Koos Jansen
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Koos Jansen
Posted on 17 May 2014 by

Chinese Real Estate Debt Settled In Silver? SGE Premium 5.7 %

Update June 5, 2014: This post was about the Chinese real estate market, one of the sources I used was a website from Taiwan called Want China Times, it stated:

In Ordos, one of the 12 subdivisions of Inner Mongolia, people in the ghost city are bartering to settle their debts.

…At first, the most common debt settler was Chinese liquor or baijiu, a favorite of native Inner Mongolian residents. However, the lack of price transparency with the liquor prompted local law enforcement departments to ban settlement with the product.

…He Jun turned to precious metals because of the ban. “I believe gold and silver, which have high market liquidity, are suitable for settling debts,” he noted, adding that “gold can be exchanged for cars and silver for houses.”

…For example, He uses silver objects worth of 500,000 yuan (US$80,000) to pay off at least 1 million yuan (US$160,000) in debt.

After a thorough comment on this post about this specific source, read below, and a little research by myself I found this source unreliable. I decided to delete most of this post because it didn’t make sense anymore. I will never use the website Want China Times as a source again. 

From here on the original post continues:

Meanwhile, according to the last SGE weekly report, the silver premium over international price hit 5.7 % on May 9. On the Shanghai Futures Exchange, on May 16, nearly all silver contracts were still trading in backwardation (except for the April 2015 contract).

SGE silver premium

Overview Shanghai Gold Exchange data 2014 week 19

- 28 metric tonnes withdrawn in week 18 (5-5-2014/9-5-2014)

- w/w + 17.79  %

- 721 metric tonnes withdrawn year to date.

My research indicates that SGE withdrawals equal Chinese wholesale gold demand. For more information read this.

 Shanghai Gold Exchange withdrawals 2014 week 19

This is a screen shot from the weekly Chinese SGE trade report; the second number from the left (blue – 本周交割量) is weekly gold withdrawn from the vaults in Kg, the second number from the right (green – 计交割量) is the total YTD.

 Schermafbeelding 2014-05-16 om 16.57.33

This chart shows SGE gold premiums based on data from the SGE weekly reports (it’s the difference between the SGE gold price in yuan and the international gold price in yuan).

Shanghai Gold Exchange gold premiums

Below is a screen shot of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.

Schermafbeelding 2014-05-16 om 16.58.07

Koos Jansen
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  • amar

    Without your site, it would be difficult for commoners like me to know what’s happening in china on precious metals. So Thanks! Silver bartering in china is a big news today.

    Back in India now that Modi will form govt, I am waiting for the 10% tax on gold and silver to be removed and free import allowed in 1-2 months. We will see.

  • Mountain Man

    Thank Koos! Is the use of precious metals new in China to payback debt? Man this is huge if it is new!

  • Mountain Man

    Modi is the best thing that has happened to India since Ghandi! India is full of unused production capacity that will be unleashed, it is so exciting for the entire world!

  • Dark Horse

    Great article Koos. I have a strong belief that when the reset comes, PM settlement and collateral will be required for loans.

    This is just the beginning.

  • Zhang Lan

    My screen name is Zhang Lan, and my name in that account has been barred from posting Comments on this website

    Let me first state an interest, lest I be accused of an undisclosed bias: I own 4 properties in 3 different provinces in China. You may interpret this as me having a personal bias towards wanting to believe that the property market is robust, or you may perhaps take it as evidence that I might know what I am talking about. Either way, the fact has been disclosed

    This article begins with a reference to the Telegraph, written by Ambrose Evans Pritchard. Many of you may not be familiar with Ambrose, and may be impressed with his professional credentials and posh-sounding name. However, some of us know him as a perma-bear on Chinese real estate, and I will say no more than to refer you to this article which he wrote in the Telegraph 2 years ago, in which he triumphantly declared that “China’s real estate market has peaked forever” (Cue champagne) http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100016724/chinas-property-boom-has-peaked-forever/ In my opinion, Ambrose is neither a neutral objective reporter, nor is he correct in his view, opinions and conclusions; either way, his fairly definitive prediction in April 2012 appears not to have played out especially well.

    We then learn of an insidious Government rescue package which underwrites mortgagees, removing concerns of default and introducing moral hazard into the lending process; where have we seen this before? https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-mortgage-guarantees

    Thirdly, we learn of excessive Chinese lending; frankly, I find this surprising. Over the past 5 years I have not once found a Chinese bank willing to advance more than 50% Loan to Value, and I would remind readers that, rather than being heavily indebted, the average Chinese citizen still ranks as the proportionately greatest saver on the planet: http://data.worldbank.org/indicator/NY.GNS.ICTR.ZS Compare China’s 51% of GDP to Netherlands (25%), UK (11%) or USA (17%). Does anyone remember 125% LTV and NINJA mortgages? They are still available – in the UK, not China http://www.theguardian.com/business/2009/jul/09/nationwide-introduce-125-percent-mortgage

    Next we hear from the “Want China Times” publication about our old friend, the Ghost City Ordos in Inner Mongolia; first, who is “Want China Times”? It is a Taiwan-based internet site, owned since by Want Want Holdings, and is partly funded by the US National Endowment for Democracy (NED) http://ned.org/where-we-work/asia/china and known for its virulent anti-Chinese news agenda http://www.taipeitimes.com/News/editorials/archives/2012/05/04/2003531932 As with Ambrose Evans Pritchard, please form your own opinions

    And Ordos? Yes, these Ghost Cities certainly exist – I have been to 3 of them, and they are indeed almost entirely devoid of human life. I am sure there are dozens. But these are not White Elephants, vanity projects or artifacts of central control built on insane leverage, they are where the Chinese middle classes park their excess cash in an investment environment where the Stock Market has tanked and interest rates are at all-time lows. Urbanisation in China continues at a breakneck pace http://www.businessweek.com/articles/2014-03-25/6-dot-8-trillion-price-tag-for-chinas-urbanization , and as the first generation of migrant factory workers mature into middle age, they are no longer willing to live in factory dormitories, and are increasingly moving out into what we in the West would call “the Commuter Belt”. Over the next 20 years, these vacant apartments is where they will live. If you are interested in the truth about Ordos itself, try this article from the Atlantic (surely a Commie stooge publication if there ever was one) http://m.theatlantic.com/china/archive/2013/04/ordos-a-ghost-town-that-isnt/274776/

    MY POINT, therefore, is as follows: China’s domestic economy – like every other economy – has its ups and downs, strengths and weaknesses. Property prices in major urban centres such as Beijing, Shenzhen and Shanghai are as high as in e.g. London or Amsterdam (but not Singapore, Hong Kong or Tokyo – how come no Telegraph articles about those bubbles? http://www.cnbc.com/id/101426666 ) but in the immediate hinterland (e.g. equivalent to New Jersey, Utrecht or Reading) properties are readily available at very affordable prices. My primary home is in Zhangmutou, 20 minutes/one stop on the train from Shenzhen (RMB 49 one way) – here you can buy a 2-bed 90 sqm apartment with balconies, aircon, lifts and decent fixtures and fittings for under RMB 250,000. The average manufacturing salary is around RMB 3,000 per month, implying that even at 100% finance, a young couple would only need to leverage their combined annual salary 3.49 times. That is remarkably similar to what used to be the mortgage affordability benchmark in the UK

    May I therefore caution readers not to accept everything which is written about China at face value; in my personal opinion, there is an established and deeply-ingrained media bias against China (especially in the Telegraph), there is an even greater degree of ignorance and poorly-informed prejudice, and the task of understanding “China” is almost impossible, given the scale, diversity and dynamic pace of change. Beware of those who would conflate “China” with “the Chinese” with “The Communist Party” – these are very, very different constructs, and to imagine that they all operate in alignment or consensus would be seriously misguided.

    A propos Silver, may I respectfully refer you to the work of Keith Weiner at http://www.monetary-metals.com, to the fact that no matter how much Gold China purchased in 2013, it didn’t lift the price too much so don’t hold your breath about Silver, and to my (Chinese) wife’s unexplained but ardent opinion that “the Chinese don’t like Silver”. I have no idea why she says that or how she feels qualified to generalise about the investment preferences of the other 1.399999 billion Chinese, but she has so far not been proved conspicuously wrong

    • The_Spanish_Inquisition
    • TigerGold

      Nice response Zhang. Just with the gold and silver price. If you research the western central banks it IS FACT that they manipulate the price. I enjoy Keith Werners perspective but he ignores the manipulation of the precious metals markets. Price doesn’t matter Zhang until the monetary system resets.

      Keep up the good work Koos.

    • In Gold We Trust

      After you repeatedly called me a LIAR based on UNFOUNDED ARGUMENTS, we had email correspondence in which YOU stated you would never email me or comment on my site again. I blocked you AFTER YOUR EMAIL, and I was glad to because your accusations were completely mistaken.

      And now you open a new account and present me as the bad guy again, while clearly you just can’t keep your promise.

      Now, about the rest of your comment; the actual content. I find your point of view very interesting, most parts, and it shines light on subjects (the Chinese real estate market) which are indeed very complex and difficult for me as a westerner to oversee.

      Because of your thorough knowledge of Chinese markets I’ve asked you numerous times to write a guest post for this site. Just to make clear the sole purpose of this blog is getting closer to the truth! Your take on the Chinese real estate and precious metals market would be unique, very valuable and read by many.

      Great to see you launched your own website. Will you be publishing market analyses, or is your website just a bilboard for your business and you were dropping a little ad here?

      I just came across a chart that illustrates the Chinese real estate market. According to the guy that tweeted the chart (I cant Google translate a pic), it’s about house prices of major Chinese cities. Some are up, some are down, some are EXACTLY the same (??).

      • Zhang sitting on a bus

        Mr Jansen – I have previously written many commengs on this website, and I challenge you to find a single one in which I have referred to you as “a liar”.

        Rather, it is you who has a penchant for using that phrase – including your reference to the Federal Reserve

        What I have done – and you clearly dont like – is pick you up on numerous instances of hyperbole, veiled promotion of friends & ‘associates’ (such as by the use of Leading Questions and mock interviews) and simple errors of fact. You we clearly re wrong about the supposed Gold Exchange in Singapore, but not man enough to admit it (much less to amend your misguided article, which I was not alone in finding to be something of a promoional piece)

        I have nothing to hide – hence the link to my firm’s website (which has been in operation since early 2010); indeed, in an earlier post, when challenged by a fanboi to “write [my] own fucking blog”I volunteered to post my farewell email to you by way of an Open Letter on this forum.

        With respect, therefore, it appears that you are wont to react quite emotionally – not to abusive comments, but to contrary opinions. You may or may not be a liar, but that is not for me to say. What I will say, however, is that you are sometimes wrong and frequently overzealous in jumping to ill-founded conclusions, and you Mr Jansen appear to be extremely uncomfortable with that

        • In Gold We Trust

          Nice one Zhang, a reply purely on the details of our disagreement, which of course can go on forever.

          Did I just say that I found the content of your previous extensive comment very valuable? I did.

    • In Gold We Trust

      After you’ve raised concern about the reliability of the sources of my post, I’ve sent an email to Want China Times, on May 19, asking for the original source which their article is based upon. One business day later they haven’t responded, which is why I adjusted this post – I added I’m not convinced if Want China Times is a reliable source.

      Additionally I tried to contact the China Securities Journal. The email address on their English page bounced. My Google Translate is incapable to translate their Chinese page, so I couldn’t find another email address to contact them (and ask if they have ever written about Ordos real estate debt being settled in silver).

      Thanks again for your insights Zhang. Work in progress, to be continued.

  • Anne Auquard-Kwaistion

    Try Googling either “China debt barter” or “China debt baiju” and ask yourself why – if this story is not totally contrived – there have been no previous references to either this alleged practice or the subsequent ban.

    Perhaps this was only ever a strictly local issue? In which case, how is it relevant to the wider credit, property or precious metals markets in China or anywhere else? On the one hand we are asked to believe that defaults are hushed up, or bad loans are simply rolled – over, on the other hand an obscure and potentially isolated/localised instance of debt impairment (which happens every day of the week in the West) is treated as evidence that international bullion markets grossly undervalue Silver. How does that work?

    • Miner49’er

      If a little knowledge is a dangerous thing, just look where total ignorance of your subject matter can lead you!

      In this article we learn of a guy who apparently got away with paying only $80,000 to discharge a $160,000 debt – and this, it is suggested, is indicative either of a credit crisis or a massive undervaluation of precious metals (or baiju where available)

      As anyone with experience of credit risk will know, a 50% mark-down on distressed debt is peanuts and entirely unexceptional – see e.g. http://www.standardandpoors.com/spf/upload/Ratings_EMEA/2013_01_31_EMEA_RR_Commentary.pdf where, in Table 1 on page 4 you will see that 30 – 50% LGD is defined as “Average Recovery”. There have for years been public Exchanges where people trade defaulted loans at 20 cents on the $ (see e.g. http://www.debtx.com ) and are we really to believe that local credit stresses in e.g. Argentina, Russia, the Asian Tigers or the US Savings & Loan debacle had any tangible impact on bullion prices? In 1987 I foreclosed on $135 million of FHLMC securities held as collateral against a facility to the United Savings Association of Texas (“USAT”) and although that was a huge amount of money in those days, the price of bullion didn’t budge an inch and nobody started writing stories about how mortgage backed securities had suddenly become the new currency of choice!

      People should wise up – or shut up – before peddling scaremonger stories about things they really dont understand

    • In Gold We Trust

      Try to Google in Chinese if you want to know more about China.

  • Miner49’er

    I have read and re-read this piece, and also the two articles upon which it is based, and the articles upon which those articles are based. Whether those reports are accurate, representative of wider issues , or in any way significant I can’t say, but what has left me totally baffled is your conclusion that “For sure the Chinese, in this area at least, are starting to use silver as a currency”

    If my car is repossessed because I cant keep up the loan repayments, does that mean that I (and all those around me) are starting to use cars as a currency? And does it tell me anything about whether or not cars are fairly valued? If I pawn my Rolex to buy food, does that mean that watches are now a currency, or that food is a currency, or that watches are food? And if the Chinese were happy to use hard liquor to settle their debts, and only stopped doing so when it was banned, what does that say about their relative preferences in “liquid markets”? Silver is clearly no better than their second choice currency!

    My unfortunate conclusion is that this article – published 3 weeks after the original story, which has been extensively retweeted since then – is at best slightly confused and meandering, and actually represents no more than a desperate attempt to thrash a pre-conceived conclusion out of jumble of unconnected anecdotal gossip, in spite of either logic or hard facts rather than because of any such reasoning. If your intention was to say that Silver is undervalued, then why not just come right on out and say it?

    I love this blog and follow it avidly, but this particular posting missed whatever target it was aimed at by a country mile

    • Navigator

      I suggest you reacquaint yourself with the properties of money.

      THREE PROPERTIES OF MONEY
      1. Money serves as a medium of exchange
      2. Money serves as a unit of account
      3. Money serves as a store of value

      Silver performs all three. Your other examples do not. Do all of your wonderful examples prove that fiat currency is better for discharging debt? Also your experience with discharging debt in the USA should be considered questionable in relation to how debt is discharged in remote areas of China (percentage recoverable and otherwise) being that China has a totally different culture. OK I will say it. Silver is undervalued and perhaps recognition that it is real money makes it a more desirable way to discharge debt in China.

      • The_Spanish_Inquisition

        Silver had those three properties in 2010, and they don’t seem to have helped its price performance much since then; and if Silver is a store of value, how come it has collapsed in price, and has never come anywhere even close to where it was 34 years ago? In inflation-adjusted terms, it’s down around 70%, whereas real bullion is up over the same period

        http://www.aboutinflation.com/_/rsrc/1368020384132/silver-vs-inflation/4_Silver_High_1979_Inflation_Adjusted_Historical_Chart_April_2013.png

        Fiat currency is certainly better for discharging debt; try repaying your credit card next month with Turd Ferguson silver rounds or paying your tax with 400 oz London Good Delivery Bars and see how that works out for you. The Chinese would, I am sure, laugh at you. As would I.

        • Navigator

          I simply laugh at your chosen time interval beginning in 1980. You must think we are all idiots that can not recognize you have picked a time interval to suit your argument. Fiat currency is not a store of value. Therefore it does not qualify as money. Sure the inflation adjusted fiat price is much lower since 1980. That simply means that is one of the best and risk limited investments today. Lots of upside potential with very little downside potential. But hey, go ahead and invest long term in fiat and stocks. Fiat has lost over 95% of it’s value since the FED was created and virtually all analysts see nothing but downside potential for stocks. Pay my taxes with PMs. You are truly laughable. That is not what they are for although in parts of China it may be advantageous to do just that. Like 49er you only think in terms of how things work in your own country and give no thought to the obvious reality that economic reality in Asia may be very different.

          • The_Spanish_Inquisition

            sure it’s a store of value – you just keep on believing that every time Gold rises and Silver doesn’t; this is what a ‘store of value’ looks like – http://pricedingold.com/charts/Crude-1950.png

            When expressed in Gold, a barrel of oil costs pretty much the same today as it did 60 years ago (and Food costs significantly less http://www.pricedingold.com )

            Silver investors might as well collect seashells or glass beads or Beanie Babies or Tulips or Bitcoin, because when risk-adjusted in terms of volatility (the Sharpe Ratio) and inflation-adjusted in terms of the relationship to commodities, Gold is the only enduring safe haven

            It has been said before and it is true today – Silver is not “Poor Man’s Gold’, it is for people who wish and deserve to become poor, because the surest way to make a small fortune in Silver is to start off with a big one an wait.

            Buy Silver as a retail investor, and the dealers will rip you off with anywhere between twice and six times the Bid – Offer spread; in many jurisdictions your purchase will be subject to Sales Tax, because Silver does not count as a bullion investment; try and maintain any significant sum – say, enough to buy a family car – and you will need more Silver than one man can physically carry.

            Just as there is a reason why Penny Stocks only cost pennies, there is a reason why Silver has not maintained its previous price levels, why it continues to trend downwards over any meaningful timespan, and why the Gold: Silver ratio is reverting to something close to its equilibrium level in the high 60’s / low 70’s

        • Lester

          @Span.Inq!
          It is telling of a mindset that confuses value with price. Not the same!
          Also, mistaking “acceptability of a currency” with valid store of value, again, not the same! But hey. Just keep laughing.

      • My Name is Maximus
    • Lester

      In the same vein, I recall a picture on YouTube of a Chinese woman paying for a Bentley or Rolls with a few gold bars. The salesman was obviously agreeable. Of course, whiile it doesn’t happen every day, it still was a valid transaction between willing parties. Aka, no coercion required!

  • Zhang An Ping

    Some further insights

    http://english.caixin.com/2014-05-14/100677572.html

    (I will try to dredge up some comparative stats from Western banks)

    http://english.caixin.com/2014-05-19/100679104.html

    Note that these stories relate primarily to Property Developers, rather than individual property owners

    In contrast an (entirely objective and neutral) article I read on Bloomberg this morning headlined with the news that the Chinese residential was (quote) “collapsing” because prices only rose 6.8% over the past 12 months rather than 7.7% the year before. The article went on to report that prices rose in the majority of cities surveyed, but as this sits uncomfortably with the House News Agenda this unfortunate fact was not commented on (see http://economy.caixin.com/2014-05-19/100678935.html or http://www.tinyurl.com/koosjansen if you cant read Chinese)

    • photontail

      thanks for writing, and for telling us about sources too. we as readers appreciate hearing from a real person!

  • Roacheforque

    Debt spreads like a virus, always reaching for growth. The US housing bubble moves to China and the decline of the US gadget consumer fails to maintain the Eastern housing bubble as it spreads. But the Chinese balance with gold (the anti-debt). It is an age old story, merely repackaged for our modern times.

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