There is little doubt that China has a huge surplus of corn, but the plausibility of these numbers is questionable.
The temporary reserve purchases exceeded the amount of corn produced in the four provinces where the program operated. Estimates of corn output for Heilongjiang, Jilin, Inner Mongolia, and Liaoning Provinces by China's National Grain and Oils Information Center (the Statistics Bureau reports official provincial production estimates a year after the harvest), totaled less than 100 mmt, more than 25 percent less than the amount of corn purchased for the temporary reserve in the region.
Jilin Province officials report that 45.3 mmt of corn was procured for the temporary reserve in that province, but the province only produced 28 mmt of corn. The article explains that Jilin has been on a granary-building binge--the province reportedly constructed 1,135 warehouses--so that nearly every township has one or two granaries. Because there is so much space to store grain there, unnamed people in the industry say traders from neighboring provinces of Heilongjiang and Liaoning have shipped grain to Jilin to sell to the temporary reserve. While Jilin's procurement exceeds its production by an outrageous 62 percent, procurement also was equal to or exceeded production in each of the other northeastern provinces (see chart nearby).
The volume of procurement reported this year is also implausible because in advance of last year's harvest authorities were warning that there was no space to store the new grain. While there was indeed a campaign to build new granaries, there is no way they built enough to store 125 mmt of new corn, an amount that would have doubled the volume of corn held in inventory last summer.
According to China's Grain Bureau, a total of 130 mmt of corn was purchased by all types of enterprises. That's just 5 mmt more than temporary reserve procurement, which implies that the nation's feed mills, starch makers, and ethanol processors had to share the paltry 5 mmt of corn that did not get purchased by the temporary reserve. Feed mills and factories are still operating. While they have been using imported corn substitutes, they are surely using more than 5 mmt of domestic corn.
Other analysts are concluding that corn production must be more than official statistics say. However, just four years ago when China's corn reserves were running low, some analysts were saying the opposite: that statistics overstated actual production.
Another possibility is that the procurement statistics are inflated by selling and purchasing the same grain multiple times through phenomena known as "declaring old grain as new" or "round-tripping grain." This practice came to public attention in Henan Province about five years ago when granaries "sold" old wheat to flour mills and reported purchasing "new" wheat for the price support program. In fact, the bookkeeping entries were false, and the same grain was purchased twice without ever leaving the warehouse. Grain officials have strong incentive to report phantom grain purchases because they get a subsidy to purchase it, another to hold it, plus subsidized interest on loans. Grain officials and their cronies can also make money by building new storage facilities.
A graphical explanation of the wheat subterfuge reports that Henan officials reported procuring 31 mmt of wheat for government reserves in 2007, but only had 8 mmt on hand a year later. Some inspectors found granaries filled with 13 tons of sand. Other officials exaggerated the weight of trucks hauling grain away from warehouses. The chicanery dates back to the 1990s when Premier Zhu Rongji reported finding empty granaries that were reported to be filled with reserves.
Official receives "old grain" in one sleeve and drops it into "national granary"
from his other sleeve while collecting money to buy "new grain." Source: Junying.com
Reports this month warn that the purchase of old grain for the temporary reserve has been widely practiced by officials in northeastern provinces this year. An article in the news weekly Liaowang (Outlook) says 249 instances of grain "round-tripping" were uncovered in Heilongjiang Province during 2014. That year, a mysterious fire burned down a granary in Heilongjiang supposedly containing thousands of tons of reserve grain just as disciplinary inspectors were closing in.
The Liaowang article argues that the grain subterfuge problem is common because there is no local supervision of the granaries. Regulations specify that only the central State Council can oversee the government's national grain reserves--local and provincial governments have no authority in this matter. That leaves Sinograin--the government's state-owned grain reserve management company--as "both player and referee"--it regulates itself. Experts quoted by Liaowang worry that the abuse may worsen grain quality problems and destroy the credibility of the government's grain reserve system.
"Can the country feel at ease with grain stored by Sinograin?"
There is no way to verify these numbers since virtually all of China's agricultural statistics have now gone off the rails. There's little chance China's statisticians have kept up with the vast increase in corn production, including the plowing up of grasslands, riverbeds, and hillsides to plant the yellow stuff over the past decade. It has been 10 years since an agricultural census was conducted, and that one was probably slipshod and inaccurate. Neither are pigs and chickens counted with precision as the structure of these industries changes dramatically and numbers rose and fell over the last five years. Feed industry officials have become reticent about reporting numbers as production flagged and thousands of mills were closed. There has been a major retreat in feed use of wheat, and 30-40 million tons of imported corn substitutes have replaced domestic corn. The rulers keep grain reserve numbers secret, thinking that this gains them some advantage.
Keenly aware that grain management is a centuries-old measuring stick for Chinese dynasties, the current regime has cranked up grain subsidies and price supports to satisfy its immutable "food security" objectives. The grain "round-tripping" may end up blowing up in the faces of the leaders as it becomes one more example of a policy intended to serve the masses that instead becomes a piggy bank abused by the country's ruling officials.