China has been stockpiling gold for some time, as part of Beijing's plans to make its own currency, the Renminbi, a world player that will rival the US dollar.
The country has also been expanding its mining capabilities beyond its own borders. Mines in mineral rich nations such as Australia are being targeted by Chinese, state controlled, mining operations. As we reported last week, China has also been attempting to buy gold mines in Canada. Like Canada, Australia is now trying to decide whether to allow China to buy out such a key part of its national resources.
Many areas of the Australian economy are already heavily dependent on its powerful Chinese neighbour. Currently, 32.6% of all Australian exports go to China, which has been its largest trading partner in the past decade.
When, in May, Canberra joined US calls for an investigation into the origins of Covid-19, Beijing was swift to react – labelling the calls "politically motivated". Using the pretext of anti-dumping, it imposed an 80% tariff on Australian barley imports worth AU$1.4 billion (US$960 million) and banned imports of Australian beef.
Consequently, the Australian government is now caught in the middle of the trade dispute between the US, its traditional ally, and China, its major trading partner.
US President Donald J. Trump poses with Australian Prime Minister Scott Morrison following their dinner at the Imperial Hotel Osaka Thursday, June 27, 2019.
Despite Australian support for the US, Chinese businesses, many of which are state owned, continue attempts to make big gold mining investments in Australia. The government in Canberra has now clearly introduced tough scrutiny of Chinese investment in the country’s minerals sector.
In April, the Australian government blocked an attempt by the Chinese state owned Baogang company to take a 13% share in Northern Minerals. The deal could have been worth AU$28.7 million (US$20 million). Australia's Northern Minerals owns the advanced Browns Range heavy rare earth project in Australia's north.
Later, Chinese operator Shandong Gold offered A$321 million (US$221 million) for Cardinal Resources Ltd. Cardinal is an Australian based operation with gold exploration rights and developments in Ghana, West Africa. Australia's Foreign Investment Review Board (FIRB) immediately stepped in to review the proposed takeover.
On June 24, following news of the announced Shandong Gold review, yet another Chinese miner, Goldsea Group, dropped plans to buy Australia's Alto Metals mines. This came after the Review Board sought extra time to consider the deal.
Gold mines are not the only mining resource affected. In the same month the government banned Yibin Tianyi Lithium Industry from investing AU$20.2 million (US$14.1 million) in AVZ. The government stated the deal would be, “contrary to the national interest”. Australian based AVZ has lithium projects, with associated tin and tantalum, in the Democratic Republic of Congo.
Besides mining, other Australian industries are being targeted by Chinese takeovers. Recently, Chinese social media giant Tencent bought a 5% stake in Australia’s fastest growing fintech companies - Afterpay Holdings Ltd. Afterpay, which trades in the UK as Clearpay, currently has over 5.2 million customers and over 35,300 retail merchants worldwide.
This week Australia's Prime Minister Scott Morrison spoke about strategic updates to the nation's defence. It included reference to an inquiry into the origins of Covid-19 and escalating cyberattacks and disinformation campaigns by China.
In a statement the FRIB said it would screen all, 'sensitive national security business.' Its spokeswoman told Reuters, 'Australia’s foreign investment framework is open, transparent and welcoming. We welcome investment from any country and in any sector of the economy.' Despite this, Chinese aspiration for control of Australia's minerals, and particularly gold, is one of the Board's most obvious concerns.
The number of new gold discoveries around the world is falling. Mining production has been further hit by the coronavirus crisis. With the global economy in meltdown, demand for the safe haven precious metal is increasing, and as the world's second largest gold producer, Australia will be keen to protect such a valuable resource from any outside control.
While coronavirus is going to be the dominating economic impact affecting the gold price in the next few years, the US-China trade war had its own impact throughout 2019. Anything that heightens tensions between China and any perceived Western allies, will only further hurt negotiations to try and resolve the dispute, and bolster gold in value even more.