Market News

(Bloomberg) -- Cambodia is set to become one of the first countries to store gold with China, according to people familiar with the matter, marking early progress in Beijing’s push to develop as a global bullion hub.

The Southeast Asian nation is planning to store some of its reserves in a vault registered with the Shanghai Gold Exchange in Shenzhen’s bonded zone, the people said, requesting anonymity because the matter is sensitive. A few other countries have also expressed interest, they said, as they weigh the benefits of diversifying their reserves from traditional hubs like London.

Beijing is keen to become a custodian of other countries’ gold as its seeks to establish a global financial system less dependent on the dollar and Western centers. Its deal with Cambodia involves storing new purchases of bullion, rather than relocating metal from existing stockpiles, the people said.

Central banks ultimately oversee a country’s reserves. The governor of the National Bank of Cambodia said last month that “a few locations” were under consideration for storing the nation’s gold, although she wouldn’t be drawn on whether China was one of them.

Cambodia’s central bank holds about 54 tons of gold, accounting for a quarter of its $26 billion in foreign exchange reserves, according to the World Gold Council’s latest assessment.

The National Bank of Cambodia wasn’t immediately able to comment. The People’s Bank of China didn’t immediately respond to a request for comment.

Longstanding Ties

China and Cambodia enjoy a longstanding relationship and President Xi Jinping visited the country earlier this year. Under Xi’s flagship Belt and Road Initiative, Chinese firms have helped finance and build much of Cambodia’s infrastructure — from a new airport in the capital Phnom Penh to expressways and canals.

Cambodia often describes its affinity with China as an “ironclad friendship,” a bond shaped by Beijing’s support during the Khmer Rouge era. Today, China holds a third of the nation’s debt, and bilateral trade reached a record $15 billion last year.

Central banks around the world have been building their gold reserves as a counter to mounting geopolitical risks, helping to propel the precious metal to a record high last month. Much of that bullion is held in established hubs like the UK, Switzerland and the US.

China would like to be added to that list. But other trends could work against it. Some central banks, including in India and Serbia, have judged that holding gold overseas is becoming too risky and have moved to repatriate bullion to ensure it’s close to hand.

--With assistance from Josh Xiao, Philip J. Heijmans, Claire Jiao, Jing Li and Yujing Liu.