China's State-Owned Bullion Vaulter Injects Silver Bars into Shanghai Vaults Right After the PBOC Announces QE Emergency Monetary Policy

A Little Cover as Central Bankers Continue to do What they Do

During the week ending June 28, 2024, the Shanghai Futures Exchange (SFE) vault stock of silver increased from 685 tonnes to 1,051 tonnes, a 53% increase in vault holdings. End of week SFE vault holdings were 33.4M oz. of silver valued at $970M.

Of the week’s addition of silver, 76% was deposited in the SFE vaults on June 25 by China’s State Owned Enterprise (SOE) Chengtong PM.

SFE vault silver holdings since January 1, 2021 can be seen in the following chart:

SFE Vault Silver Stock [tonnes] Through June 28, 2024.

This intervention by the CCP to buttress the SFE’s silver warehouse with added stock comes directly after the China’s central bank The People’s Bank of China (PBOC) indicated it would be starting Quantitative Easing (QE).

In the vernacular, QE is a process whereby a central bank creates or “prints” digital currency and uses that new currency to create artificial market demand by purchasing assets in order to create a higher, fake, market value for said assets.

In this case, the PBOC stated that it intended to print currency to purchase government bonds thus lowering China’s interest rates.

That China’s SOE Chengtong PM would quickly add silver after the PBOC QE announcement is not surprising as China does not want to create a market signal of anticipated price inflation due to its planned monetary debasement QE ‘stimulus’ activity.

QE is an Emergency Monetary Policy - Why is the PBOC Mobilizing?

Despite the PBOC’s claim that it is only engaging in “liquidity management” of government bonds, if we look into China’s economy, we can see there is something else looming.

China’s real estate market has been in decline since 2020 when its central planners implemented it’s “Three Red Lines” policy to deflate the real estate bubble they had created.

Prior to this, strict regulations limited the ability of Chinese buyers to acquire real estate while the PBOC ran extremely loose monetary policy where China’s M2 Money Stock compounded by 11.7% per annum between 2011 and 2021.

China’s M2 Money Stock January 1996 to May 2024.

The result was that this and prior Chinese policy led to inflation of an enormous real estate bubble in China.

He Keng, former Deputy Director of the National Bureau of Statistics gives a sense of the scale of China’s vacant real estate created during the inflation of this bubble:

"How many vacant homes are there now? Each expert gives a very different number, with the most extreme believing the current number of vacant homes are enough for 3 billion people," said He Keng, 81, a former deputy head of the statistics bureau.

"That estimate might be a bit much, but 1.4 billion people probably can't fill them," He said at a forum in the southern Chinese city Dongguan, according to a video released by the official media China News Service.

Real estate activity in China is estimated to comprise 25% of China’s $17.7T economy.

China reported the following real estate statistics in 2023:

• Property sales: -8.5%

• Construction new starts: -20.4%

• Property investment: -9.6%

Concurrently, in 2023 China saw:

• Exports: -4.6% to $3.38T

• Imports: -5.56% to $2.56T

It can be seen from the above that China has a severe economic problem as its bubble economy unwinds and that the above statistics do not comport with China’s claimed 5.2% GDP growth in 2023.

When the Panic Starts

Given that real estate holdings represent 78% of household wealth in China, it is no surprise that the PBOC would now implement emergency inflationary monetary policy however it is likely that PBOC central planners will not re-stimulate the property bubble as the belief that real estate prices can only go up has been proved wrong in recent years.

The Chinese people also have images like the following of empty investments being destroyed across the country due to lack of demand:

More than 1 dozen empty investment buildings being destroyed in China’s Kunming City.

As China’s bubble economy slows, as China’s real estate with an estimated total market value of $52T in 2019 continues to decline vaporizing generational wealth, and as goods price inflation again takes hold from loose PBOC monetary policy, it will not take long for more Chinese investors to discover the value of safe havens silver and gold which are no one else’s liability.

As that realization takes hold, the highly liquid SFE vault stock of silver with a current market value of less than $1B, will not last long irrespective of further silver bar injections by the CCP’s Chentong PM.

Best regards,

David Jensen