The mystery of China’s grain stocks: they are higher than those of the rest of the world. But why?

from Federico Rampini

The reserves of grain stored in Chinese silos exceed 140 million tons: much more than what is missing on the market due to the Russian invasion of Ukraine. But why did Xi Jinping arrive so prepared for this shock? How will he use the “treasure” he’s sitting on?

There is a country in the world that, despite being a large importer of wheat, is not suffering the current crisis, on the contrary it can take advantage of it. And the China: it has accumulated more grain stocks for “mysterious” reasons than the rest of the world combined.

He started doing it long before that Vladimir Putin launched the latest military aggression on Ukrainian soil.

The puzzle of Beijing’s food reserves could be solved with a few twists, if only Xi Jinping wanted it.

For now we can only ask ourselves about an anomalous situation, its possible explanations, the developments it will have. The data is official and one of the most reliable sources in this sector is the US Foreign Agricultural Service.

The grain reserves held in Chinese silos exceed 140 megatons (millions of tons).

In itself this is great news.

It is reassuring when you compare that figure with the amount of wheat missing on world markets due to the Russian invasion of Ukraine: at most 50 or 60 megatons. However, the immense amount of Chinese reserves leaves you disconcerted when you compare it with grain stocks available in the rest of the world.

The Western coalition made up of The United States, Europe, Canada and Australia barely come close to 40 megatons of grain in reserve. South Asia which includes India has fewer than us (but it is true that India has become a major producer / exporter of wheat). The area that includes the Middle East and North Africa has reserves for about half of the West.

If all these stocks are added together, the conclusion is positive and at the same time disconcerting: the world with 280 megatons of wheat has enough to face Putin’s blackmail that seizes Ukrainian exports.

As in the case of fossil energy, we are not really facing a shortage and certain price increases are excessive compared to the real imbalances between supply and demand. However, partial upheavals in some traditional supply flows are enough to send the markets into fibrillation.

Furthermore, the grain reserves are managed by each nation according to specific criteria, they are not available to everyone to deal with local emergencies.

The “Chinese mystery” remains. Adding up all the grain reserves of the rest of the world, it remains somewhat below China’s over 140 megatons. Its demographic size is not enough to explain this disproportion. Even with 1.4 billion inhabitants, the People’s Republic is far from representing half of the world population (we are about eight billion).

The overabundance of its stocks is the result of a deliberate policyof an accumulation that began well in advance of the start of the war in Ukraine.

Xi Jinping “knew” well in advance what Putin was going to do, and did he foresee the consequences on the world food market? Of course, the first stage of the Russian aggression dates back to 2014 so this explanation is not entirely far-fetched. However, it must be inserted in a broader context.

The Chinese Communist leadership is obsessed with the problem of food self-sufficiency, which among other things drives its expansion into Africa and Latin America. Beijing executives may also have anticipated a rebound in post-Covid global demand ahead of time. The communist nomenclature fears inflationdoes not forget that the high cost of living was one of the causes of the explosion of social protests that led to the Tiananmen Square tragedy in 1989.

Certainly as “trader” and speculators the Chinese rulers have had a remarkable flair: if they started selling their excess inventory on the markets today, they would make phenomenal profits. Will they do it? When will they do it? How?

Unlike oil reserves, grain reserves cannot be stored indefinitely: they are perishable. In an active management of this immense food heritage on which Xi Jinping “sits”, many inferences and simulations can be made.

The gradual sale on the markets in addition to making profits for the benefit of the Chinese state coffers would have a calming effect on world prices; However it would be damage inflicted on Putin who would be deprived of food blackmail.

Can we imagine a great humanitarian diplomacy, in which Beijing will offer cereal aid to the countries most affected by the current crisis, in areas of North Africa and the Middle East? Sooner or later we will find out what strategies and what calculations Xi Jinping will adopt to use his power in the food crisis. The mystery will remain as to why he arrived so prepared at this juncture.

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