China tries to improve running of strategic food and energy reserves

Move to set up a central grain administration is a bid to cut bureaucracy and overlaps in management of stockpiles

PUBLISHED : Friday, 16 March, 2018, 8:27pm
UPDATED : Friday, 16 March, 2018, 11:03pm

China will upgrade its management of strategic reserves such as food and energy, the latest step in efforts to boost national security beyond military weapons and training.

A new State Grain Reserves Administration will be set up under the nation’s top economic planner as part of a government restructuring plan that is expected to be approved by the National People’s Congress on Saturday.

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The agency will be responsible for “stocking, rotation and management of the nation’s strategic and emergency aid materials including grain, cotton and sugar”, according to the proposal.

At the moment, this is overseen by the commerce, civil affairs and energy ministries, the energy and grain administrations, as well as state-owned enterprises. The proposal said the reserve responsibilities of these bodies would now fall to the new agency, without elaborating.

Creating a central body under the National Development and Reform Commission is a bid to cut bureaucracy and overlaps in the face of challenges ranging from volatile commodity prices to natural disasters and, in a conflict situation, the risk of trade routes being blocked.

Adam Ni, a researcher on Chinese foreign and security policy at the Australian National University, said centralising stockpile management would be beneficial for governance, oversight and efficiency.

“These materials can be called upon during a crisis or conflict situation,” he said. “For example, if there was a devastating natural disaster, or a conflict where China’s sea trade routes are disrupted.”

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China has stepped up its management of strategic reserves and taken initiatives to increase transparency. It launched a strategic oil reserve base programme in 2004 to offset supply risks and reduce the impact of volatile energy prices worldwide.

The country had 37.73 million tonnes of crude oil reserves by the end of June, up 13.5 per cent from a year earlier, according to statistics bureau data released in January.

In terms of food, China does not release figures for its stockpiles of corn, rice and wheat, but it is importing more food and leasing overseas farmland to meet growing demand as its arable land shrinks, partly because of urbanisation and pollution.

Chinese stocks of wheat at present account for 48 per cent of the global total and 110 per cent of domestic consumption, according to US trade publication Corn and Soybean Digest.

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But managing the reserves in an effective way is a challenge for the authorities in China.

Han Xiaoping, chief executive of online energy news portal China5e.com, expected the new agency to play a role in gathering highly sensitive data, such as oil reserve information, to coordinate an overall strategy, but working with state-owned enterprises would be difficult as the new system may affect their profits.

The energy sector would be the most problematic, he said, because many more stakeholders were involved, including the military and state security departments.

“China’s oil reserves still have a long way to go until they reach an average international level. The overall plan – how and where to locate the reserves – is a big national strategy,” he said. “In the long run, if our oil reserves are as big as that of the United States, then we have the potential to play a part in the oil market, which would help stabilise our domestic use of oil.”

Erlend Ek, agriculture and trade research manager at Beijing-based consultancy China Policy, said the grain reserve was far bigger than the government wanted it to be, which had resulted in some of it rotting.

China controls the market by buying grain from farmers at a fixed minimum price when the market price drops below that level.

Ek expected the new agency to push for marketisation, saying it could advise the government on how much to buy and sell based on market conditions.

“[The new administration] means a move towards marketisation, which the Chinese government has realised is a more sustainable move, and it means a different way of looking at national security,” Ek said. “It will also support [the government to] import more, because if this mechanism works, the government will have more confidence in the market.”

Ek said the government was trying to make the grain market more efficient and market-driven.

“I expect within a few years the reserve will be much more functional,” he said. “Instead of having to keep all the grains in the reserves, in peace times they can import much more.”