China’s stockpiling of resources raises eyebrows and questions

SINGAPORE: What do grain, oil, copper, cobalt and iron ore have in common?


They’re but some of the key resources and minerals China has recently been amassing, according to media reports, in an alleged pattern of behaviour that has blared red for some observers and rival superpower the United States.


Chief of which is Washington’s concern that Beijing’s hoarding could be a precursor to war - specifically over Taiwan which it claims as its territory - as singled out during a hearing last month by the US-China Economic and Security Review Commission.


While Beijing understandably keeps its cards close to its chest, analysts CNA spoke to believe preparation for war is but one piece of the overall stockpiling puzzle - and even then, it’s likely low on the priority list.


Instead, they see the latest fortification of national reserves as primarily aimed at ensuring the world’s second-largest economy is primed for potential shocks arising from a tumultuous geopolitical environment, climate change, and natural disasters.


“The focus is less on imminent war and more on long-term resilience and strategic positioning,” said Mr Andy Mok, a senior research fellow at Beijing-based think tank, Center for China and Globalization.


“By amassing critical resources, China sends a clear signal of its preparedness and determination to maintain its global standing.”


Further clarity on China's economic situation and policies is expected as China's Communist Party wraps up its third plenum on Thursday (Jul 18).


Major economic and social development goals that set the nation’s agenda for the next few years are traditionally laid out at the once-every-five-year gathering.


SECRECY IN STOCKPILING


China’s stockpiles are managed by the National Food and Strategic Reserves Administration. They are a tightly guarded state secret, making it difficult to gauge, let alone track inventory levels.


Still, recent news reports have suggested that some extent of resource accumulation is being carried out.

Take oil for instance. China has asked its state oil companies to add eight million tonnes, or nearly 60 million barrels, of crude oil to the country’s emergency stockpiles to boost supply security, according to analytics company Vortexa and trading sources.


If completed, the stockpiling would be one of the country’s largest in recent years, Reuters reported.


Beijing also has eyes on cobalt, a key electric car battery metal. An estimate from specialist trading house Darton Commodities says it expects China to own or operate as much as 60 per cent of global cobalt supply by 2025.


Reuters and Bloomberg cited sources saying that China could buy around 15,000 tonnes of cobalt from local Chinese producers over the next few months for domestic stockpiles.


Stockpiles of copper and iron ore - both of which China imports heavily - have also been growing.


For copper, inventories registered with the Shanghai Futures Exchange rose to a 51-month high of 339,964 tonnes, in the week to Jun 7.


Meanwhile, China imported 1.18 billion tonnes of iron ore last year, a record high, Reuters reported citing customs data.

As for grain, state-owned agricultural stockpiler Sinograin said in an early June notice that it and its affiliated units will increase purchases of wheat produced this year from major regions for its reserves.


Most analysts CNA spoke with believe there is sufficient evidence to conclude that Beijing has stepped up stockpiling as of late, but they agree it is hard to pinpoint just exactly how much.


At the same time, they caution that stockpiling is not unique to China, nor is the country a stranger to stockpiling. “All prudent countries stockpile essential resources to ensure national security and economic stability,” noted Mr Mok.


In terms of stockpiling, China has a higher definition of what is considered to be a safety minimum, Mr Han-Shen Lin, senior adviser and China country director of The Asia Group, told CNA, adding: “(This) can be seen as alarming to other nations”.


Indeed, the warning signal flashed in June during a hearing by the US-China Economic and Security Review Commission (USCC), titled “China’s Stockpiling and Mobilization Measures for Competition and Conflict”.


The commission monitors and investigates the national security implications of the trade and economic relationship between the US and China, as stated on its website.


During the roughly five-and-a-half-hour session, USCC members heard from a panel of experts who provided their perspectives on China’s preparations for conflict, with some suggesting the stockpiling activities could indicate an imminent invasion of Taiwan.

China sees the self-governing island as part of its territory to be reunified with the mainland, through force if necessary. It has ramped up military pressure over recent years, with near-daily activities around Taiwan now a reality.


Taipei’s defence ministry on Jul 11 detected 66 Chinese warplanes around the island, the highest single-day number this year. Fifty-six of them crossed the median line of the Taiwan Strait, which once served as an unofficial barrier between the two sides.


The fear of invasion is not without basis, at least according to Mr Gregory Wischer, founder and principal of Dei Gratia Minerals, a US-based critical minerals consultancy.


In a statement to the commission, he noted that mineral stockpiling can indicate an intent to launch a military attack, as minerals are necessary to manufacture military platforms and munitions, before and during a conflict.


But Mr Einar Tangen, a senior fellow at Taihe Institute and the founder of Asia Narratives, isn’t convinced.


“Given the US doesn't know what China has stockpiled, (reports claiming war plans) are most likely just scaremongering using Washington's favourite whipping post, China,” he told CNA.


Still, Mr Han from The Asia Group highlighted apprehension in certain policy circles on how China's imports are “heavily skewed” towards commodities like chips, crude petroleum and iron, which have dual-use applications.


Such goods are primarily designed for civilian use, but can have military applications or even potentially be used as precursors or components of weapons of mass destruction.


“Fair or not, the suspicion is that the significant levels imported exceed the requirements of China's slowing economy and therefore must be directly supporting China's military buildup or indirectly supporting Russia's war effort industrialisation through trade,” he added.


“If China wants to maximise its optionality, it would be rational to stockpile to levels which credibly signal that it has the capacity to manifest its intent (for war), if it chooses to,” noted Mr Han, who also emphasised the gap between the ability versus the intent to engage militarily.

RESOURCE CERTAINTY IN AN UNCERTAIN CLIMATE


As the conjecture is raised that China is stockpiling in preparation to wage war over Taiwan, analysts caution that even if this is the case, there are no indications Beijing is gearing up for a looming battle.


While acknowledging that the “wide variety of stock” China is accumulating is “unusual”, Senior International Defense Researcher at RAND Corporation Timothy Heath told CNA this does not in itself signal any expectation of an imminent conflict.


"There is no evidence that China is carrying out any type of mobilisation for war and little evidence of national war preparation,” he pointed out.


Mr Mok from the Center for China and Globalization said that despite “extensive preparations”, Beijing’s readiness for conflict remains uncertain due to logistical challenges and the potential international response.


Instead, observers believe China’s stockpiling efforts are primarily aimed at ensuring it has the wherewithal to weather shocks, especially as an uncertain geopolitical climate and a host of domestic challenges beckon.


Europe and the US have taken economic action against the world’s number two economy over perceived overcapacity - both have imposed tariffs on Chinese electric vehicles, while Washington has also done so on other Chinese goods like solar panels and lithium-ion batteries.


Closer to home, China is confronting a faltering economy, debt-ridden local governments, a drawn-out real estate downturn and its spillover effects, as well as a rapidly ageing population, to name some.

Mr Heath said the Chinese state under President Xi Jinping is grappling with “persistent discontent” over a slowing economy, unemployment, corruption and inadequate social welfare services.


“The security preparations observed in industry, defence mobilisation, the medical system and elsewhere are consistent with a country worried first and foremost about a deteriorating domestic situation and are less consistent with those undertaken by a leadership contemplating major war."


SAVING FOR A RAINY DAY


Climate change is another driving factor in China’s resource-amassing efforts as the country is acutely vulnerable to the fallout, analysts point out.


With 1.4 billion people, China has to feed nearly 20 per cent of the world’s population despite being home to less than 10 per cent of the world’s arable land and 6 per cent of global water resources, according to the Center for International and Strategic Studies (CSIS).


China is facing hotter and longer heatwaves and more frequent and unpredictable heavy rain as a result of climate change, the weather bureau warned on Jul 4.


The China Meteorological Administration also cautioned that maximum temperatures across the country could rise by 1.7 to 2.8 degrees Celsius within 30 years.


Already in recent weeks, floods in the south and drought in the north are threatening crop harvests. Analysts have said the increasingly erratic weather could pose a longer-term risk to domestic output of grains like wheat, soybeans, rice and corn, potentially forcing the country to lean more heavily on imports.

These would deal a hard blow to national food security, especially reliance on external parties in a global environment where China’s public image has taken a hit.


Beijing has made no bones about the weight it places on grains, and food security by extension.


There is historical precedent - in the late 1950s, Mao Zedong’s “Great Leap Forward” to modernise China’s predominantly agrarian society resulted in mass starvation and famine alongside a collapse in grain production. An estimated tens of millions of lives were lost over four long years.


National grain stockpiles would be established in 1990 in a later move to achieve self-sufficiency. Fast forward to now, and food security remains a top priority of government work under President Xi.


The head of the National Food and Strategic Reserves Administration Liu Huanxin declared in January that "China's grain inventories are abundant, with its stock-to-use ratio well above the international grain security threshold of 17 to 18 per cent”.


This implies as well that Beijing considers it a badge of honour to stockpile at levels far higher than required by other nations, said Mr Han from The Asia Group.


The act of storing grain is encapsulated in a Chinese idiom - wei yu chou mou - or saving for a rainy day. It is one that President Xi has over the years repeatedly used to emphasise the importance of taking precautions and safeguarding for future uncertainties.


Natural disasters are a key concern. They’ve already cost China 93.16 billion yuan (US$12.83 billion) in the first half of this year, more than double the 38.23 billion yuan worth of losses logged in the same period a year ago.


This was the country’s biggest first-half disaster-related loss since 2019, according to data from the Ministry of Emergency Management website.

REGIONAL IMPLICATIONS


Analysts note that the US is an increasingly relevant factor to how China determines the pace and scope of stockpiling.


“China pays close attention to US security and economic policies even when not directly targeted, because they can still significantly impact China,” said Mr Han.


He referred to the aggressive interest rate hikes carried out by the US Federal Reserve since March 2022 to tame inflation. “Yet the effect on China is to restrict its central bank from lowering its rates to stimulate China’s sluggish economy.”


“The concern is that rate cuts would accelerate US dollar capital outflows that would depreciate the Chinese yuan, thus making the stockpiling of global commodity imports - typically priced in US dollars - that much more expensive,” Mr Han explained.


Experts point to the regional implications as China forges on with amassing its resource cache.


Mr Wischer of Dei Gratia Minerals said while China’s stockpiling is primarily done by purchasing minerals from domestic producers, the country has sometimes stockpiled minerals through imports.


“In the latter case, China may import, for example, nickel produced by Chinese companies in Indonesia,” he noted.


China would expectedly try to draw Southeast Asia closer to its stockpiling orbit given the region’s rich natural resources, said Mr Han from The Asia Group.


“We see this intention with China’s BRI (Belt and Road Initiative) efforts to bolster its regional influence via trade partnerships,” he added.

The Association of Southeast Asian Nations (ASEAN) became China’s top trading partner in 2020, overtaking the European Union. Meanwhile, China has been ASEAN’s largest trading partner for 15 years, with trade volume reaching a new record of US$702 billion in 2023.


Both ASEAN and China are also strong supporters of the Regional Comprehensive Economic Partnership, and there’s the ongoing negotiations on the upgrade of the China-ASEAN Free Trade Agreement.


Mr Mok said China’s resource accumulation efforts could lead to higher resource prices and increased economic dependency within Southeast Asia.


At the same time, he highlighted how it also brings opportunities through Chinese investments and infrastructure projects.


“This dual impact illustrates the region's complex relationship with Beijing’s strategic manoeuvres,” he said.

Readying for war or being prepared for crises? China’s stockpiling of resources raises eyebrows and questions - CNA