- We cannot read Chinese documents in a Western black and white manner, and must be aware of context and what is being said between the lines.
- We are reliant on interpreters deciphering the message correctly, getting the context right.
- For technical gold market matters (see the comment above about delivery vs settlement), interpretation by non-gold market specialists may result in an incorrect translation.
11 December 2014
Chinese regulations: rule of law or rule by law?
Following on from yesterday's post on the Chinese leasing market, there was a small amount of back and forth on Twitter between Koos, DP and myself (see here). While nothing was resolved in respect of the double counting and fractional issues I raised, I mention the discussion because Koos made a few references to SGE rules and I sense that from his other writings he relies on these and other (interpreted) documents heavily. That is fine but given Chinese is a reader responsible language, I think one has to be careful not to read such documents in a Western black and white manner.
Until recently, I had no idea there was a difference between communication approach in Chinese and English that could result in misunderstandings. My first inkling of this was a comment to an October 2013 Koos post to Andrew Maguire (comments seem to have been lost in moving them all over to Bullion Star) which read in part (original link):
"In Chinese, the "delivery" word is translated into 交割(jiao ge). And this is what the "Delivery Volume" in the daily price table means. "Moving the physical out of registered depositories" should be translated into "出库“(chu ku). The number you have in the SGE weekly report is the number of "出库”. It is the SGE that causes the confusion. It refuses to use the generally accepted terms. Instead, it uses 交收(jiao shou) to mean 交割. And the SGE uses 交割 to mean 出库. Then the SGE uses the same English word "delivery" to translate both 交收 and 交割. That makes you confused."
At the time I passed this off as an interpretation technicality, but later I came across this article which said that:
English is a writer-responsible language. That means it is the responsibility of the writer to make sure the message is understood. Writing is clear, direct and unambiguous. Schools teach from early on the importance of structure, thesis statement and topic sentences when writing in English. A good writer assumes no or little background knowledge on the part of the reader.
Korean, Chinese, and Japanese are reader-responsible languages. That means the reader is responsible for deciphering the message, which is often not stated explicitly. For an American who is expecting direct and explicit information, this style can be very confusing.
These style differences can create cross cultural misunderstandings in emails, job applicant cover letters, and even technical writing.
This attracted my attention given our reliance (via Koos) on mostly formal Chinese documents and speeches etc on their gold market. It raises a number of issues:
Good speakers in the West see it as their responsibility for the audience to understand them. In contrast, Dave says that when he has heard a regulatory official in China give a less-than-captivating talk (i.e., reading from a script), Chinese colleagues have explained, “he’s important, we need to listen and understand what he says.”
In his daily work, Dave says that he often gets involved in discussions with colleagues from Europe and elsewhere about how to interpret Chinese regulations and how to deal with confusion about the law’s requirements. There is an issue with ambiguity in how Chinese regulations are written and this can make compliance difficult.
To further emphasise the point, see this from the same blog:
When fǎzhì 法治 is being used to designate the application of law as it is conceived of by the Chinese Communist Party, I would be very careful always to translate it as "rule by law". When we are referring to the application of law as it is conceived of in the West, then I would be careful to translate it as "rule of law".
And even more blunt in a comment to that blog post:
The way my Chinese law professor explained it to me was the same way it's been explained above: 依法治国 (rule of law) indicates that the government creates laws that explain how things are going to work and then follows those laws; 以法治国 (rule by law) indicates that the government first makes an arbitrary decision about the outcome it desires and then finds/interprets/creates/ignores laws as expedient to achieve that interpretation — i.e. the law exists as a tool for the government to enact its will.
So that is why I'm not so convinced by statements by Chinese officials or formal Chinese rules - I don't discount them, but nor do I accept them as a black and white fact. Just another case of ambiguity.
In case you think I'm exaggerating, Perth Mint has experienced this first hand. I can't get specific, as it would give away which entity I'm talking about and Perth Mint runs under some pretty hard confidentiality rules (Section 74 of Gold Corporation Act 1987 is black and white rule of law that sends me to jail), but Perth Mint investigated and found that there was no rule against doing X in China but when we attempted X we were not able to do it.
On yesterday's post, Nutster noted the "black hat/white hat" narrative of the West vs China. If indeed China is a "white hat" and SGE rules mean what they say and everybody follows them properly and it is such a transparent market, isn't it a bit odd that SGE only reports gold withdrawals and doesn't report deposits into SGE warehouses nor warehouse stocks? I mean, this is less transparent than those black hats at Comex! Such reporting would help a lot in resolving Koos' debate with WGC on what is China's real demand. The fact that they don't tells us that China is as much into perception management (in this case how big the Chinese gold market is to help along their ambitions re pricing power as well as attracting foreign traders to their market) and use of ambiguity in regulations as the West is with their MOPE and lawyers.
Since we are on the topic of interpretation of language and rules, that leads perfectly on to accounting standards and double counting. In yesterday's post, "Out of the woodwork" asked the following question:
"Are commercial banks in China free to record a transaction on their balance sheet in a misleading way when it is recorded in an unambiguous, non-misleading way in their SGE account?"
Now I used to think as a lay person (pre university) that the words "accounting standards" mean, well, that there is a standard accountants follow and given they deal in hard numbers that what they do is all black and white. Those who have studied accounting, as I have unfortunately done, know that "accounting standards" just means standards for how to make a judgement call on which of X number of authorised ways you can treat a "number".
The result is that, yes, banks are free within bounds to record transactions differently, which can result in double counting, no matter what SGE rules says. In a lot of cases I'd guess this would happen due to accountant interpretation of what is "material". Case in point, see Scotiabank's annual report, a reasonable player in the bullion market. They explicitly report precious metal assets at $7,286m because it is material compared to their total cash and other deposits of $64,000m but when it comes to derivative financial instruments, they report foreign exchange and gold contracts as one line item and don't break it down.
Contrast this to JPMorgan's 344 page annual report. The word "gold" is not mentioned at all and the word "precious" is only mentioned twice in text commentary. Nowhere in their financial numbers is gold or precious metals reported. Heck, not even in their detailed "major product category and fair value hierarchy" assets and liabilities table do they show it. And this from a bank which is one of the biggest players in the bullion market. The reason? As big as it is in bullion, it is just not material on their $2.4 trillion balance sheet.
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We are working on the comments to re-appear.ReplyDelete
The SGE used to report on a lot more in English. Until 2011 they published extensive annual reports disclosing deposits and withdrawals, from 2012 they only published most of it in Chinese. Recently they even removed all the older English reports from their website, luckily I have saved everything :)ReplyDelete
This links to a screen shot of withdrawals and deposits in 2011 https://www.bullionstar.com/blog/koos-jansen/wp-content/uploads/2014/12/Screen-Shot-2014-12-11-at-11.21.31-AM.png
The SGE still publishes weekly silver inventory, but only in Chinese. (and of course gold withdrawals)
In my opinion they stopped disclosing everything in English to hide their demand.
Interesting that change occurs post the January 2011 paper. Perhaps they are trying to hide the fact that, as per the paper's recommendation, "PBOC may purchase gold from commercial banks to reach its gold reserve target"?ReplyDelete
Link to Andrew Maguire letter https://www.bullionstar.com/blog/koos-jansen/a-letter-to-andrew-maguire/ReplyDelete
The previous thread opened up multiple strands in a discussion which Bron is doing a masterful job of pursuing here, under the overall rubric of "differences in communication."ReplyDelete
Those strands, although complementary in essence, also compete for attention...
and in discussions such as this one, one often gets pushed to the forefront, at the expense of the rest.
To avoid that happening, here is a list of the multiple levels on which this conversation about "ChinaGold" is taking place - in ascending level of complexity:
Differences in communication
= how to translate specific terminology.
= how to interpret specific data sets
= how to understand delivered messages in their cultural context
= how to represent, to the benefit of others, the overall purpose of policy measures... including ones dictated by strategies hidden to all but the innermost circle of those wielding power...
by the last of which, we reach the point of equilibrium - ALL of us are merely guessing! A worthy exercise, no doubt...
as long as one remembers, as "Out of the woodwork" most presciently brought forward... yes
"rules do seem irrelevant"
in the opaque world of gold!
But we can agree a tonne in the West weighs the same as a tonne in China?ReplyDelete
Mais qui Koos!ReplyDelete
with the caveat that
a tonne of tungsten
made to shine, with coat of filigree,
to all the world will seem as au,
yet not quite really be!
Koos Jansen's follow up post on China's Gold Leases:ReplyDelete
Now that Koos has weighed in with his response @bullionstar, we can return to our conversation here.ReplyDelete
That his response has confined itself to but one[how to interpret specific data sets]of the four levels on which that conversation is taking place is neither surprising nor unwelcome of itself...
but it's critical to keep that full spectrum perspective in play.
I think it's important that Koos realize at some point that no one really cares about the minutia of WGC estimates and his own chosen numbers - nor whether gold leasing might influence market prices. That is not where the conversation is PRIMARILY taking place here - although it certainly is the focus on his own blog.
Here, we are discussing the obstacles that exist to accurate interpretations of the movement of gold into and throughout China - obstacles that are posed to ANY AND ALL outside observers - and that necessarily limit the accuracy of conclusions those same observers offer. All those sincerely interested in the truth would be wise to invest some attention to that element of the discussion!
As has been noted, some of these are 'cultural' in origin... some 'technical'... and some are self-imposed - as in errors of interpretation resulting from allowing pre-conceptions to influence conclusions.
Although Mr. J may feel that resistance to his methodology stems from an inherent disfavor towards employees of bullion companies(unlikely - since such filter would eliminate our host as well!), or quibbles over said WGC numbers, deeper reflection would surely guide him to an understanding that rather naive reliance upon 'official' statements, state-supplied statistics, quotes from gold traders, and/or the premises of currently in vogue "alternative media" narratives...
do not add up to a compelling defense of the “key takeaway” that in China “the gold on lease is not double counted, leveraged or fractionally backed, as is often the case in Western gold markets”...
which was, after all, the original focus of Brons post. Was it not?
Back to you Koos!
Followup to above needed:ReplyDelete
I've just now taken note of an "update" which Koos inserted Dec 12 into his Close Look At The Chinese Gold Lease Market piece...
"after a post from Bron Suchecki it made me realize the two examples above are hard to compare" -re SGE/IMF rulebooks
which I suspect will be as close as we get to him addressing that vital element of the debate - although I hope I'm wrong about that! It would appear to be a gambit of underplaying that aspect via quarantine/so as to be able to ignore it subsequently.
Also, in my previous comment, I did not mean to imply that no one cares "whether gold leasing might influence market prices"(!!!)
Of course, we do care... but in the context of Brons' original point - China's use of such a tool was brought into the discussion simply in order to emphasize that central banks are wont to be central banks... no black or white hatwear required!
I left a comment to Koos response to this post here https://www.bullionstar.com/blog/koos-jansen/gold-chat-bron-suchecki-chinese-gold-lease-market/#comment-1742371754ReplyDelete