Share on facebook
Share on twitter
Share on telegram
Share on whatsapp
Share on linkedin
Share on print
Share on email

Risk Watch: Burning Grain Reserves Expose China’s Food Crisis

◎ The Sino-U.S. trade conflict will reveal more instances of corruption in China’s food supply system, and expose a food crisis.

At 8 a.m. on July 29, a fire broke out in the No. 1 warehouse of Datong Grain Reserve in the northeastern province of Jilin. The warehouse contained 9,417 tons of corn, of which 40 tons were destroyed by fire and 540 tons by water damage.

Just six days prior, the General Office of the State Council had issued a notice on inspecting the quantity and quality of grain stocks in China. Ten provinces—Anhui, Fujian, Jiangxi, Henan, Hebei, Hunan, Guangdong, Guizhou, Shaanxi, Gansu, but not Jilin—were up for a round of inspection which is scheduled from the second half of 2018 to March 2019. The staff of Datong Grain Reserve told Chinese media that there was no link between the fire at its warehouse and the General Office notice.

The backdrop:
1. In the afternoon of May 31, 2013, a large fire broke out in the warehouse of a direct subsidiary of Sinograin’s Heilongjiang branch in Lindian County. The fire damaged a total of 78 granaries containing 47,000 tons of grain (34,000 tons of corn, 13,000 tons of rice). A circuit box short circuit reportedly sparked the fire.

Four days before the fire, the central first inspection team was assigned to Sinograin’s headquarters to conduct inspections.

2. On Aug. 17, 2013, 110 Chinese officials from Sinograin’s Henan branch capitalized on national grain acquisition policy to sell off over 3 million tons of food and make away with over 700 million yuan, according to state media. The corruption case exposed the gaping loopholes in Sinograin’s operation and supervision of China’s food reserves.

3. In 2015, the Hainan Audit Office investigated 34 grain reserve companies and found that the first had misappropriated funds of up to 1.79 billion yuan. Twenty-seven of those companies had swapped out 130,700 tons of grain for fake grain, and defrauded the state of 13.2575 million yuan in subsidies. Also, several grain reserve companies in Hainan had tried to pass off 9419.75 tons of older grain as fresh grain; traded 36,200 tons of “virtual grain” (grain that exists on the books only); “transferred” 19,100 tons of grain through fraudulent accounting; and defrauded the Agricultural Development Bank of China of 227 million yuan of low-interest loans.

4. As of July 31, 2018, China’s summer grain purchases (domestic only) have fallen by nearly 35 percent from a year ago. Henan, a grain production province, saw its grain purchases decrease by over 55 percent.

Table 1; Source: National Bureau of Food and Material Reserves (China)
Table 2; Source: National Bureau of Statistics (China)

The big picture:
In July, China imposed 25 percent retaliatory tariffs on $34 billion worth of U.S. goods, including agricultural products like soybeans. Afterward, the renminbi exchange rate plummeted to nearly 6.9 to the U.S., and the markets anticipate that the renminbi would fall below the 7 mark.

Our take:
1. Based on our research and understanding of Chinese Communist Party (CCP) cadres and corruption, we believe that the fire at Datong Grain Reserve is very likely the work of local officials seeking to destroy evidence of corruption.

According to China’s criminal law, grain clerks would at worst be charged with “dereliction of duty” if “accidental” fire destroys grain reserves. Guilty officials face no more than three years in prison under normal circumstances and a maximum of seven years in the most severe cases. Conversely, the highest penalty for corruption is the death sentence.

2. From a technical standpoint, there is almost zero probability of destructive fire accidents occurring in China’s grain warehouses—if official protocol is followed and proper equipment is installed, of course.

According to state media reports, the temperature and humidity of all grain warehouses are monitored and controlled by computer. Grain is stored in silos that utilize a closed-loop fumigation system to deal with pests and recirculate air. Thus, the grains will not catch fire under normal circumstances. And should a fire break out, automated sprinklers should be able to extinguish the flames within five seconds.

In an Oct. 20, 2017 report, state mouthpiece Xinhuanet noted that grain warehouses that are directly subordinated to Sinograin use an intelligent grain storage monitoring system with high-definition cameras trained at all areas of the warehouses. Sinograin also developed nitrogen gas regulation and internal air circulation technologies to resolve temperature control issues. Nitrogen is used in pest control and fire extinguishing.

3. The Sino-U.S. trade conflict will reveal more instances of corruption in China’s food supply system, and expose a food crisis.

Chinese local governments sell more and more land every year for property development at the expense of arable land. In 2017, there was only 112.22 million hectares (1.683 billion mu) of available land for grain production, or 815,000 hectares less than 2016. In other words, agricultural land in China today is less than the 120 million hectares set by the CCP.

Despite having lesser arable land and more severe ecological disasters, official grain data shows a bumper crop every year (see Table 2). Local officials have incentive to show that they have a good harvest because they can receive food subsidies from the central government. Methods used by local governments to cheat the central government include purchasing low-cost older grains and passing it off as fresh grains before selling off the older grains as such a year later, or completely fabricating data. Barring war or major disaster, such methods of deception usually escape detection.

With the outbreak of the Sino-U.S. trade war, CCP grain officials are realizing that the game is up. China’s summer grain purchases fell by nearly 35 percent in H1 2018 (see Table 1) even though there are few severe ecological issues this year. With currency depreciation, a shortage of foreign exchange reserves, and lesser food imports, officials cannot find enough low-cost grains to continue their fraud. Thus, officials dare not fabricate “bumper crops” and have to set fire to granaries to hide their crimes before the central government inspection teams arrive.

Search past entries by date
“The breadth of SinoInsider’s insights—from economics through the military to governance, all underpinned by unparalleled reporting on the people in charge—is stunning. In my over fifty years of in-depth reading on the PRC, unclassified and classified, SinoInsider is in a class all by itself.”
James Newman, Former U.S. Navy cryptologist
“Unique insights are available frequently from the reports of Sinoinsider.”
Michael Pillsbury, Senior Fellow for China Strategy, The Heritage Foundation
“Thank you for your information and analysis. Very useful.”
Prof. Ravni Thakur, University of Delhi, India
“SinoInsider’s research has helped me with investing in or getting out of Chinese companies.”
Charles Nelson, Managing Director, Murdock Capital Partners
“I value SinoInsider because of its always brilliant articles touching on, to name just a few, CCP history, current trends, and factional politics. Its concise and incisive analysis — absent the cliches that dominate China policy discussions in DC and U.S. corporate boardrooms — also represents a major contribution to the history of our era by clearly defining the threat the CCP poses to American peace and prosperity and global stability. I am grateful to SinoInsider — long may it thrive!”
Lee Smith, Author and journalist
“Your publication insights tremendously help us complete our regular analysis on in-depth issues of major importance. ”
Ms. Nicoleta Buracinschi, Embassy of Romania to the People’s Republic of China
"I’m a very happy, satisfied subscriber to your service and all the deep information it provides to increase our understanding. SinoInsider is profoundly helping to alter the public landscape when it comes to the PRC."
James Newman, Former U.S. Navy cryptologist
“Prof. Ming’s information about the Sino-U.S. trade war is invaluable for us in Taiwan’s technology industry. Our company basically acted on Prof. Ming’s predictions and enlarged our scale and enriched our product lines. That allowed us to deal capably with larger orders from China in 2019. ”
Mr. Chiu, Realtek R&D Center
“I am following China’s growing involvement in the Middle East, seeking to gain a better understanding of China itself and the impact of domestic constraints on its foreign policy. I have found SinoInsider quite helpful in expanding my knowledge and enriching my understanding of the issues at stake.”
Ehud Yaari, Lafer International Fellow, The Washington Institute
“SinoInsider’s research on the CCP examines every detail in great depth and is a very valuable reference. Foreign researchers will find SinoInsider’s research helpful in understanding what is really going on with the CCP and China. ”
Baterdene, Researcher, The National Institute for Security Studies (Mongolian)
“The forecasts of Prof. Chu-cheng Ming and the SinoInsider team are an invaluable resource in guiding our news reporting direction and anticipating the next moves of the Chinese and Hong Kong governments.”
Chan Miu-ling, Radio Television Hong Kong China Team Deputy Leader
“SinoInsider always publishes interesting and provocative work on Chinese elite politics. It is very worthwhile to follow the work of SinoInsider to get their take on factional struggles in particular.”
Lee Jones, Reader in International Politics, Queen Mary University of London
“[SinoInsider has] been very useful in my class on American foreign policy because it contradicts the widely accepted argument that the U.S. should work cooperatively with China. And the whole point of the course is to expose students to conflicting approaches to contemporary major problems.”
Roy Licklider, Adjunct Professor of Political Science, Columbia University
“As a China-based journalist, SinoInsider is to me a very reliable source of information to understand deeply how the CCP works and learn more about the factional struggle and challenges that Xi Jinping may face. ”
Sebastien Ricci, AFP correspondent for China & Mongolia
“SinoInsider offers an interesting perspective on the Sino-U.S. trade war and North Korea. Their predictions are often accurate, which is definitely very helpful.”
Sebastien Ricci, AFP correspondent for China & Mongolia
“I have found SinoInsider to provide much greater depth and breadth of coverage with regard to developments in China. The subtlety of the descriptions of China's policy/political processes is absent from traditional media channels.”
John Lipsky, Peter G. Peterson Distinguished Scholar, Kissinger Center for Global Affairs
“My teaching at Cambridge and policy analysis for the UK audience have been informed by insights from your analyzes. ”
Dr Kun-Chin Lin, University Lecturer in Politics,
Deputy Director of the Centre for Geopolitics, Cambridge University
" SinoInsider's in-depth and nuanced analysis of Party dynamics is an excellent template to train future Sinologists with a clear understanding that what happens in the Party matters."
Stephen Nagy, Senior Associate Professor, International Christian University
“ I find Sinoinsider particularly helpful in instructing students about the complexities of Chinese politics and what elite competition means for the future of the US-China relationship.”
Howard Sanborn, Professor, Virginia Military Institute
“SinoInsider has been one of my most useful (and enjoyable) resources”
James Newman, Former U.S. Navy cryptologist
“Professor Ming and his team’s analyses of current affairs are very far-sighted and directionally accurate. In the present media environment where it is harder to distinguish between real and fake information, SinoInsider’s professional perspectives are much needed to make sense of a perilous and unpredictable world. ”
Liu Cheng-chuan, Professor Emeritus, National Chiayi University