04 July 2020
China has one of the largest gold jewellery manufacturers, based in Wuhan is called NASDAQ, listed as Kingold Jewellery. The manufacturer is being accused of depositing fake gold bars as collateral to obtain loans from 14 Chinese financial institutions. The gold bars worth 20.6 billion yuan($2.8 billion).
The 83 tonnes of gold were reportedly valued at 206 billion yuan but many of the the gold bars have turned out to be gilded copper, according to reports from Beijing. The company used the 83 tonnes of gold bars as collateral and insurance policies to cover any losses. This has left creditors holding the collateral for the remaining 16 billion yuan of loans outstanding against the fake gold bars.
The founder of Kingold has many connections with China’s powerful army, the founder was basically allowed to do anything he wanted, with no questions asked. Including the 83 tonnes of counterfeit gold to get billions in funds to participate in China’s housing bubble.
The scam which started to unfold in February 2020 when Kingold defaulted on loans to another company called Dongguan Trust Co.Ltd (a chinese shadow bank). Dongguan said it found out the gold bars was actually gilded copper. They obtained a court order to test Kingold collateral gold. The test result came on 22 May 2020 said the bars sealed in Minshang Trusts Coffers were also copper alloy.
Kingold is one of the largest privately owned gold processors in central China’s Hubei province. It was established in 2002, Kingold Chief is Jia Zhihang and he is known as a man who served in the military in Wuhan and Guangzhou. He also once managed gold mines for the People’s Liberation Army. The company Kingold shares are listed on the NASDAQ stock exchange.
The authorities are now investigating how this happened, also questions are being raised as to whether more of China’s “hard assets” of gold simply do not exist. Fears are that other Chinese gold producers an jewellery makers may also be involved in similar frauds.
This is not the first gold scandal of its kind. In 2016 in the Northwest Shaanxi province and neighbouring Hunan, where regulators found adulterated gold bars in 19 lenders coffers backing 19 billion yuan of loans ($2.5 billion). in this case a lender seeking to melt gold collateral found black tungsten plate in the middle of the bars.
The chief Jia has flatley denied that nothing is wrong with the collateral the company put up, he also denied he lodged fake bars with Chinese lenders.
According to Trading Economics, China ranks sixth in terms of total gold reserves with total reserves of 1,948,30 tonnes as of 31 March 2020. The US leads the country list with total gold reserves of 8,134 tonnes followed by Germany and Italy with 3,364 tonnes and 2,452 tonnes.
Shares in Kingold fell 23.71% overnight on the news to US $0.85.