While China had supply problems this year, there are several global factors that seem to explain why the Chinese regime started to hoard raw materials.
For one, the Russian invasion has made things unstable in a political and geographical sense. There are other factors, such as increasing fees for sea transportation, penalties related to the Uyghur genocide, and trade troubles in the Black Sea.
The Russia-Ukraine conflict
Last February, both Russian and Chinese bankers were surprised by Europe and America. Russia’s reserves of around US$630 billion got frozen and could not be used. A large chunk of this amount would have likely been used to protect the value of Russia’s currency, the ruble. Since that didn’t happen, the value of the ruble actually dropped by 30 percent against the dollar that same month.
Beijing noticed these events. Knowing their own foreign reserves could drop in value, the regime got rid of a big chunk of the U.S. dollars they were holding by buying assets across the world including oil, gas, iron ore, wheat, corn, barley, and gold. Price doesn’t seem to be an issue for state-owned business entities. Due to sanctions, they paid the Russians 139 percent more for potash, a fertilizer ingredient.
But the conflict between Ukraine and Russia has put China in a more competitive position in some cases. With Russia being treated as an outcast, Beijing now has leverage when it comes to bargaining and sealing commodity contracts with them. The regime used its currency, the yuan, for these agreements. International penalties established because of the war make it harder for Russia to enter into trades using the euro and dollar and Chinese bankers are more than happy to accommodate them using the yuan for their exchanges. Since Russia has few other places to sell its energy, China can get the upper hand as the main buyer.
In the past, China bought around 1 percent of its coal from Russia, which amounts to around 30 million tons. But sanctions due to the war will require Russia to find other markets for about 76 million tons of coal that would have been exported to Europe. They are looking to Asia in general, and China in particular, though there is only so much China can buy for fear of having secondary sanctions imposed on them as well.
China hoards grains and other raw materials
Additionally, global prices of soybeans and grains increased when China started buying them up, making these commodities increasingly unaffordable to the poor.
With 18 percent of the global population, China has now stockpiled more than half of the world’s grain supply. In fact, the country has enough supply of wheat to last them a year and a half, as revealed by China’s National Food and Strategic Reserves. With this, and the fact that grain exports from Russia and Ukraine have stopped altogether, it is no surprise that prices have been rising. Moreover, according to Nikkei, several other nations experienced famine and difficulties because of this.
China buys companies and accumulates gold
The Chinese regime hasn’t just been buying grain. They have been purchasing entire companies as well. In 2019, the regime purchased a dairy in New Zealand and in 2021, it also purchased a meat processor in Europe.
Aside from this, China has also been hoarding gold. The country actually mines the resource on its own but it also purchases it from the international market. It is officially said that Beijing holds nearly two thousand tons of gold. Several analysts also think that the country has around 10,000 to 30,000 tons of reserves. Considering its rich surplus of gold, China could even back the yuan with gold in the future and attempt to displace the dollar as the world’s reserve currency.
