China National Gold Group Offers Compensation to Customers Following Abrupt Closure of Franchise
A financial expert has cautioned that many gold deposit services in mainland China are fraudulent.
As gold prices surge, there have been sudden closures of gold stores in various parts of China, leading to significant losses for consumers and sparking public outrage.
In response, the state-owned China Gold Group issued a statement earlier this week, pledging to offer advance payments to impacted customers due to the closure of its Beijing store.
A financial expert from mainland China highlighted that such “gold custody” practices in China are essentially a scam.
China National Gold Group Gold Jewellery (China Gold), based in Beijing, revealed that its franchise store, Sandingyuan, violated the franchise agreement by acting as a “custodian” of gold for customers but ceased operations on December 27, 2023, leaving consumers unable to redeem their stored gold. The franchisee’s actual controller was arrested and the case is now under legal proceedings.
China Gold also assured that payments would be provided to affected consumers.
Following the sudden closure of the China Gold Beijing store, it was discovered that Shandong Gold’s Beijing store also shut down abruptly, with the shop owner absconding with customers’ deposited gold worth over 400 million yuan ($56.4 million).
Gold Deposit Service
Amid a series of defaults among major Chinese real estate developers and a recent stock market crash, many Chinese individuals have turned to gold investments to safeguard their wealth in light of China’s weakening economy.
“China Gold” stores introduced special gold depository services, where customers purchasing gold can opt for safekeeping services at the store as a supposedly more secure alternative to keeping it at home.
The stores also incentivize deposits, offering additional gold based on the amount stored. For every 100 grams deposited, clients can receive an extra 2.5 grams annually, which is akin to earning interest at a 2.5% rate in a bank. Consequently, many consumers choose to purchase and store their gold at these stores.
With the escalating gold prices, many individuals seek to withdraw or renew their gold deposits from these stores. However, numerous customers across the nation have expressed grievances after finding out that the stores shuttered, and their gold vanished along with the store owners.
Upon contacting the gold company’s headquarters, customers were informed that these were franchise stores, not directly operated by them, hence absolving the headquarters of any responsibility in such instances.
A prominent Chinese financial influencer, “Zhaoli Shushi,” with 3.36 million followers, described in a video how the burgeoning gold prices have driven several gold stores into bankruptcy.
“Why do these gold stores offer free gold deposits and even provide interest? Their primary aim is to sell the same gold to multiple buyers. By convincing customers that their gold is safe and deposited with the store, they can sell the same gold to others. In essence, they are leveraging customers’ funds without owning actual gold, yielding them substantial gains with just a 2.5% annual interest return,” Zhaoli Shushi explained.
He emphasized the elevated risk in this model, particularly when gold prices skyrocket, leading to substantial losses for the stores. As customers demand their gold back due to the increased value, many stores lack the necessary funds or gold reserves to fulfill these requests, resulting in a wave of store closures.
Social media users in China commented on the gold stores’ activities, labeling them as “illegal fundraising disguised as gold deposits.” They highlighted the disparity between the stores profiting in a declining gold market and facing losses when gold prices surge.
Many individuals have reported falling victim to the gold deposit scam and are contemplating pursuing civil litigation. However, concerns about the complexity of identifying and retrieving transferred funds have fueled apprehension among victims.
China’s Gold-Buying Spree
Concurrently, as domestic gold stores engage in fraudulent practices, the Chinese communist regime has embarked on an international gold acquisition spree amid the conflicts in Ukraine and the Middle East.
China’s central bank has been procuring substantial gold quantities over the past year to bolster the regime’s gold reserves, leading to a surge in the international gold price.
Global media and analysts have speculated that the Chinese Communist Party (CCP) stockpiles gold in preparation for potential conflicts, such as an invasion of Taiwan, and to withstand ensuing Western economic sanctions.
Fang Xiao contributed to this report.
