ECONOMIC INFORMATION: IMPORTS OF GOLD INTO CHINA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00457R000400420006-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: November 9, 2016
• Document Release Date: February 26, 1999
• Sequence Number: 6
• Publication Date: March 25, 1947
• Content Type: IR

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25X1 A2g I
RhNUL ULNIt
~[ I W
TNTRAL INTELL1G 1CE GROUP
INTELLIGENCE REPORT
COUNTRY China
SUBJECT Sconomic Informations Imports of Gold Into China
25X1A6a
ORIGIN
25X1X6
DATE: 25X1A6a
INFO.
191ST Larch 1947
PAGES 5
SUPPLEMENT
61/
1, The high market prices for gold In Shanghai and other Chinese business centers -
prices out of proportion to the US dollar cross-rate - have up to the present
time made the importation of gold extremely profitable. (It re Ins to be seen
whether the ban on purchase and sale of gold by Chinese nationals, announced
16 February 1947, will. put an end to the booming gold market.) As etl4ence
of the differerrt1al between the price of gold in Shanghai, and the price of US
dollars, it may be noted that the Bank of China in December 1946, sold gold
25X1 X6 bare at a price equivalent to appraz mateay US $52.55 per ounce in an effort to
halt the depreciation of the C? Because of this price
d
i
25X1X6
fferentialg the imparter of gold, even though he had acquired US dollars at
the black market rags could expect a profit
ranging from 25% to 20%.
2. Hongkong and i(acao are the two chief parts through which gold enters China
illegally. There is, no doub%, some smuggling of gold into other ports, but,
while no reliable estimate of the volume in available, it Is believed to be
on a relatively small scale, ibeing conducted individually by passengers and
crew members of planes and ships, Some gold probably enters Hongkong and
Macao in the same manner. But the only method by which large amounts enter
China consists of the legal importation, with import Licensees Into Hongkong
25X 1X6 and Macao, and the subsequent snuggling from these ports into the Chinese Re--
The importer is usually a Chinese syndicate. Svpcb a syndicate may be formed
in Hongkong, Cantons or elsewhere, and ms/ include native beams, gold seercharits,
and individuals, So far as is known in Hongkong, foreigners have riot formed
such syrdicatea, and have seldom or never participated in them. mss! 25X1 X6
The method of opera=
such syndicates varies. The Same syndicate may import the gold Into
Hongkong or Macao and subsequently smuggle it into Chins: or the Importing
syndicate may sell the gold in Hongkong or Macao, either on the market or
privately., to another syndicate which will handle the smuggling into China
The importing syndicate m 9y or may not have contracted for the sale of the
gold prior to its purchase. In addition, a large number of the transactions
in gold f?xtures on the Hongkong- market are purely speculative and quite u3-- on-
nected with any physical importations of gold. 25X1 X6
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4.:. The importing syndicate, having accumulated the requisite ataount of US dollars
in ':e w `Cork and haves obtained an import license, arran goe with one of the
large Hongkong barks or bullion brokers for the purchase of the gold. he such
a- transaction from the point of view of the !Iangkong and !'apse antharitles
is a perfectly le al one, the bankers and brokers regard it as Legitimte bus-
iness. ;:'early all the large banks in ilong::or have taken part in the business.
The Chase Bank and the iongkong and Shanghai Banking Corpor tion have done the
greater part of the business; the Chartered '?ank, the American lxpre3s Com-
pany, and others have done some; the National City Bank has not, until recently
taken part. The banks do not participate in the importing syndicate, but act
merely as agents for the purchase and shipacnt, making a service charge which
is new usually 5; (it was formerly higher). The syndicate a+s the bank's I
York off 1 a in il5 dollars by telegraphic transfer. Usually pqrment is made in
full, but sometimes it is done on margin, i.e., the syndicate pays only a portion
of tho price in dollars in New York Immediately, and the balance after receipt
of the gold, the bank meanarhile holding a lien on the gold as collateral. The
bank arranges for the purchase, insurance, and shipment of the gold. The pur-
chasa is usually made in Mexico through the bank's office or correspondent in
that country. Usually tiie Ghinese syndicate does not have its own a ;rent in
':ex;co, and for this reason the banks are used. In order to obtain insurance
25X1 X6 coverage all papers rust be in order, and for t1:is purpose an iizort license is
req,iced.
5. As cf 26 Lecerwer 1946, the total cost of importing one tael of gold from !.exico
to ,~ongkong, including, purchase price, co:sa?.ssion to the bank, shipping, and
insurance, eras Hongkong ;70. Profit to the Importer was Iic(gkong . 0 per tael,
25X1X6 "-s- -r-- -.
Va a..v4~ i3 Lf.i L.4J "at r)r.L a. ?.:v rr"' zaztern
Economic iasview of unstatod date quoted in the P nth China Uai]y ]leers Of 19
25X1A6a
January 1947 gives a somentat djfferent picture of the profit involved. as
fob rrne V7 price was a., per coin prob-
er, computed at the average open funds rate of 'low York, about
5. The profit per coin was, on the average, Hongkong :40 since
25X1 X6 old prices fluctuated recently between Hongkong X300 and X320
importing ar tints
~h), rrliich e~-errtv-
a
w
CPYRGHT
de
serious burden because o~t~ lo
iy
later to a
i
sfied w
US '.*.'eat Coast iaritima strike were coaolete sat
ith
These accounts of the profits involved are ob-
viously based on the type of transaction by which the Importer sells the gold in
25X1X6 Hongkong. The purchaser then resnslted the gold into Chinese unit gold bars,
placing his own chop upon them. They mere then
smuggled into China. Secrecy was necessary, h in leaving. Hongkong-
25X1 X6 export of gold :from the Colo is illegal.) 25X1 X6
in entering Chinese
private importation of gold into Chinese territory is illegal). territory (as the
In Io ry n Canton the
gold was sold at a wholesale price which represented an average profit of about
CNC ;'15,000 per tael to the Chinese merchant who handled the re-smelting, smug-
gling, and sale in Canton. 25X1 X6
6. ''oat of the gold is 'lexican coin or !axican bars. The fineness of this gold is
99.5:, -whereas the fineness of the Canton gold.bar is only 99%. Consequently,
when the gold is resmelted by the syndicate for the Chinese market, silver or
copper is added to reduce the fineness. Some little gold has been brou_,ht in
from Peru and other Latin American countries, but because its fineness is lams
25X1 X6 than that of the 'hinoae bar, which creates.difficuit3ee i.n re-amelting. it is
25X1 X6 considered less desirable than the _.exican.
Some gold has been brou ht in from ::nglarxi merican lion r, F) and from
the Unitod States 0 Tt has been
con idr3rab .F- arc. gold ? ve come in from India 25X1X6
25X1 X6 but this has been denied
25X1X6
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7. Rho Chir.3sc Cowrru:ont prohibits the entrance of Sold into China throw
private channels because such transactions nae up foreign ezchar,;e without
a corres)onding absorption of Ch carreney. To put It differently, the Chi-
W-30 "ovorn,ont is deprived of the opoort?Mity to ialoe a paper profit for
itself by seizing such exchange and ?asin' it to buy gold at a fiasd rate and
3o11inS it at a rnah higher one in the Shanghai market. The Chinese Govern--
mernt has consequently made representations to both t tre Iloagkorng 8nd the ':aeao
authorities in an effort to halt the issuance of licenses. Aa it is illegal
to Mcoort gold froze Hongkong, and as it was an open secret that practica]y
all the sold imported into the colorer was subsequently smuggled out into China,
the Hongkong authorities felt ti]ey could not very well refuse. The first steps'
U1 comol.jance with these representations was the suspension by the Hongkong
authorities in late August 1946 of the issuance of az;y further licenses for
the import of gold into the colony. The result was a shift of business from
Hongkong to 2.1cao. All of the Cold destined for acao ryas 'shipped through
Hongkong, and for t?.is purpose Hongkong transit licenses riere required. The
Hongkong authorities continued to issue these licenses until late liovomber
1946, when they discontinued the practice at the request of the Chinese Gov--
ern lieut. It is understood that the 'Iacao authorities will comply pro toms
to a request by the Chinese Government that they discontinue the issuance of
Import licenses, but that they will secretly contirme to 4 urn +he- fw.o price.
25X1 X6 The Far Eastern lieview yr "-'4%
gives dates for
the co
l encement and the cessation of the
- _ granting of iapart and
L.
the
25X1X6
8. As the various colonial authorities acceded to the successive requests of the
Chinese Government +;,,m
,
sati
iti
v
co
eof the Chinese syndicates chanced to most
the new conditions. The following steps may be noted. (There is some over..
lapping because of the time-lag between the issuance of licenses and the actual
importation.)
a. First period: importation of gold directly into Hongkong. During the
few weeks in the summer of 1946 in which the iongkong authorities were Issuing
licenses for the direct immportation of gold into the colony, the total vol-
ume issued was for approximately 150,000 taele (200,000 ouncos). As of the
present date (19 February 1947) most of the gold for which such liconses were 25X1X6
issued has now already been Imported (principally by the Chase Bank). -
hswlrew a_ .-- .--
These imports actually
25X1X6
uwawru r+UUI1~C 4 eV-A JPl Statics
that gold irorte into ionCkong during oeptenber arnoun ted to :iortgkong 03,630,000
(of which nearly 9( came from 'exico, and the remainder frog the United States );
Between 1 September 1946 and the present date gold imports took place via the
SS Treinmaersk, Ivaran, and Ceneral ' leit*s, as viell as other ships. {~ijd 25X1 X6
25X1X6
licenses ga-anted (150,000 taels ),
or the purpose. Philippine Air-Lines,MF.E.A.T.I.,
Imported into Hongkong 1W MTN 3.3
and others were used.
not available, but of the total nuober7of
there are only a few still unused. These
e market, 25X1X6
It is rui or a Lint 1.3 rn-M,+4r .3-
or direct importation into i:c>r gkong
be Second period: importation of Cold into 'acao via Hongkong. racao has no
facilities for the landing of cargo from ocean--going vessels; until recently
there was no adequate airfield for large transports. Consequently, so long as
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the ]iongkong authorities were willing to issue transit licensee, after the
halting of licenses for direct importation into Hongkong, the usual practice
was to transship at ;:ongkong into smaller boats. The total volume oat
licenses issued by ::acao is placed at 500,000 ounces by ape :emcee 25X1)
25X1 X6 and at 800,000 by another
The ,:ongk authorities have issued transit l conees in the amount of aboat
400,000 ouncti8. 25X1 X6 25X1 X6
c. Third perj_; d importation of gold directly into *;acao. As of 10 February
a4 i this period was apparently about to begin, but t1wre is & difference of
opinion as to the vol" of business that might be expected. The pecii 1ys l
obstacle is the lack of facilities of all sorts at 'acao. Shipping directly
to :acao by sea would involve anchoring the ship about seven oiZsa from the
coast and transferring the cargo to smaller boats. The ex erse and risk of
this operation, however, make it somev nat unattractive. 25X1 X6
25X1 X6 The airfield is now uncler.;oine some imwovemants. Prior to these
improvements it was inadequate for a C-a47, an evidenced by the recent crash
of a C-47 belonging to the Roy Farrell Exoort Import Conpaz y. Improvements
to date have rendered it serviceable for a C-47 in dry weather. 125X1 X6
25X1 X6 Further conteravlated improvomonte in-
25X1 X6 clude the elimination of part of the sea-wall, in order to provide better clear-
ance said the laying-down of steel cats on the rim:-qv.
25X1 X6 ). It will not under any conditions be adequate
25X1 X6 for a four-engined plans. Furthermore, the importation
of cold directly into `:acao is made difficult by the lack of proper bunking
facilities and of secure storage space. The one bank in acao, the 3x o
UA.Lr4w, rites, il&8 no viui6 w i,ich is really secure. T'uie expense of ck art rung
a special -lane could be borne only in the case of relatively large shipments.,
and the difficulty of handling and storing such s_nipments without lose by
theft trould be considerable. For these reasons it is doubted that direct im-
portation of hold into ;.acao would attain a large volume.
The obtaining of ?.acne import licenses should
25X1X6
offer no particular obstacle. The :.acao sovornmont has in tho past made a
charge of one :cacao dollar per ounce of old for import licenses, using the
revenue for "relief purposes". Even 25X1X6
think, h the r:aeao Govern.-ant does not now issue the licensee openly, it is
understood that ways and means of obtaining. them can be found. W 25X1 X6
25X1X6
01 1 d. Third period (continued): A large-scale transaction has been pending
for several months. On 25 January 1947 25X1 X6
a syndicate was being formed in Shanghai for the importation of gold into
I+acaoo This transaction was to deal in an amount U5 $50,000,000 - which
would entirely dwarf all previous transactions. The membership of the syn-
dicate was not disclosed, but apparently a large number of small ici-
pants were to be included, 25X1 X6
believed that the principals
In the syndicate were Chinese. He himself had been approached by a broker
who rrae apparently acting as the promoter of the syndicate. =stated that 25X1 A2g
the broker was a European and the only broker of his particular nationality
in Shanghai. Importation was to be by air; both airline and route to be
used were unknown, but it was assumed that no stop would be made at Hongkong.
Gold coin was to be bought in ::exico theough an unknown intermediary. Com-
plete insurance coverage based not on the cost of the gold but on the selling
price in acac was to be provided. The total cost of the gold, laid down
in L;acao, after all expenses of purchase, shipping, and insurance had been
paid, was expected to be about US ;,42.65 per ounce. i;c]e sales price in
".acao, which was to be contracted for prior to the purchase commitment, was
expected to be about 5% less than the open market buyini7 rate in Shanghai
(equivalent on 20 January 1947 to approximately US w58 and an 30 January to
a,apraxiuately US w56 per ounce.) On 29 January stated
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that he had been informed that the plans for the syndicate had been delayed.
It is not known -;Mather the delay was caused by difficulties In obtaining a
:acao licanse or by a suspension by the ? exican Government of the sale of
`ald. (For a report on the lattar, see the North China Daily i1e , 31 Jan-
uary 194?.) N 'o inforrzation is avail Able on the current statue of the tranp-
action in the U:-ht of the recent gold regulations issued by the Chinese
Ove rnnent .
9.4, As to the mans by rich gold has been smut gled into China,, they have been
as various as Chinese ingenuity could devise. A hint of one method mey be
discovered in the listlessness of the Hongkong gold mertcat soiltyairig the burn-
tng of the river steamer "Sai-on", which undoubtedly contained a considerable
caago of ;old. The Hongtcong gold raarket ab aye slumps durst ; the periods in
which the Chinese air lines are grounded. It in curious to note also that
a large portion of the gold which is legally imparted via Hongkong Into !.tcao
is then divided into small lots and smuggled back into Hongkong, from where it
is smuggr;lad to Canton. This is done because the facilities for are ling trans
:iongkcng into China are superior to those at : acao
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This doc asnt contains imftI at oa af'li eti
or*a dn: wa of t%e qtr! States
within tam
50" o.s:"S~16:nnor .esede4. is
trw the of Its Domes
In any to a n miauth is
prohibited bT Iatw,
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