China's national grain reserve company signed a soybean purchase agreement last week that exemplifies Xi Jinping's approach to creating an "open" economy: create compliant Chinese behemoths big enough to negotiate deals that neutralize the "unfair" advantage of multinationals.
On November 6, 2020, China's national grain reserve corporation, Sinograin, signed a soybean purchase framework agreement committing to purchase soybeans from Brazil and Argentina. Suppliers signing the agreement included the so-called "ABCD" grain traders--ADM, Bunge, Cargill, Louis Dreyfus--plus China's COFCO International, ECTP (Engelhart Commodities Trading Partners), state-owned chemical giant Sinochem, and Sinochem-owned Swiss seed/chemical manufacturer Syngenta.
The announcement of the soybean purchase agreement was a piece of political theater to promote Xi's "opening" initiative. The announcement revealed no details of the agreement. The article's main thrust was to link the deal to Xi Jinping's speech two days earlier at the third Shanghai Import Exhibition where he announced China's role in propelling global trade by granting foreign companies access to its huge market. A Sinograin official promised that the company would engage in deep study of Chairman Xi's important directives issued at the import exhibition and push forward the Chinese government's comprehensive opening policy.
Sinograin's web site includes one article about the Shanghai import exhibition that printed Xi's speech verbatim in large letters, promised to study and implement the plan, and concluded with a single sentence about the soybean purchase agreement.
Xi's speech at the Shanghai exhibition emphasized that China has entered a new era where its big import market will be the driver of new growth in international trade. The Xi approach to globalization is one of carefully managed trade conducted by a few controllable giant companies beholden to State sponsors making carefully orchestrated deals. It is not the classical liberal approach to free trade where governments set well-defined rules, allow chaotic laissez-faire competition to run amok, and wait to see who comes out on top.
The soybean deal shows that the players in Xi's vision of open trade are huge multinational companies and state-owned Chinese companies conducting business in conference rooms. A giant Chinese state-owned company--Sinograin--pledged to buy soybeans from four giant multinational grain traders (the ABCDs), and essentially two other giant State-owned Chinese companies--COFCO, Sinochem and Sinochem-owned Syngenta. In the announcement, officials of both Sinograin and Cargill referenced Xi's speech directly and recited buzzwords from the speech about "deepening all-round cooperation," "innovation in foreign trade," "mutual aid," and "common development." A Sinochem official promised that his company and Syngenta would work to maintain China's national food security.
The scene for Xi's new era in grain trade was set by injecting hundreds of billions of dollars into Chinese behemoths to bloat them into a size that puts them on equal footing with multinationals. Sinograin has received unlimited bank loans for years to buy massive amounts of grain that rots in warehouses or bursts into flames when auditors arrive; COFCO was bankrolled to buy up a pair of foreign trading companies so they could source grain in the Black Sea and South America; and Sinochem blew a wad on its purchase of Syngenta, becoming an instant leader in seed and farm chemical R&D.
Xi's "opening" initiative purportedly promises to treat big foreign companies as friends in making "win-win" deals. But behind the scenes the multinationals are feared and loathed as unfair monopolists who threaten China's interests. A recent example in May 2020 complained that four ABCDs--three of them "American" companies--unfairly control 80 percent of the world's grain trade and warned that the companies threatened China's grain industry. A July 2019 article warned that the ABCDs set grain prices and threaten China's food security. An August article celebrated COFCO's appearance alongside formidable "ABCD" competitors in the Fortune 500 (it appeared in the same publication where the Sinograin soybean purchase agreement was announced).
Finally, it is surely no accident that the Sinograin soybean purchase agreement did not mention the United States. Xi's speech did not mention the United States by name either, but he took implied swipes at the Americans. Xi insisted that China is willing to work with any country, and he called for countries to show "trust instead of suspicion," "join hands instead of punching," and to "negotiate rather than insult."