Why Xi Jinping is secretly stockpiling commodity reserves

Chinese President Xi Jinping. EFE/EPA/ALEXANDER RYUMIN

Over the past twenty years, China has consumed large amounts of raw materials. Its population has grown wealthier and requires more dairy products, grains, and meat. Its massive industries have a constant demand for energy and metals. However, in recent times, the economy has faced challenges due to political mismanagement and a property crisis. Chinese officials claim they aim to transition away from resource-heavy industries. Logically, one would expect the country’s demand for raw materials to be decreasing rapidly.

In reality, the opposite trend is occurring. Last year, Chinese imports of many essential resources hit record highs, with overall commodity imports increasing by 16% in volume. They continue to grow, with a 6% rise observed in the first five months of this year. Considering the nation’s economic struggles, this surge does not indicate rising consumption. Instead, it seems China is stockpiling materials quickly, despite the high costs of raw materials. Policymakers in Beijing are eager to ramp up imports of raw materials at a swift pace, likely due to concerns over emerging geopolitical threats, such as the possibility of a new hardline US president attempting to disrupt crucial supply routes to China.

This fear is valid, as China relies heavily on foreign resources. Although it serves as the world’s refining hub for many metals, it imports a significant amount of the raw materials required, from 70% of bauxite to 97% of cobalt. China depends on imported energy to power its economy. It has abundant coal reserves, but its other fuel deposits fall short of meeting domestic needs, leading the nation to import 40% of its natural gas and 70% of its crude oil. The situation is particularly dire concerning food. In 2000, almost everything consumed by citizens was domestically produced; today, less than two-thirds is. The country imports 85% of the 125 million tons of soybeans used annually to feed its 400 million pigs. It almost entirely relies on foreign farmers for coffee, palm oil, and certain dairy products.

Recognizing this reliance, China began building strategic reserves of grain and defense-related minerals at the end of the Cold War, later adding reserves of oil and industrial metals during its economic boom. Three recent developments have spurred increased stockpiling efforts. In 2018, President Donald Trump imposed tariffs on $60 billion worth of Chinese exports to the United States, prompting China to retaliate with tariffs on American soybeans. Then came COVID-19, which disrupted supply chains and increased material costs. The war in Ukraine subsequently inflated prices and demonstrated the willingness of the USA to impose embargoes even against significant adversaries.

Now, with Trump openly expressing his desire to hinder China, he has a strong chance of regaining power. The United States may begin by limiting its food exports to China, which have rebounded since Trump’s departure from the White House, possibly encouraging other major suppliers like Argentina and Brazil to follow suit. It might attempt to influence countries that supply metals to China, including Australia and Chile. Most of China’s raw material imports transit through a few strategic straits and canals, which the United States could try to restrict access to for Chinese vessels, for instance, by positioning military ships in the vicinity.

China seems to be gearing up for a more hostile environment. Its preparations include expanding the infrastructure necessary for storing supplies. Unlike in the USA, where strategic reserves are government-controlled, in China, reserves also consist of private tanks, silos, and warehouses, which Beijing officials can access during crisis situations.

Since 2020, China’s crude oil storage capacity has risen from 1.7 billion to 2 billion barrels. The exact locations of many of these facilities remain confidential, but satellite data indicates that the known ones have expanded rapidly since 2022, according to Emma Li from Vortexa, a data analytics firm. Similarly, the capacity of underground gas caverns increased sixfold from 2010 to 2020, reaching 15 billion cubic meters (bcm), with a target of 55 bcm set for the next year. China is also in the process of constructing numerous tanks for liquefied gas along its coastline. The bank JPMorgan Chase predicts that total gas storage capacity will reach 85 billion cubic meters by 2030.

China is now utilizing these facilities. In a further indication of heightened caution, state statisticians have ceased publishing data on stock levels for many raw materials. However, alternate methods can provide insight into the extent of concern. According to the United States Department of Agriculture, China’s wheat and corn stocks are projected to account for 51% and 67% of global stocks, respectively, by the end of the current crop season, representing a five to ten percentage point increase since 2018. They are expected to be sufficient to meet at least a year’s demand. Stocks of soybeans, China’s largest agricultural import, have doubled since 2018, reaching 39 million tons and are anticipated to hit 42 million tons by the season’s end.

Even more surprising has been China’s endeavor to conceal metals and fuels. By estimating the quantities of copper, nickel, and various other metals that China credibly could have consumed and comparing them to total supply, Tom Price from the bank Panmure Liberum concludes that the country’s inventory buildup since 2018 has been sufficient to satisfy between 35% and 133% of its annual demand, depending on the product. By late spring, China reportedly held 25 billion cubic meters of gas in storage, enough to cover 23 days of consumption, up from 15 days five years earlier. Parlsey Ong of JPMorgan Chase expects this coverage to extend to 28 days by 2030.

Meanwhile, crude oil stocks have increased by an average of 900,000 barrels per day (b/d) since the beginning of the year, as estimated by the consultancy Rapidan Energy. The fill rate reached 1.5 million b/d in June, suggesting an acceleration in stockpiling. This has helped China’s reserves approach 1.3 billion barrels, sufficient for 115 days of imports (for comparison, the United States holds 800 million barrels). The stockpile is set to increase: China has instructed oil companies to add 60 million barrels to their reserves by the end of March. Rapidan estimates that reserves will grow even faster, with China likely adding up to 700 million barrels by the end of 2025.

This stockpiling concerns Americans, not just because it could lead to inflation by driving up commodity prices. The materials China is acquiring are precisely what it would need to endure a protracted conflict, particularly if it blocks Taiwan. “When you juxtapose that with China’s military buildup, it starts to get very worrying,” states Gabriel Collins, a former analyst for the United States Department of Defense. Currently, the evidence suggests that hoarding is more of a defensive approach by Xi Jinping, as it has not yet reached the level required for him to feel secure in a heated conflict. American officials should hope this does not change in the years to come.

© 2024, The Economist Newspaper Limited. All rights reserved

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    <h1>China's Raw Material Stockpiling: An Insight into Xi Jinping's Strategic Moves</h1>

    <div class="amp_visual_image">
        <img src="EFE_EPA_ALEXANDER_RYUMIN.jpg" alt="Chinese President Xi Jinping" />
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    <p>Over the past two decades, <b>China</b> has devoured vast quantities of raw materials. Its population has grown and become richer, and it needs more dairy products, grains, and meat. Its giant industries have been hungry for energy and metals. However, in recent years, the <b>economy</b> has suffered from political mismanagement and a property crisis. Chinese officials insist they want to move away from resource-intensive industries. Logic dictates that the country's appetite for raw materials should be declining, and declining fast.</p>

    <h2>Contradicting Trends in Raw Material Imports</h2>
    <p>In fact, the opposite is happening. Last year, Chinese imports of many basic resources broke records, and imports of all types of commodities rose 16% in volume terms. They continued rising, up 6% in the first five months of this year. Given the country's economic difficulties, this does not reflect rising consumption. Instead, China appears to be stockpiling materials at a rapid pace at a time when raw materials are expensive. Policymakers in China are now looking to increase their imports of raw materials quickly, concerned about new geopolitical threats, including a potential hardline US administration.</p>

    <h2>Geopolitical Concerns and Dependency on Imports</h2>
    <p>The fear is justified, for China has become increasingly dependent on foreign resources. Although the country is the world's refining center for many metals, it imports much of the raw material needed, ranging from 70% bauxite to 97% cobalt. China relies heavily on imported energy. While it has plenty of coal, its deposits of other fuels do not meet its needs, forcing it to import 40% of its natural gas and 70% of its crude oil.</p>

    <h3>Food Security: A Growing Concern</h3>
    <p>China's dependence is most acute when it comes to food. In 2000, almost everything that citizens consumed was produced domestically; today, less than two-thirds is. The country imports 85% of the 125 million tons of soybeans it uses annually to feed its 400 million pigs and is almost entirely reliant on foreign farmers for coffee, palm oil, and certain dairy products.</p>

    <h2>Strategic Stockpiling Initiatives Since the Cold War</h2>
    <p>Aware of its vulnerabilities, China began accumulating “strategic” reserves of grain and defense-related minerals at the end of the Cold War, subsequently adding reserves of oil and industrial metals during its economic boom. Three recent developments have accelerated the trend of increased stockpiling:</p>
    <ul>
        <li><b>2018 Tariffs:</b> President Donald Trump imposed tariffs on $60 billion worth of Chinese exports, prompting China to retaliate.</li>
        <li><b>COVID-19 Pandemic:</b> The health crisis disrupted global supply chains and raised material costs.</li>
        <li><b>War in Ukraine:</b> The conflict inflated prices and demonstrated the U.S. willingness to use embargoes.</li>
    </ul>

    <h2>Potential Challenges From U.S. Policies</h2>
    <p>With Trump's potential return to power, restrictions on U.S. food exports to China could be reinstated. Moreover, the U.S. could influence countries that sell metals such as <b>Australia</b> and <b>Chile</b>, and even attempt to block shipping routes crucial for China's imports.</p>

    <h2>Infrastructure Development for Stockpiling</h2>
    <p>In light of these geopolitical tensions, China is expanding its infrastructure for storing supplies. Unlike the U.S., where strategic reserves are entirely government-controlled, China's reserves also involve private tanks, silos, and warehouses accessible to officials during crises.</p>

    <h3>Expanding Oil and Gas Storage Capacities</h3>
    <p>Since 2020, China's crude oil storage capacity has increased from 1.7 billion to 2 billion barrels. The location of these sites remains mostly clandestine, yet satellite images indicate rapid growth since 2022. As reported by <b>Emma Li</b> from <b>Vortexa</b>, China is on track to significantly improve its gas storage capabilities—targeting a total of 55 billion cubic meters by next year.</p>

    <h2>Current State of China's Raw Material Stocks</h2>
    <p>China is proactively filling these newly expanded facilities. Despite state statisticians halting the publication of raw material stock data, the <b>United States Department of Agriculture</b> forecasts that China's wheat and corn stocks will comprise 51% and 67% of global stocks, respectively, by the end of the current crop season.</p>

    <h3>Import Versus Domestic Consumption Analysis</h3>
    <p>Stocks of soybeans, the largest agricultural import for China, have doubled since 2018 to 39 million tons and are expected to reach 42 million tons by the end of the season. In light of potential geopolitical tensions, retaining a buffer stock appears prudent.</p>

    <h2>Efforts to Conceal Metal and Fuel Stockpiling</h2>
    <p>China's endeavor to conceal the quantities of metals and fuel is evident as it estimates the consumption of copper, nickel, and various other metals compared to total supply. <b>Tom Price</b> from <b>Panmure Liberum</b> indicates that the inventory buildup since 2018 could cover at least 35% to 133% of annual demand. As of late spring, China had at least 25 billion cubic meters of gas in storage, enough to cover 23 days of consumption, an increase from 15 days five years ago.</p>

    <h3>Rising Crude Oil Stocks and Future Projections</h3>
    <p>Estimations indicate that China's crude oil stocks have risen by approximately 900,000 barrels per day, with the current inventory nearing 1.3 billion barrels—sufficient to cover 115 days of imports. Furthermore, <b>JPMorgan Chase</b> has urged oil companies to add 60 million barrels to their reserves by the end of March, forecasting even faster expansion moving forward.</p>

    <h2>Implications of China's Stockpiling Strategy</h2>
    <p>The growing stockpiling activities alarm many in the U.S., not only due to potential inflation stemming from elevated commodity prices but mainly because these reserves align with China's preparation for a prolonged conflict, particularly if tensions arise over <b>Taiwan</b>. According to <b>Gabriel Collins</b>, a former U.S. Department of Defense analyst, the juxtaposition of military buildup and material stockpiling is cause for concern.</p>

    <p>As stockpiling behaviors continue to evolve, Xi Jinping's strategy appears largely defensive in its current form, lacking the scale necessary for secure operations in an intense conflict. The international community, especially American officials, must remain vigilant in the years ahead.</p>

    <p><i><b>© 2024, The Economist Newspaper Limited. All rights reserved</b></i></p>
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