China’s demand for soybeans is expected to rebound in 2020 but the question remains where the supply will come from as it attempts to move away from over reliance on imports but also meet its commitments under the phase one trade deal with the United States. There are growing concerns regarding China’s food security as the relationship with the US becomes volatile, and since the beginning of the trade war, China has been reinforcing self-reliance on its industries including manufacturing and food production. In 2019, China imported around 86 per cent of its soybeans, according to the Ministry of Agriculture, which are mainly used as the key ingredient for livestock feed and edible oil, with Brazil and the US the biggest exporters in the world. Gu Zhenchun, a deputy with the Standing Committee of the National People's Congress representing Heilongjiang province, told the state-owned People’s Daily on Monday that the northeastern region must find and research new sources to replace soybeans and cut import reliance. Substituting for imported soybeans to reduce import dependence has become the focus for government departments and researchers Gu Zhenchun The northeast region of China, which is made up of the provinces of Heilongjiang, Jilin and Liaoning, along with Inner Mongolia, produces 26 per cent of China’s soybean crop. “With the escalating trade friction between China and the US and the coronavirus pandemic, the security of edible oil and livestock feed is becoming more prominent,” Gu said. “Substituting for imported soybeans to reduce import dependence has become the focus for government departments and researchers.” Guo Chengyu, a deputy with the National People’s Congress and deputy principal of College of Food and Biological Engineering at Qiqihar University in Heilongjiang province, mentioned chufa, or tiger nut, as an alternative to soybeans. “Expanding the planting area of chufa can produce a healthy raw edible oil ingredient, reducing foreign dependence, improving the self-sufficiency of edible oil in China, helping to better maintain the safety of edible oil in China,” Guo said in an interview with local media at the weekend. Chinese scholars Li Wei and Zhao Lan from Renmin University in Beijing also argued in an article published in May that China had long been too reliant on imported soybeans from the US and Brazil, pointing out that Beijing’s ties with both had worsened since the start of the coronavirus outbreak. Soybeans have an important role in the trade conflict, although it has not become a tool for US sanctions, it is an important tool for China’s retaliation Ke Bingsheng But professor Ke Bingsheng, former principal of China Agricultural University and an adviser to the Ministry of Agriculture and Rural Affairs, also said this month that China would be better off relying on soybean imports despite tensions with its biggest trading partners. “[To replace yearly imports, the size of land required for plantations would be] equivalent to the cultivated area of the entire northeast and North China,” Ke said, adding that importing soybeans is equivalent to importing arable land, which China is short of. “In the past, there were concerns among officials and experts that China’s increasing imports of soybeans would be a liability in a conflict situation. “But such thinking was completely overthrown because of the US-China trade conflict over the last two years. Soybeans have an important role in the trade conflict, although it has not become a tool for US sanctions, it is an important tool for China’s retaliation. “So from this perspective, for future imports of soybeans, even though we can’t say there is zero risk, I don’t think it would be a significant one,” Ke concluded, adding that there was little choice for Brazil and US, the world’s biggest producers of soybeans, but to sell to China. In September 2018, President Xi Jinping toured large-scale farms in Heilongjiang province, with the trip intended to send the message that China needed to boost domestic production of staple crops to strengthen food security amid the trade war. Heilongjiang province, the biggest region for soybean production, said in April that it would maintain its subsidies for soybean planting in a bid to boost output. In 2019, Heilongjiang spent 1.89 million yuan (US$265,000) on soybean subsidies and 240,000 yuan (US$33,600) on corn subsidies. Even though China’s demand for soybeans has slowed in the last two years largely due to African swine fever outbreak that decimated the nation’s pig herd, its own production of soybeans last year rose 13.3 per cent to a record 18.1 million tonnes. This was as a result of a 10.9 per cent increase in the planted area to 9.3 million hectares (23 million acres), according to the National Bureau of Statistics. The Ministry of Agriculture and Rural Affairs forecast in April that China’s production of soybeans would rise 3.9 per cent in 2020, with a 1.6 per cent increase in planted areas. The most likely outcome is a fudge. China steps up its purchases of US products, particularly those with political resonance in America such as soybeans, but still falls short of the overall deal Shaun Roache As part of the phase one trade deal, China agreed to buy an additional US$200 billion of American goods and services over the following two years, including around US$32 billion in agricultural goods. China’s Vice-Premier Liu He, US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer said at the start of May that they would “create favourable conditions to implement the phase one trade deal”, at a time when US and China tensions have been running high over the handling of the coronavirus pandemic. “The most likely outcome is a fudge. China steps up its purchases of US products, particularly those with political resonance in America such as soybeans, but still falls short of the overall deal,” said Shaun Roache, S&P Global Ratings chief economist in a note published this month. But analysts said subsidies alone might not be able to lift domestic production of soybeans significantly enough to replace imports. “I think this year it will be fine [for soybeans] because this year soybean prices are relatively high, compared to last year,” said Rosa Wang, Shanghai-based analyst at agricultural data provider JCI China. “So farmers will be more proactive. China’s soybean production has been recovering over the last two, three years. But in the long term, it depends on the level of subsidies.” Chinese farmers may choose to grow corn over soybeans because of a higher production rate and better profits, Wang added. “[In the northern region], Heilongjiang is the most suitable [for soybean planting] but for Jilin or Liaoning, I think there will be some impact in productivity [as they are not as suitable],” Wang said. Darren Cooper, senior economist at UK-based research firm, the International Grains Council, expects China to continue to purchase US soybean in the coming months. “While Brazil has furnished most of China’s requirements during 2020 as new crop supplies have swelled marketing channels against the backdrop of local currency weakness, recent purchases from the US have boosted hopes among exporters of a sustained upswing in demand moving forward,” said Cooper. “A portion of the recent purchases by China are for state reserves, and this will also be reflected in our next set of projections which will show an upwards revision to China’s nominal stock levels. However, we expect Chinese demand to strengthen significantly from September onward, as the new US marketing year begins, and as Brazilian old crop [from 2019-20] export availability tighten.” Standard & Poor’s said in a research note in May that there may be “more scope” for China to increase its purchases of US soybeans if its livestock industry recovers and the threat from African swine fever recedes. “But the overall point is that imports normally rise and fall with [gross domestic product], and China's [gross domestic product] over the next two years will be much lower than anyone thought possible when the trade deal was signed,” said the S&P’s note.