The story of China and their obsession with gold has been revived this year as monthly data shows the phenomenal volumes imported through Hong Kong and being traded on the Shanghai Gold Exchange.
However, given how much we gold commentators report on China’s inherent love for gold, it’s surprising that very few realize that less than one-hundred years ago the country lost thousands of years’ worth of reserves.
Whilst the 1930s saw the Shanghai Gold Business Exchange as one of the biggest gold centers in the Far East. China’s love for gold left them vulnerable to two separate accounts of looting. The first was in 1937 when Japan invaded China, thus helping themselves to 6,600 tonnes of gold from the then capital Nanking.
However, we now turn our attention to a lesser reported looting. The gold that was smuggled out of China to Taiwan between 1948 and 1949 by the soon-to-be-ousted Nationalist party.
In 1948, President of the Kuomintang (KMT) government, Chiang Kai-shek was losing the civil war in north-east China against the Communists. He began planning a retreat to Taiwan and he intended to take the gold reserves with him.
The 1949 retreat of Chiang Kai-shek’s government to Taiwan is a key point in China’s recent history. Not only did it signal a dramatic change in the country’s political and social future but it also left the country with little gold bullion to support any sound money they might have wanted.
Estimates of how much was moved differ between sources, ranging from between 3 million – 5 million taels (113.6 tons – 115.2 tons). In The Archives of Gold published in 2010, Dr Wu Sing-yung, outlines how his father (head of finance for the KMT government) helped to mastermind the operation that saw more than 4 million taels of gold be moved from Shanghai to Taiwan. One tael is 37.2 grams.
Central bank governor Yu Hung-chun and the head of finance were ordered by the President to transport the country’s gold from Shanghai to Taiwan.
The first of the gold was moved on Dec. 1, 1948, 2 million of the 4.6 million taels held by the Treasury were shipped on the Hai Xing to Keelung in northern Taiwan. The coast guard cutter was escorted by the Mei Ching, a naval vessel. (The Mei ching later defected to the Communist side highlighting the risk of transporting such precious cargo and making Chiang paranoid about who was involved).
By sheer luck a British journalist recorded these first gold reserves leaving Shanghai. When George Vine looked out of his fifth-floor office window he saw manual laborers padding in and out of the central bank, in single file, carrying two parcels on a bamboo pole. From there they walked their parcels up a gangplank onto a freighter that had been moored up outside the ‘Peace hotel’ (according to author William J. Gingles).
Realizing the significance of what he was seeing, Sterling Seagrave writes (in The Soong Dynasty) that Vine telegraphed his London office with the not-so cryptic message of ‘all the gold in China was being carried out away in the traditional manner – coolies.’
Later Vine wrote, “I could hardly believe what I saw. Below was a file of coolies padding out of the bank. I could even make out their hats . . . and their uniforms of indigo tunic and short baggy trousers,” as they carried “the wrapped parcels of gold bullion on either end of their bamboo poles” to load onto a ship bound for Taiwan.
Many refused to believe that Chiang could order such a thing but the report by the British journalist still prompted a nationwide bank run.
Just 30 days later the same coast guard cutter used to transport the first 2 million taels, was used once again, this time to transport between 600,000 and 900,000 taels of gold (22-34 tons) and a large amount of silver.
Over the next twelve months, the Nationalists moved millions of taels of gold, silver and foreign exchange by both air and sea to Taiwan.