The War in Ukraine and the Great Amplification
Since the start of the Russian offensive on 24 February 2022, the raging war has triggered an amplification of the tension on global food and energy prices. The price trends for oil, gas, coal and agricultural products were already on the rise because of the Western “post” Covid pandemic economic recovery.
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Since March, the war in Ukraine is turbocharging inflation trends (Charlotte Hebebrand and David Laborde, “High fertilizers prices contribute to rising global food security concerns“, International Food Policy Institute, April 25, 2022 and « Oil Prices Will Remain Above $100/ Barrel as long as the Ukraine War Rages On », The Economic Times, 25 April 2022).
Then, as seen in “War in Ukraine, U.S Megadrought and the Coming Global Food Crisis” (Jean-Michel Valantin, The Red Team Analysis Society, 1 May 2022), the effects of the war in Ukraine, not only block the exports of the Ukrainian and Russian crops but also combine with the consequences of the multiple megadroughts that impact the U.S. and Indian crops.
Meanwhile, the U.S. executive and legislative branches mobilize a 40 billion dollars package, in order to support Ukraine financially and militarily. As it happens, U.S. President Joe Biden signed the legislation in South Korea, while being on a tour in Asia (“Biden signs $40 Billion aid package for Ukraine during trip to Asia”, CNBC, 21 May 2022).
Two days later, in Tokyo, he declared that the U.S. would militarily support Taiwan in case of a Chinese attack on the island (Tripti Lahiri, “Did Biden just end U.S strategic ambiguity on Taiwan?”, Quartz, 23 May, 2022). One can infer that, given the current state of tension, those legislations and declarations are very closely monitored by Beijing.
Those political and strategic American signals happen at a time when the Chinese decision-makers have to manage difficult domestic and international crises.
On the one hand, they have to handle the struggle against the Covid-19 new wave and, on the other, the Taiwan-U.S.-mainland China tensions. Simultaneously, they must guarantee China’s food security, while having to deal with a very bad winter wheat harvest (Hallie Gu and Shivani Sing, “China agriculture minister says winter wheat condition could be worst in history”, Reuters, March 7, 2022).
In this regard, it appears that, in fact, China has stockpiled grains since 2021. Chinese companies buy, among others, wheat and corn to Russia, France and Ukraine (“China corn imports soar to new records in 2021”, Reuters, 18 January, 2022). Beijing implements this food policy as major extreme weather events impact major crops in China and around the globe.
Since 2021, extreme weather events have impacted winter and spring crops worldwide and especially in China, the U.S., India, Brazil (Sara Schafer, “Brazil’s drought: the trigger that could take corn prices higher?”, AgWeb, 28 April, 2022).
In the context of this very tense international situation, the linkages between agriculture and energy confer a reinforced geopolitical meaning to the Sino-Russian relation.
The question is to evaluate if one of the major consequences of the current geopolitical and climate change induced tensions could be the reinforcement of the Russia-China relationships. In which case, the close cooperation between Russia and China is not only about economic development. It is also about supporting each other power, while maintaining each other vital access to food and energy resources.
Chinese food security: a turning point in 2021
Since 2021, a growing number of major agricultural countries restrict or ban exports of their own production. The process started in June 2021, when the Russian government imposed taxes on grain exports, trying to stabilize domestic food prices.
Then, in December 2021, Argentina took a similar step (Clément Vérité, “Argentina stops exports of soybean oil and soybean meals “until further notice“, Newsendip, 14 March, 2022. Since then, the Argentinian political authorities limit corn and wheat export volumes. They do so in order to control domestic food prices. In March, the Argentinian government tightened these measures.
Algeria, Egypt, Indonesia, Iran, Kazakhstan, Kosovo, Turkey, Serbia, Hungary, and Kuwait took similar steps (Weizhen Tan, “India is not the only one banning food exports. These countries are doing the same”, CNBC, 17 May, 2022).
Then, since February 2022 and the Russian offensive in Ukraine, the exports of grain from Ukraine and Russia are also largely down. This diminution comes from the blocking of the Black Sea ports.
In May 2022, India, the second largest wheat producer, decided to ban exports. The decision is based on the destructive effects of the massive heatwave that impacts India and Pakistan. The Indian crops yield lost 20% because of this month-long, climate-change driven extreme weather event (Manavi Kapur, “India’s extreme heatwave is already thwarting Modi’s plan to “feed the world”“, Quartz, 28 April 2022).
Meanwhile, the U.S. Midwest and South are experiencing a major megadrought, as well as episodes of short but heavy rains that delay the planting of the spring cultures.
In other terms, the globalized agriculture and food markets are going through a major “perfect storm” (Jean-Michel Valantin, “War in Ukraine, The U.S Mega drought and the Coming Global Food Crisis”, The Red Team Analysis Society, May 1, 2022).
In the context of this global agricultural crisis, since 2021, China has developed massive stockpiles of grains. Indeed, China imported 28,2 million of tons of corn in 2021 (Shin Watanabe and Eiko Munakata, “China hoards over half the world’s grain, pushing up prices”, Asia Nikkei, 23 December 2021). This is the equivalent of 152% of the 2020 annual record imports of 11,8 million tons.
Since 2021, China’s stocks of wheat represent 51% of the global stocks, while its stocks of corn represent 61% of the global total, and its rice reserves 60% of the global ones. In other words, China as apparently stockpiled the equivalent of 1,5 year of food (Watanabe and Munakata ibid). Since the fall of 2021, this massive stockpiling seems to be one of the drivers of the global food inflation.
The Chinese agricultural situation is worsened by the current rural exodus taking place in China. This social trend deprives the countryside, thus the agricultural sector, of farmers and agricultural workers (Jean-Michel Valantin, “China: Towards the digital ecological revolution?”, The Red (Team) Analysis Society, October 22, 2017. To add insult to injury, China suffers from a national shortage of freshwater stemming from waste, pollution, changing weather patterns, urbanization, which is another massive limiting factor for agricultural development (Ting Ma, Sia Sun et al., “Pollution exacerbates China’s water scarcity and its regional inequality”, Nature communications, 31 January 2020).
The Mandate of Heaven at Risk
Food security and the Mandate of Heaven
When studying China, one must always remember that it is a 1,4 billion people strong giant country. This giant of a country knows a mammoth economic and urban development since the implementation of the “Four Reforms” decided by Deng Xiaoping in 1978 (Ezra F. Vogel, Deng Xiaoping and the Transformation of China, Harvard University Press, 2013).
So, the scale of the national needs in food and resources defines the scale of the Chinese food security as well as the global scale of its food resources.
The development of massive food reserves by China takes place in a domestic and international context that is potentially adverse to China’s food security, because competition for food and power could limit its ability reach the grain volumes Beijing wants to stockpile.
Thus, the Chinese political authorities may have to face the risk of a return to hunger in China. This would be a massive breach in the social contract defined by the collective enrichment of China since 1978 (Loretta Napoleoni, Maonomics, Seven Stories Press, 2011).
As a result, it would entail a critical loss of legitimacy for the regime.
In the context of China’s history, it would be the equivalent of the loss of the “Mandate of Heaven”. Indeed, when a crisis of legitimacy happens, the Chinese society usually knows very profound and violent disruptions, while the regime topples (see John King Fairbank, Merle Goldman, China, a New History, Enlarged Edition, Harvard University Press, 1998; Andrea Janku, “‘Heaven-Sent Disasters’ in Late Imperial China: The Scope of the State and Beyond,” in Christ of Mauch and Christian Pﬁster, eds., Natural Disasters, Cultural Responses: Case Studies Toward a Global Environmental History, Lanham, MD: Lexington Books, 233–64; Chris Courtney, “The Dragon King and the 1931 Wuhan Flood: Religious Rumors and Environmental Disasters in Republican China,” in Twentieth-Century China, April 2015 and Cohen, Paul A., Paul A. Townsend, History in Three Keys, Columbia University Press, 1997).
Protecting the social contract from COVID and hunger
So, securing food for China is also a way for the Chinese government to make sure its legitimacy is maintained, while the new wave of Covid-19 induces fierce lockdowns in Shanghai and other major industrial and trade cities, as well as restrictions in Beijing.
As these lockdowns are a new occurrence of the domestic protracted fight against the pandemic, they drive a significative slowdown of the Chinese economy (Brenda Goh and Kevin Yao, “Shanghai targets June COVID lockdown exit as economy slumps”, Reuters, May 16, 2022).
This jeopardizes the promise of a shared economic growth for all Chinese citizens implemented since 1978 reforms. So, the lockdowns may become dangerous for the legitimacy of the government.
In the meantime, this serious domestic situation is combined with the tensions regarding Taiwan. This happens because the U.S. government supports the autonomous status of Taiwan.
Russia and China’s food security
In this context, the privileged relationship with Russia takes a vital dimension. Beijing authorized wheat and barley imports from all parts of Russia on 24 February 2022. Before this date, Beijing was restricting Russian grain imports for phytosanitary reasons, especially because of a fungal threat (Laura He, “China lifts restrictions on Russian wheat imports”, CNN Business, 25 February 2022).
This authorisation followed the signature of numerous trade contracts between Russia and China, during President Vladimir Putin visit for the February 2022 Beijing winter Olympics (CNN’s Beijing Bureau and Anna Chernova CNN, “Putin and Xi call for a halt to NATO expansion during show of unity at winter Olympics”, CNN, February 4, 2022).
The Russia-China food and energy Great Convergence
Stockpiling, a national endeavour
In the current strategic and climate context, imports of Russian grain are of special importance for the Chinese food security, because Russia is both a major producer and neighbour. Furthermore, since the launch by Xi Jinping, of the Belt and Road initiative in 2013. Russia plays a central role in this project, because the Chinese railways operate through Russia in order to reach Europe.
Hence, their development de facto augments the shipments capabilities between Russia and China (Frederic de Kemmeter, “OBOR-One Belt, One Road”, Mediarail.be, January 2018 and Jean-Michel Valantin, “China, Russia and the New Silk Road in Central Asia – The great co-empowerment”, The Red Team Analysis Society, March 17, 2016).
As it happens, a new railway bridge between Chinese Tongjiang with Russian Nizhnelenizskoye opened on 27 April 2022 and will become operational during the 2022 summer.
This new line is all the more important as the war in Ukraine imposes a slowdown to the Chinese railways shipments from China to Europe. However, in this context, there is marked growth of the trade between Russia and China. As it happens, in April, the Russia- China railway traffic rose by 27% at Manzhouli border crossing, and by 10% at the Suifene border crossing (Majorie Van Leijen, “This railway bridge brings China and Russia closer together”, Rail Freight.com, 28 April 2022).
China has reduced its U.S. imports since the launch of President Trump “trade war” in March 2018 (Jean-Michel Valantin, “The US Economy, Between the Climate Hammer and the Trade war Anvil – The US Soybean Crop case”, The Red Team Analysis Society, October 8, 2018) . However, in 2021, China made large purchases of Australia’s wheat and barley, despite tensions with Canberra.
The trade war with the U.S. is also the reason why, since 2018, China quadrupled its imports of cereals from Ukraine. Chinese companies also buy large purchases of wheat and corn from France (Gus Trompiz and Michael Hogan, “EXCLUSIVE China snaps up large volumes of French, Ukrainian grain”, Reuters, 10 December, 2021) .
So, China’s grain imports appear as a way to compensate the loss of U.S. and Ukrainian imports. Furthermore, the blocking of large volumes of Ukrainian imports confers de facto a greater importance to the Russian export capabilities.
2022: the rise of China and Russia trade
At the time of writing, detailed statistics of the grain volumes traded between China and Russia since March 2022 have not yet been disclosed. However, it appears that, between January and March 2022, the trade turnover between Russia and China rose 28,7% year on year. It reached $38,17 billion for the first 2022 quarter. (“Russia-China trade surges in 2022”, The Moscow Times, 13 April 2022)
In the same dynamic, Russian exports to China rose 32% to $21,73 billions during the first quarter of the year. In March alone, Russia exported 7.84 billion worth of goods to China (Ibid).
This takes place when major agricultural producers diminish or ban their exports in order to protect their domestic market, at a moment when China establishes massive stockpiles. Indeed, these bans and restrictions de facto mitigate China’s international access to international cereals volumes. That is why, because of the combination of their large availability, of their relative proximity and the existence of transport capabilities those Russian imports are of particular importance.
In other words, in the middle of the war in Ukraine, the Russian-China agricultural closer relationship supports the Chinese food security as well as the Russian economy, that is under massive strains because of the economic sanctions that the U.S. and the E.U. inflict upon Moscow (Jean-Michel Valantin, “War in Ukraine, The U.S Mega drought and the Coming Global Food Crisis”, The Red Team Analysis Society, May 1, 2022)).
From Food to Energy special relationship
The strengthening of the China-Russia relationship through food security takes also place in the energy field, through again another increase of the Chinese purchases of Russian oil and gas. As it happens, the oil market being an international market, the rising demand by countries and companies triggers rising prices.
Meanwhile the international output remains tightly controlled by the producers, especially by OPEC+. However, since 2021, the OPEC+ members, led by Saudi Arabia, are only slightly rising their output, despite pressing demands by the U.S..
In March, the global output slightly inferior to February, thus triggered a strong price growth (“OPEC+ crude production falls as sanctions take bite out of Russia: S&P standard survey”, S&P Global Commodity insight, 7 April 2022).
Mirroring those sanctions, the Kremlin started to demand that Russian oil be paid in Russian rubles, instead of dollars or euros (Archana Rani, “4 European companies make gas payments to Russia in rubles”, Offshore Technology, April 28, 2022).
This already complex situation keeps on becoming even more complex. Indeed, the whole Russia-EU energy situation worsens with the blocking by Ukraine of some the gas flows towards Europe, in order, according to Kiev, to deprive some Russian-backed separatists from the flow of gas (“Ukraine halts Russian gas exports to Europe at eastern transit point”, Euronews, 11 May 2022).
A Geopolitical Giant Emerges
This highly complex dynamic reinforces the oil and gas global price inflation. Consequently, the higher oil and gas prices impact importer countries, China being among the most important ones.
So, in order to secure Chinese purchases of Russian oil and gas, Gazprom and Rosneft sell to China at discount prices. This helps Russia maintaining its economy hobbled by the western sanctions, while those purchases support China’s energy security (Chen Aizhu and Florence Tan, “EXCLUSIVE: China quietly increases purchases of low-priced Russian oil“, Reuters, May 20, 2022).
In other words, Russia and China become each other economic and political supports. This takes place in the context of an increasingly polarized international geopolitical environment
It now remains to be seen how this China-Russia “special relationship” evolves, while facing the rising involvement of the U.S. in Ukraine through the 40 billion USD humanitarian and military aid package as well as the unfolding of the global food crisis in a time of accelerating climate change.
Featured image: by Vladislav Nekrasov – Creative Commons Attribution 4.0 International