China Grain Price Reform Imminent, Official Says

China's leading rural policy advisor promised reform of the corn pricing mechanism soon after the "two meetings" of communist party officials conclude in March. The reform should be announced ahead of spring planting, he said. In a departure from the past party line, the advisor called for reform of wheat and rice prices as well, although he said he himself doesn't know whether this will occur.

Chen Xiwen, vice director of the leadership group on rural work, made the statements at a meeting on rural affairs sponsored by Farmers Daily on February 27. Chen said the reform of the mechanism for determining corn prices would move ahead because the grain is used as an industrial raw material and animal feed and because corn has the most prominent contradictions with excessive inventories and other issues. Chen did not specify whether the reform would be a lowering of the "temporary reserve" price for the 2016 crop or an elimination of the program altogether.

Chen Xiwen gives his important speech. (Source: Caixin)

In previous discourse Chen has often spoken of detaching subsidies from prices. In his latest statement Chen emphasized that it was critical that farmers not bear large losses. He made a vague statement explaining that the amount of subsidy given to farmers is set by the budget approved by the National Peoples Congress. This may have been a promise that subsidies would offset the loss from lower prices, or maybe it represents a deflection of blame from communist party officials to the Peoples Congress for any losses inflicted on farmers.

Most previous statements on grain policy insisted that minimum prices for wheat and rice would continue even if all other prices were liberalized. The National Development and Reform Commission has already announced minimum prices for the wheat harvest that will occur in may-June and the rice that will be harvested from July to November.

In the February 27 statement Chen insisted that it is necessary for wheat and rice prices to be liberalized as well. Although reforms for these food crops are very sensitive, Chen said, the reform will fail if only the corn price is reformed because relative prices between crops will become "chaotic." He said wheat/rice prices must be reformed without dragging it out too long.

Chen said the communist party's "central document number one" specifically called for reform of corn prices, and that reform will certainly go forward. However, Chen said that he himself doesn't know whether rice and wheat prices will be reformed.

Chen said the wide gap between domestic and international prices makes the reform necessary. He said that the tariff rate quota that limits imports of corn, wheat, and rice insulates the domestic market now. But if Chinese grain prices rise to 65% above international prices in 5-to-7 years, Chen said the protection of the tariff rate quota will be "completely lost." (65% is the tariff on grain imported outside of the tariff rate quotas.)

Echoing comments made in January, Chen said reducing grain output is appropriate because the current level of grain production is not needed. Supply side reform that reduces production costs and adjusts the mix of crops is necessary, he said.

The March 1 Farmers Daily has a headline emphasizing that the supply of agricultural commodities is plentiful, "an achievement on China's tongue."

China's Failed Oilseed Revival Plan

The Jiangsu agricultural commission estimates that the province's rapeseed area will plunge from last year's 7 million mu to just 3 million mu this year. Experts say the province's rapeseed area can't fall any further--it is now limited to small plots in the backyards of farmhouses where farmers grow it for their own use.

Promoting rapeseed production was once a core objective of a 2007 plan to revive China's oilseed industry. Alarmed over the growing dependence on imported soybeans, Chinese officials formulated a plan to boost production of rapeseed, peanuts and other oilseeds. The plan included a dozen subsidies and support measures (listed at the end of this post) aimed at encouraging production, improving yields, producing seeds that yield more oil, giving loans to Chinese companies to build processing facilities and "guiding" companies to establish contracting relationships with "production bases" of farmers. The 2007 plan aimed to boost domestic output 14% by 2010. Statistics say production jumped in the first year but then remained stagnant while imports tripled in the 8 years after the plan was launched. During 2015 China imported nearly 88 million metric tons of soybeans, rapeseed, sesame and other oilseeds.

Oilseeds include soybeans, rapeseed, peanuts, sunflowers, sesame, and others. 

Chart does not include China's 10-12 mmt annual imports of edible oils. 

China's oilseed production has probably declined more than statistics indicate. The revival plan gave local officials incentives to over-report oilseed production in order to qualify for new seed subsidies and financial aid for major oilseed-producing counties. The one-time boost in production reported in the first  year after the plan was introduced was probably bogus, as local officials rushed to demonstrate success and competed to get subsidy funds. In recent years crop tours surmised that rapeseed production is far below official figures. During 2014, official statistics say China produced a record 14.7 mmt of rapeseed, yet grain bureau statistics say the volume of rapeseed purchased from farmers had shrunk to 1.9 mmt that year.

Chinese analyses generally agree that the "temporary reserve" price support programs caused problems for China's soybean and rapeseed production by boosting prices above the price of imports. The temporary reserves for soybeans and rapeseed were introduced in 2008--the year after the oilseed plan was launched. The soybean temporary reserve was derisively called a "subsidy for foreign soybean farmers" because raising the price of Chinese soybeans simply encouraged processors to import even more. Raising rapeseed prices resulted in a bloated stockpile of oil made from the seeds purchased at high prices. The price support program for soybeans was abandoned in 2014 and the rapeseed price support was abandoned last year (in 2015). The plunge in prices that ensued is the main factor discouraging rapeseed production this year.

Authorities accumulated an estimated 5 million tons of rapeseed oil made from seeds purchased through the price support program. They are now trying desperately to auction off the rapeseed oil. The oil offered last week had been in storage 4 to 6 years. Among the offerings was 2300 tons of oil produced over 6 years ago in 2009, and someone actually bought 1000 tons of it. (Chinese consumers, any concerns about what the companies are going to do with six-year-old cooking oil?)

While the government is selling rancid vegetable oil, it is tightening its requirements for imported rapeseed. The proposed 1% limit on foreign matter is less than the 3% limit tolerated for domestic rapeseed purchased by the now-defunct temporary reserve. Chinese officials first raised "concerns" about black leg fungus in Canadian rapeseed (canola) shipments in 2009 and have revived the purported concerns after years of consultations with Canadian counterparts. Chinese analysts have frequently referred to the black leg fungus "concern" as a policy to limit imports.

Another miscalculation in the oilseed revival plan was an expectation that giving Chinese companies money to build processing plants would reduce reliance on imported oilseeds and dilute the purported control of multinationals over the oilseed sector. According to a 2013 article in China's Economic Daily, "The most fundamental reason for imports of rapeseed is the rapid expansion of production capacity." The new facilities added even more capacity that had to be utilized, which led to even more imported oilseeds to keep the new Chinese factories churning. Economic Daily explained that the government subsidized expansion of rapeseed processing capacity in 2009, but limited the facilities to provinces where there was no rapeseed produced. However, expansion occurred all over the country and capacity shot up to 50 mmt, about four times the amount of rapeseed produced in China.

In past decades China was able to expand production of everything, but now officials are coming to grips with the reality of resource scarcity. In the 1970s there was so much inefficiency that production of everything could be expanded by correcting misallocations of resources and importing modern technology. The easy growth is over now and choices have to be made.

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Support measures in the 2007 oilseed revival plan:

• There were new subsidies for improved varieties of rapeseed and a pilot program for peanut seed subsidies in a few counties. These were added to a soybean seed subsidy that began in 2002. 
• Major oilseed-producing counties became eligible to get transfer payments from the government like those received by grain-producing counties. 
• An "oilseed production base" construction fund was launched
• Crop insurance was offered for oilseeds
• Reserves for oilseeds and edible oils were initiated
• price support programs were introduced for soybeans and rapeseed in 2008. 
• A program to subsidize mechanization of rapeseed production was launched. 
• Oilseed companies received "guidance" to convince them to form close relations with "production bases" of farmers, signing production and marketing contracts with them.
• Research and innovation in oilseed breeding and research was earmarked for upgrades
• Oilseed farmers were to receive extension advice on new techniques like close-planting of soybeans, no-till rapeseed, and peanuts grown under plastic mulch. 
• Futures markets for oilseeds were to be targeted for development. 
• The oilseed industry was to receive support--mainly earmarked subsidized loans to expand production capacity of domestic companies

Subsidized Corn for Chinese Ethanol

The Chinese government has hoovered up corn at a record pace again this year to keep prices artificially high. Having already spent billions to buy up and store the corn, the government is preparing more subsidies to sell it off.

As of February 10, 2016, officials had purchased 82.6 million metric tons (mmt) of this year's corn crop for the "temporary reserve." That's 37 percent of the entire corn crop and roughly matches last year's government purchases. The purchases will continue through next month, so the total could surpass 90 mmt. At a price of 2000 yuan per ton, that would be a 180-billion yuan (nearly $28 billion) corn shopping spree since last November.

Some analysts in China estimate the corn stockpile has grown to nearly a year's supply, and officials are now making preparations to offload the  reserves. China's grain bureau has reportedly drawn up a preliminary list of processing enterprises it intends to target for special sales of corn reserves in coming months, presumably at discount prices.

One of China's four fuel ethanol manufacturers will get subsidized corn. A document issued by the Bangbu City government in Anhui Province announced a subsidy of 280 yuan/metric ton ($43/mt) for up to 180,000 metric tons of corn purchased by COFCO Biochem (Anhui) during January-March 2016.  The subsidy of up to 40 million yuan (over $6 million) is earmarked specifically for this company. The subsidy reflects a new initiative to force local governments to bear the costs of grain policies. More such subsidy schemes by local governments could be hatched in the coming months. Fuel ethanol is one of the few viable uses for the rotten corn held in reserves.

So...China's commerce ministry has just launched an "investigation" that will accuse American fuel ethanol producers of "dumping" their by-product--distillers dried grains with solubles (DDGS)--at unfairly subsidized prices. Yet at the same time a Chinese ethanol producer is receiving an explicit subsidy that cuts the cost of its own corn raw material by about 15%. The intent of the Chinese subsidy is to use more corn to make fuel ethanol, which means increasing the supply of the DDGS by-product in China and driving the price even lower.

Banks for Poor Chinese Farmers Go Bust

Sour investments bankrupted dozens of rural cooperative banking organizations in China, destroying the life savings of thousands of  peasants. It seems that small cooperative banks are just as vulnerable to looting and irresponsible investments as big ones on Wall Street. 

About ten years ago, farmers in northern Jiangsu Province's Yancheng municipality began setting up farmer cooperative mutual funds (农民资金互助合作社)to pool their savings and loan out money to local farmers. The organizations functioned like small, local banks and were considered to be a promising microcredit model for meeting the credit needs of Chinese farmers. The mutual fund cooperatives are not visibly different from commercial banks but they are located in townships where they are convenient for farmers to make deposits. 

Depositors display receipts outside closed farmer cooperative bank (Beijing News).

Yancheng municipal officials started up 138 such mutual cooperative funds in rural townships all over their district, enlisting village officials to recruit their friends and neighbors as depositors. Many villagers were eager to move their savings from other banks because the cooperative funds offered a higher interest rate. However, many of the cooperative funds abandoned the original intent of lending to farmers. Instead, they invested in ill-fated projects that had nothing to do with farming, and dozens have gone out of business. Farmer-depositors are left holding the bag. 

A lengthy article by Beijing News says the cooperative funds attracted a lot of attention as the "bank for China's poor" or "farmers' own bank." The so-called "Yancheng model" was adopted all over the country.

A Beijing News reporter visited one of these cooperatives and found the door locked and the gate covered with dust. Upon learning of the reporter's investigation, he said more than 10 people came to show the reporter receipts for their deposits that they could not collect. 

A man named Tian Rongfu told the reporter that he had gladly transferred his deposits to the cooperative fund several  years ago because their interest rate was 6.8%, more than double what commercial banks were paying. It was later raised to 10% and 12%. 

The cooperative fund employed agents--often village officials--who got a 400 yuan monthly salary to recruit depositors. They got awards for recruiting more depositors. The city and township governments endorsed the funds and held promotional events where all village leaders were invited. There were posters everywhere. 

Farmer cooperative funds enlisted village officials and used publicity campaigns to recruit depositors (Peoples Net). 

Problems began in January 2013 when rumors spread that some of the banks were in trouble. This created a run on the troubled banks which ran out of cash to pay depositors. Problems spread, and now dozens have closed. 

The mandate of the cooperative funds was to make micro-loans to local farmers who are members. Their local orientation was--in theory--supposed to make the funds better able to serve the credit needs of farmers than commercial banks. 

Like the commercial banks, however, the failed funds had little interest in lending to farmers. They invested in real estate and bridge-building projects in a neighboring provinces that failed to generate returns. 

The director of one cooperative fund, when contacted by phone, said he was in Anhui Province trying to recoup depositors' money from a failed investment. Someone else claimed to have seen him on his way home in a state of drunkenness. 

Depositors who lost hundreds of thousands of yuan--the life savings and retirement funds of many--have petitioned the town and municipal governments to get their money back. The depositors say the government endorsed the financial cooperatives and promoted them heavily, so they should take responsibility for the losses. The local government disavows any responsibility. 

China News Network investigated a closed financial cooperative in 2014 and found a document issued by the Yancheng government that promised to stand behind the cooperative if illegal business or moral hazard caused a run on the cooperative that threatened social stability or other unfavorable results. Depositors, however, were alternately sent to the police, the town government and the city government with none willing to take responsibility. The problem was blamed on a rogue manager who was under arrest and accused of multiple financial crimes. An official said the government would see how much of the manager's assets were left to repay the depositors after his case was resolved and consider a solution. 

Beijing News said the rural financial cooperatives fell "like dominoes." In one district, only 9 of 24 financial cooperatives were still open for business. Problems with rural financial cooperatives have also been reported in other cities of Jiangsu: Lianyungang, Nanjing, and Suqian. 

Several years ago, the Yancheng County promoted its model for rural financial cooperatives as a new breakthrough to help farmers get financing, Now, Beijing News describes the cooperatives as a "hot potato" that is a big headache for the government. 

Yancheng officials were aware of problems before the closures began early in 2013 and tried to address them. Many meetings were held and officials called for stricter supervision, crackdowns on illegal fund-raising, curbing excessive expansion by the organizations, and controlling interest rates, all to no avail. 

One of the problems for these cooperatives is their ambiguous legal standing. The cooperatives are registered as public-interest type organizations with the Ministry of Civil Affairs. Such organizations are not legally authorized to conduct business for profit. Neither are they under the supervision of bank regulatory officials. 

Rural banking problems are not new in China. During the 1990s, many rural officials in China launched rural credit funds almost identical to the current mutual aid cooperatives. Those earlier funds also resulted in a nearly identical collapse when the 1990s real estate bubble popped in China. A much larger nationwide system of "rural credit cooperatives" was largely bankrupt by the late 1990s until a huge bail-out and reform in 2003. The rural credit cooperatives officially had a nonperforming loan ratio of 4.1% at the end of 2015, up from 3.8% the previous year. That's much higher than considered healthy but far lower than the pre-reform levels in the early 2000s. These rural credit cooperatives are supervised by the bank regulatory commission, but it seems unlikely that these more established rural banking organizations were immune to the same vulnerabilities that brought down Jiangsu's mutual cooperative funds. 

China will need to deal with the legal ambiguities and lack of oversight in its rickety banking system as the country moves to inject billions of dollars into the countryside to overhaul farming, address chronic rural poverty, and upgrade environmental protection. Greed and miscalculation is just as much a threat in small, "cooperative" institutions as it is on Wall Street.

China Promises Veterinary Drug Crackdown

Citing testing results show chronic problems with residues of veterinary drugs in food, an official of China's Food and Drug Administration promised to work with the Ministry of Agriculture to attack the problem at its source.

At a February 2, 2016 news conference, CFDA Vice Director Teng Guicai said testing of food samples showed that 3.8% had excessive traces of banned substances. He interpreted these results as indicators of a "prominent problem."

Teng said problems arise mainly from use of banned chemicals in farming, storage, and transportation of food. He specifically cited "lean meat powder", malachite green, and dicofol as problems. "Lean meat powder" is a colloquial term that refers to compounds like clenbuterol, ractopamine, and salbutamol that promote building of muscle in animals. Malachite green is an antimicrobial used in fish farming. Dicofol is a pesticide used to kill spider mites in crops. Teng also mentioned residues of several antibiotics--nitrofuran metabolites, chloramphenicol, and enrofloxacin, and two pesticides--fenvalerate, omethoate--as problems.

Inspector checks vendor at Beijing temple fair last week.

Another CFDA official at the news conference promised to work with the Ministry of Agriculture to address the problem using several strategies. One strategy is to continue testing food and use data to guide enforcement. Fruit, vegetables, livestock, poultry, aquaculture, and grains will be the focus. (That covers just about all the major foods but excludes edible oils. Other officials have raised concerns about toxic substances in cooking oils as well as the "gutter oil" problem, but these are not farm-level problems.)

A second strategy is to identify legal responsibilities of various enforcement agencies and coordinate their work. Qualifications for entering the food industry need to be raised, regulatory inspections will be conducted, and laws and regulations need to be enforced. Regulatory agencies, news media, companies and consumers all need to play their roles in food safety, the official said. CFDA promises to impose harsh penalties on malicious violators of laws and regulations.

The CFDA news conference contrasts with Ministry of Agriculture announcements of similar test results since it launched an action plan for safe food in 2002. At a March 2015 news conference a vice minister of agriculture cited testing results showing that "over 96% of samples" were compliant with residue standards as evidence of success in ensuring food safety. The CFDA official interpreted the same percentage--the "3.8%" failure rate--as evidence of a problem. The two officials interpreted the same number in opposite ways. Will the CFDA have a stronger orientation toward consumer protection than agricultural officials who have had the main responsibility for controlling use of banned veterinary drugs and pesticides? Will CFDA and MOA be able to successfully work together?

Meanwhile, Beijing food regulators brought a food-testing truck to the Longtan temple fair last week. They tested samples of chicken and lamb kebabs for moisture levels and presence of clenbuterol, ractopamine, and salbutamol. They claim to be able to do the tests in 40 minutes. The Legal News reporter tried to interview a food vendor at the fair but discovered that he had failed to acquire the mandatory health certificate required for food workers.

Double-Cropping Unwanted Rice in China

China is the world's leading importer of rice yet it has huge amounts of rice in warehouses that no one will buy.

According to Grain and Oils News, authorities held auctions to release 101 million metric tons of rice from reserves during 2015, but only 5.3 mmt of it was sold. There was little interest in any types of rice:

• 18 mmt of early-season indica rice was offered but only 3.8% sold; 
• 38.9 mmt of medium grain rice was offered, but only 4.8% sold; 
• 43.7 mmt of long-grain rice was offered but only 6% sold. 

Grain and Oils News focuses on the early-season rice as the nexus of the problem. Authorities have offered about 500,000 tons of this rice every week since October, but there have been virtually no buyers.

The early rice crop is planted in early spring, harvested in mid-summer and followed by a second crop harvested in the late fall. The early rice doesn't taste very good, so much of it is used as government food reserves, as animal feed, or for liquor or food processing. The early rice competes directly with imported Vietnamese rice which is cheaper. In Guangzhou, early rice from Hunan cost about 14% more than Vietnamese rice during January.

The demand for early rice as animal feed is also declining because the price of corn has been declining and imports of other feed ingredients like sorghum and barley are much cheaper.

Since the 1960s, Chinese communist officials have alternated between prodding farmers to grow the crop when they were worried about food supplies and discouraging them from growing it when there is a glut. In 2007, a Peoples Daily article warned that farmers in southern China were switching from two rice crops to a single crop, leaving fields idle for part of the year. The following year an article in Xuexi Shibao, a journal for communist officials, warned that the idle rice fields were a threat to national food security. By 2011, officials rolled out a program to revive double-cropping of rice by subsidizing rice seedling farms, greenhouses, and transplanting equipment, giving villages financial awards for keeping fields fully cultivated, and cajoling villagers into subcontracting their land to farmers who promised to plant two rice crops.

The extra rice produced as a result of these programs was bought by the government to prevent prices from falling and has been held in warehouses ever since. The early rice offered for sale in recent months was produced two-to-three years ago in 2012 and 2013. The decline in early rice output began in the late 1990s--during a previous glut--and has stabilized in the last ten years (if we can believe the statistics). There has been a robust increase in output of single-crop rice which is also in surplus.

Ironically, Grain and Oils News proposed cutting back on planting of early rice as a strategy for easing the glut of unsold rice. He recommended reversing the recent policy by encouraging farmers to switch back to growing a single rice crop annually . The Grain and Oils News author referred to the current party line of preserving production capacity to argue for cutting back from two crops to one. In short, he calls for reversing the big campaign to promote early rice planting which officials said was necessary to avert a food security catastrophe. As recently as 2014 Peoples Daily warned that farmers giving up rice double-cropping was a hidden threat to food security.

Last month, the government announced that the minimum prices for most types of rice will be held steady from last year for the 2016 crop. However, the early rice price was cut slightly to 133 RMB/50kg from last year's 135 RMB/50kg. This slight reduction is described as an improvement in the minimum price mechanism. Presumably, the early rice price was cut because it competes directly against cheaper imported rice.

China's Wheat Inventory Pressure Grows

Chinese authorities announced the minimum price for the 2016 wheat crop last October, nine months ahead of the marketing season. Their decision to hold the wheat price steady at RMB 2360 /metric ton -- the same level as the last two years -- may result in a serious glut of low-quality wheat this year.

Authorities thought they could insulate the wheat market from declining prices in the rest of the world by clamping down on imports -- 90 percent of the wheat import quota is awarded only to state-designated trading companies who presumably can only import when the government gives them permission. However, the wheat price is facing strong downward pressure as the price of corn and related feed materials has fallen significantly below the wheat price.

Grain and Oils News warns that China's wheat market will face heavy pressure to sell off stockpiles in the months after the spring festival holiday. During January, the government held auctions to offer 4.6 million tons of wheat from reserves, but less than 25,000 tons sold. (When a similar amount of wheat was offered for auction in January a year ago, 57 percent of it sold.) The article reports that stockpiles of wheat are up significantly in many regions this year. Grain and Oils News estimates that there is 39-to-40 million tons of excess wheat that was purchased at minimum prices and needs to be released to the market. With another harvest coming up in May-June, the March-April period will be critical for offloading the wheat.

China's wheat and corn markets are linked through the use of wheat as animal feed. During 2012-13, when corn prices were high, over 20 million tons of wheat were used for feed in place of expensive corn. In addition, milling the wheat crop produces bran used as feed which is equal to about 20 percent of the wheat crop. Now that corn prices have fallen below wheat prices, the amount of wheat used for feed has shrunk by about half, according to estimates by USDA and China's National Grain and Oils Information Center. Grain and Oils News points out that the surging supply of imported substitutes for corn has also cut into feed demand for wheat.

The link between wheat and corn prices is evident from the simultaneous drop in both prices in Shandong Province after the September 2015 announcement of a 10-percent cut in the support price for corn. The decline in wheat prices was stemmed by the October 23 announcement that the wheat price would be held steady in 2016. Putting a floor under the price of wheat makes traders less inclined to accept lower prices for wheat. They need not worry that holding the wheat longer will result in a loss since they're assured the price won't fall.

Wheat ends up stuck in government warehouses where interest and storage costs are subsidized. The government offers wheat for auction at starting prices that would recover the acquisition cost of the wheat. At those prices, however, there are few buyers. Grain and Oils News observes that there is little chance of changing the auction policy, so success rates will remain low for the auctions.

With the "flame out" of feed demand, flour-milling is the only source of demand for the wheat. Grain and Oils News says the demand for common wheat is soft while there are insufficient supplies of wheat with special characteristics. National Grain and Oils Information Center estimates that use of wheat by flour mills declined from 97.1 million tons in 2012/13 to 90 million tons in 2015/16.

With excess supplies of common wheat and weak demand, the government will not be able to offload its inventory. Grain and Oils News advises dealers to make rational plans to sell wheat bit by bit to avoid dumping large volumes on the market that would depress prices.

China's Statisticians Admonished by Communist Inspectors

A Chinese Communist Party discipline inspection team berated the National Bureau of Statistics for poor communist party discipline and ongoing violations of President Xi Jinping's anti-corruption campaign, a reminder of the highly politicized nature of Chinese statistics and the incentives for corruption in the statistical system.

Discipline inspection team announces findings at National Bureau of Statistics.

An article from the Central Commission on Discipline Inspection web site re-posted on the National Bureau of Statistics site reported on a January 31, 2016 meeting where an inspection team berated the bureau's communist party organization for weak leadership, poor party discipline, failure to fulfill responsibilities, and failure to establish party organizations at the grass roots level. The inspectors found a number of problems at the bureau, including improper employment and promotion practices, officials who used "data" for personal gain, abuse of power, and violations of President Xi's "eight regulations" such as excessive office space. The inspectors accused statistics officials of failing to do their jobs and complained of continued problems with "bureaucracy" and "lazy government."

The inspectors' inquisition came several days after the chief of the Bureau, Wang Bao'an, was fired for serious disciplinary infractions. Wang had only been at the statistics bureau for half a year, and his sins were apparently committed when he was in much more lucrative positions overseeing massive public works investment.

A year ago, the statistics bureau held a meeting where the previous director reminded the bureau that falsification of statistics is a type of corruption that should be severely punished.

A commentator writing on the Caixin web site recalled the "fake statistics = corruption" admonishment and pointed out that some believe misleading data has prevented the government from capably managing the economy in recent years. There is strong pressure from officials to produce statistics that show success which can be reported to higher level officials, resulting in promotions and awards.

An example of the absurdity of a politicized statistical bureau is a questionnaire administered by the National Bureau of Statistics last year which found that 91.5% of the public is satisfied or relatively satisfied with progress on the communist party's clean government and anti-corruption campaigns. How could the bureau have possibly reported any other result?

Besides corruption and deliberate falsification, there may be more fundamental problems. Political reliability trumps professional competence in selection of personnel. Why would clever and capable statisticians take up employment in such a highly politicized organization? Even if the statisticians are good, the quality of their surveys depend on respondents telling the truth when they fill out the forms.

In a press conference to discuss the new GDP statistics in January, a reporter asked former bureau chief Wang how the bureau is adjusting its methods to monitor such a rapidly-changing economy where new companies are springing up, old ones are going out of business and new ways of doing business are appearing. Wang talked about plans to make improvements in the future but could not say how statistics are keeping up with changes already happening.

GMO Corn an "Open Secret" in NE China

Chinese authorities have waffled between funding research on genetically modified crops while stoking fears of imported GMOs. As they dragged their heels on approving transgenic crops for commercial use, there is mounting evidence that Chinese farmers are growing them illegally. 

The Chinese communist party's "document no. 1" released last month called for "strengthening research on transgenic agricultural technology and its supervision, carefully spreading results on the basis of safety assurances."

Is it a coincidence that a week later it is announced that the Chinese state-owned company ChemChina plans to pay $43 billion for the Swiss company Syngenta whose products include transgenic crops? This deal appears to be in line with the "strengthening research" part.

The admonitions about "supervision" and "careful" dissemination of transgenic crops may be about a decade too late. A detailed Greenpeace survey of the corn industry in Liaoning Province caused a stir when it reported that genetically modified material was found in nearly all the samples collected from fields, seed dealers, and products in supermarkets. 

No genetically modified corn varieties have been approved for commercial sale or use in China, so planting GMO corn for sale is illegal. Genetically modified cotton has been available to farmers for about 15 years, but no other GMO crop is legally planted for commercial use on a large scale. Dimsums reported on planting of GMO corn more than a year ago. This follows allegations of widespread GMO soybean production in Heilongjiang last year and detection of GMO rice in supermarkets. 

China Dialogue's bilingual article on the Greenpeace report quoted a well-known seed industry expert from China Academy of Agricultural Sciences who said, “The reason there is such a large area of illegal GM corn is that this has been going on in Liaoning for a decade, regulation has been lacking.”

According to a China Times article, the spread of illegal GMO seeds  in northeastern China is an "open secret". An unnamed seed industry person told China Times that farmers prefer pest-resistant seeds, which are all transgenic. (However, some of the purportedly pest-resistant seed varieties are fake and do not resist pests, according to this person.) The seed industry person went on to blame small companies illegally selling seeds developed by multinationals as the source of the problem. 

China Times notes that the government has not produced an authoritative report on the amount of GMO crops illegally grown in China.

Several localities have launched crackdowns on genetically modified corn seed sales. A letter sent out by Liaoning's seed bureau threatened to report serious violators to the police. It was reported at a meeting in Jilin Province that three seed companies in the province had their licenses revoked for illegally selling GMO corn seeds. 

A Renmin University professor told China National Radio that sellers of genetically-modified seeds are like drug dealers and should not be tolerated. 

Greenpeace is unable to say how the GMO seeds got into the country. But inspection and quarantine authorities have periodically reported catching people mailing in genetically modified seeds or carrying them in suitcases. On January 27 (incidentally, the same day the "No. 1 Document" was released) an executive with a Chinese seed company pleaded guilty in Iowa to stealing seeds from test plots, propagating them on rented plots of land in the U.S., and sneaking them into China hidden in luggage or in popcorn canisters.