Back in the late 1940s when Thailand was a more whimsical and less bloody place, there was a curious hijacking. Cargoes of gold frequently flew through Bangkok for sale in China. There hyperinflation — far more potent than communist arms — was toppling the nationalists. The economic meltdown was the last straw for Generalissimo Chiang Kai-shek's fragile regime, which had stood alone for so long before Pearl Harbor.
Washington's refusal to make a $500 million gold loan helped clinch Chiang's fate. General U.S. war debt fatigue, the Kuomintang's reputation for corruption and a U.S. Congress struggling to restructure a wartime economy all contributed to the decision. But we now know the move stemmed, too, from Treasury officials with too-close connections to the Soviets and the surging Maoist movement in China.
Still, gold in a steady stream cascaded into the Chinese private sector. Shadowy international gold merchants were satisfying Chinese savers' quest for security in a world coming apart. Little did those merchants suspect that, within less than a decade, Mao Zedong's bloody "land reform" would not only snatch their gold but his programs eventually would cost as many as 70 million lives.
But in those heady days international trade was recovering from World War II. Early intracontinental flights, in an age when there were no long nonstop flights or even flying after dark, carried the gold across South Asia. When the shipments arrived at their last stopover at dusk, the bars were unloaded at Don Muang Airport, carried in a convoy to the Bank of Thailand, brought back the next morning and reloaded to go on to Hong Kong.
One evening in May 1948, a multimillion-dollar shipment — back when $1 million was a lot of money — disappeared. The mystery was never solved. With occasional bars turning up, rumors had it that the gold had been stolen by Thai police guards or the army or airport officials — or maybe just ordinary ever-present "k'moi" — Thai robbers. As the last rumors died away, it was said, never with confirmation, that Lloyds, the insurers, had done a deal, splitting the difference with the thieves.
That old gold piracy comes to mind in midsummer 2010 as Beijing announces a "liberalization" of gold sales.
Like most of Beijing's policy announcements, the message must be taken with more than a grain of salt. The new Chinese regulations come at a time when Western gold fever, at least temporarily, had died down a bit. "Gold bugs" have now concluded that, counterintuitively, central banks are not rushing into gold as a hedge against the declining dollar and the debt-ridden euro. There is even a rumor that the Reserve Bank of India mortgaged November's 200-ton purchase of gold from the International Monetary Fund to "the world's central banker," the Bank for International Settlements, for currency reserves to fight its roaring 10 percent inflation. Nor is there any hint that China is boosting bullion reserves, despite Beijing's steady public skepticism of the Obama administration's policies on the dollar.
But popular gold demand in China has grown in 2010. China doesn't officially disclose gold imports. However, total volume traded the first six months on the Shanghai Gold Exchange jumped 59 percent from a year earlier. China already has the world's sixth largest hoard at 1,054 tons.
The usual suspects — gold promoters and participants in China's boom — have welcomed the new regulations as part of China's promised liberalization. That echoes Beijing's rhetoric — backed, so far, by little action — in response to pressure from its trading partners to curb its unprecedented accumulation of dollars resulting from currency manipulation and export subsidies.
Now the People's Bank says it will "actively push infrastructure for gold trading and reserves to fend off disasters." Underlining the announcement, five other government entities countersigned the statement, agreeing that "the need to perfect foreign exchange policies in the gold market is clear." But the government also hinted at more bullion taxes and dropped its earlier partial endorsement of gold as investment.
What seems more than likely is that, operating again in an atmosphere of omnipresent corruption, Beijing is battening down the hatches with what are, in reality, new controls, attempting to prevent a stampede by savers into gold. What with growing suspicion of its debt-ridden banks and investors shying away from the Shanghai stock market/casino, gold fever increasingly has gripped those Chinese who can't get their funds out of the country. Total 2009 consumer demand for gold — mostly for jewelry, a traditional Asian way of saving — grew 7 percent to more than $14 billion, 11 percent of global demand. China now has become the world's second largest gold customer after India as well as the No. 1 producer.
Chinese spin doctors argue simultaneously that gold is not all that useful. Why, then, does Beijing even need to announce an expansion of its own market? The four big state-owned banks will be permitted to trade in gold bars. Qualified foreign gold suppliers may be allowed into the Shanghai market. Plans for investment in foreign bullion are on the docket. All this looks like Beijing's familiar way of attempting control in finance and manufacturing through government fiat.
No doubt Beijing remembers those old frantic postwar years. But as the old saying goes: He who rides back of tiger may end up inside its belly.
• Sol Sanders, a veteran foreign correspondent and analyst, writes weekly on the convergence of international politics, business and economics. He can be reached at email@example.com.
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