China disclosed to have plans to increase its strategic commodities reserves to ease anxiety over energy and food security. The plan is foreseen to start in 2021 and is likely to include substantial purchases of cruse, strategic materials, and farm goods, according to local officials.
Their goal is to keep China safe and protected from any of the disruptions it has experienced this year, after floods, droughts, and pests ruined several plantations across the country and not only affected the Chinese food supply chain, as it has threatened the locals with food shortages in a number of cities.
The authorities, who preferred to remain unidentified due to the sensitivity of the matter, pointed out that the main goal of the plan is to make sure that China’s secretive stockpiles, considered to be one of the world’s largest reserves, remain abundant enough to hold out against supply disruptions that could damage its economy.
The strategy for 2021-2025 will be laid out next month by China’s top leadership, and it is expected to include an increase in domestic consumption and the production of more critical technology at home, in an attempt to isolate the world’s second-biggest economy from the deteriorating geopolitical tensions and further ruptures in supply chains. Chinese officials have disclosed that securing food supplies, fuel, and materials is a precondition of greater self-reliance for the world’s biggest importer of commodities, in that way, reducing China’s anxieties over energy and food security in particular will be a focus of the new buying program.
As mentioned by two of the officials, China has already started to prepare and build some of the storage capacity it will be necessary to cover for the program to boost reserves. The plan will incorporate a directive to accelerate the construction of more facilities to hold crude, particularly in remote inland regions, they said.
With all evidence on the table, those who have been following up on Chinese developments already could see how China has been capturing raw materials and strategic goods far in advance of what the economy needs at this moment, which consequently means that the decline in other imports – which are overall still pretty down year-over-year, even including this commodity surge – is even larger. And you may be wondering “why aren’t FX reserves rising even as the trade surplus soars”? The answer to that is evidently tied to the huge purchase of commodities, and you can expect to hear that it will last for years.
But a question that is very worth asking is: what does it really mean such colossal stockpiles o commodities for China? What are the real reasons, not the ones the government is pointing out for us to look at? Is China already aware of the imminence of the next global economic collapse ? Because, if you think about it, has there ever been a stage during trade tensions where anyone has ever threatened not to sell to China? The case is that trade partners don’t exclusively want to sell raw materials and unprocessed commodities to it, but they tend to prefer to hold more of the technology and value chain themselves. That’s the way things go, from Europe to the US.
As Every asks in his analysis: “What possible disruption could be on the horizon that would require China to have a large enough buffer of all conceivable inputs – in remote inland areas to boot – that it needs to use up its precious USD reserves in a bulk splurge now”? The timing seems quite suspicious and the possible answers don’t seem quite right just yet.
The “geopolitics” euphemistic exit doesn’t seem to fit, because this strategy can’t be only related to the ongoing concerns of the US acting on China’s USD access because these purchases will probably still be made in using dollars, even in vast size, right? Or is the idea with such a “mammoth” buying, a shift to CNY can be speeded up? That’s something to keep in mind for commodity sellers.
It could configure a multi-year bull-run and then a very sharp stop. That is to say, in theory, after stockpiling commodities for an extensive amount of time, China wouldn’t have to worry about not having enough of a certain type of good, and it and it could simply stop buying from the industry or the country it wants if prices were too high for one, or even two years, while watching them collapse until prices were reasonable again, or the assets were for sale.
We’re not implying that China is actually doing any of these things, but it could, if it wanted to. This is geostrategics. With all the threats it has been facing, the country seems to have found a way to protect its power. What are your thoughts about it? What do you think China’s next move will be? Please feel free to share your thoughts on the comment section down below.