more international capital.
The Chief Executive quoted a Chinese proverb at the Britcham summit that goes, "real gold is not afraid of the melting pot", adding that the gold market is not afraid of whatever volatilities are thrown up to test us. Hong Kong is a survivor and has jumped every hurdle placed before it.
Overall, Hong Kong's pursuit of becoming a leading gold trading centre is a strategic response to global shifts and regional needs, firmly establishing its role as a vital link between international markets and the Chinese Mainland's demand.
Mark Pinkstone
** 博客文章文責自負,不代表本公司立場 **
When China’s Paramount Leader Deng Xiao Ping floated the idea of one country two systems for the future of Hong Kong, the west scoffed at the possibility of a communist regime and a capitalist bastion living hand in hand. Some 29 years later the prophets of doom were proven wrong as Hong Kong is now more prosperous than ever and it’s future will be more so.
For more than 150 years Hong Kong lived under a British colonial rule. There was no democracy, only authoritarian management. The succession of ruling governors were hand-picked by the Foreign and Commonwealth Office and appointed by the Prime Minister, without any consultation with the people of Hong Kong.
But the people of Hong Kong didn’t mind. If they had never seen democracy, how could they miss it. The governors were diplomats and their upper-crust training ensured that the natives were happy and that their rice bowls were filled. The diplomats got on well with the Chinese government as they knew that harmony was the key component to a successful relationship.
Then came along a politician for the first time to run Hong Kong in the name of Chris Patten, who had lost his seat in the Bath electorate, about 156 km west of London. John Major was Prime Minister at the time and a good friend of Patten. So, to make up for the political loss in Bath, Major offered Patten the cushy job of being governor of Hong Kong.
In 1992 Patten and his family arrived in Hong Kong and as a typical politician, he arrived like a bull in a china shop (pun intended). There was no diplomacy involved. Patten and Major had decided that the foreign office diplomats were pussy-footing with the Chinese during the previous decade negotiating Hong Kong’s future and a firmer stand was necessary.
Unlike his predecessors, Patten knew nothing of Chinese traditions and customs. He just could not understand Chinese mentality and that applied not only to the mainlanders but also the local Chinese. The East is East and the West is West and never the twain shall meet wrote poet Rudyard Kipling in 1889. But, in Hong Kong they did.
The Joint Declaration between Great Britain and China on the future of Hong Kong and the subsequent Basic Law (Hong Kong’s mini constitution) provided the pathway for Hong Kong’s future, including democratic elections for the city’s legislative council. But Patten was impatient and decided to introduce a fully elected legislature in 1995 immediately before the handover in 1997. This infuriated the Chinese-side, and they provided for a provisional legislature to replace Patten’s council as soon as Hong Kong was reverted to Beijing’s administration.
After 1997, Hong Kong formed its first directly elected Legislative Council in 1998, while the Chief Executive is elected by an Election Committee — a system similar to the U.S. presidential election. Hong Kong's Election Committee now has 1,500 members, whereas the U.S. Electoral College has only 538 members.
Since then, Hong Kong has flourished. The prophets of doom and Kipling were wrong. Despite many attempts by the west to dismantle the Deng formula Hong Kong is one of the most successful places on the planet. Year after year it is breaking records to the envy of many. Hong Kong has secured third place in the Global Financial Centres Index. In the latest World Competitiveness Ranking, Hong Kong's position has risen one spot further to rank second globally. And in the World Talent Ranking, Hong Kong has moved up 10 places to rank the fourth globally and the first in Asia. Hong Kong also continues to come first as the world's freest economy. And Hong Kong has what many want – stability.
The Hong Kong formula is unique and successful. Never tried before, it was seen as an experiment and the world was watching, waiting for it to fail. But the Hong Kong people are resourceful and will take any challenge head on. There is no failure.
The Hong Kong Special Administrative Region (HKSAR), established under the People’s Republic of China (PRC) Constitution, has maintained the previous capitalist system and way of life. Its common law system continues to operate, and it enjoys the free flow of people, capital, data, goods and more. The vibrancy and prosperity of the central government has always been Hong Kong's strongest backing.
Hong Kong’s 29th birthday under the PRC guidance, coincides with the 105th Anniversary of the Founding of the Communist Party of China. Naturally there have been celebrations all round, and justifiably so. Both Hong Kong and the central government are proud of what they have achieved. And both, particularly in the past year have taken top ranking as the preferred place in the world to trust and to do business.
Chief Executive John Lee, at a celebratory function on July 1 summed it up with: “Hong Kong, the Pearl of the Orient, will ride the wave of flourishing national development and sail with the wind, steering towards a brighter and more prosperous future!”
And the future is being mapped out in Hong Kong’s first five-year plan, currently under consultation with the public. The plan, a road map for future leaders to follow, will include a futuristic block of land, one third of Hong Kong’s total, to house high tech innovative research and development facilities with university, hospital and new town ancillary services. This Northern Metropolis straddles the river that acts as the boundary between Hong Kong and neighboring Shenzhen, with bridges linking the two; further proof that Hong Kong is an integral part of China.
