Soybean Tariffs to Boost State-Owned Companies?

China's big state-owned soybean importers will not be affected much by proposed 25-percent tariffs on U.S. soybeans, according to a Chinese Business Journal article posted on numerous web sites yesterday.

The article appears to be a propaganda piece portraying the possible tariffs as an opportunity to boost the role of state-owned enterprises in China's soybean industry and freeze out multinational grain traders. The lack of named sources and the journalist's stringing together of propaganda memes suggests the article is propaganda masquerading as news for investors.

The reporter notes that three of the top soybean importers are state-owned companies--COFCO, Beidahuang, and Sinograin.

The China Business Journal reporter, writing under an apparent pseudonym, quotes an unnamed employee of an unnamed state-owned enterprise who said that officials from unnamed "government departments" have been asking Chinese companies about their soybean import volume, how much they import from the United States, and what their plans are for purchasing this year.

"The tariffs will have an extremely small effect on us large companies," the state-owned company employee told the reporter, "Because U.S. soybeans are only one-third of our purchases."

"The effect of the soybean tariffs is not extremely large," the article repeated several times in various forms throughout the article.

According to the reporter, the U.S. futures price dropped 5.25 percent after China's proposed 25-percent tariff on U.S. soybeans was announced. "But our company is not affected much, because we hedged our soybean purchases," the employee explained.

An investment analyst told the reporter that Brazilian soybeans cannot replace U.S. soybeans if China imposes the tariffs. Brazilian soybean prices are rising as the market anticipates a rush of Chinese buyers to South America who will compete for a limited supply of beans. Brazil already exports more than half of its soybeans, and about three-fourths of those exports already go to China.

The article segues to another propaganda talking point: Brazilian and Chinese State-owned companies can link up to trade soybeans directly, bypassing "ABCD" multinational trading companies. The investment analyst says he went to Brazil where he found that Brazilian companies were eager to learn about matters like Chinese customs clearance, inspection and quarantine so they could export soybeans directly to China without selling through an ABCD intermediary.

A representative of a Brazilian state-owned company said he had come to China to make deals with Chinese state-owned companies for direct trade in soybeans.

The Brazilian said, "We have a small order from a Chinese state-owned company to test the water."

The reporter then moves on to the old complaint that imported soybeans are destroying the Chinese soybean processing industry by depressing prices.

The reporter learned from a multinational grain trading company that the market for domestic Chinese soybeans is very limited. In particular, he said there was virtually no market for soybean meal produced from domestic soybeans because the price is too high.

The article gloms on to the "quality" mantra circulated by officials this year to claim that the "low end" oil and meal products from crushing imported soybeans have little momentum from consumer demand as it shifts to high-end products. Premium products of domestic non-GMO soybeans have better prospects, the journalist suggests.

In fact, the opposite is true. Imported soybean volume grows faster than expected year after year. The Chinese government had to step in to buy extra domestic soybeans produced in northeast China this year because there was not enough demand.