China’s Price System Jeopardizes its Grain Reserves

Special report by China Economist reporter LI Bin ( 李宾)

Editorial note:2008 is a year of bumper harvest in summer grain across China. The failure of numerous state-owned grain depots to purchase grain in times of bumper harvest, however, directly threatens grain reserve security and state control over grain prices in the upcoming year.

An important factor underpinning the difficulty of state grain depots to purchase grain is the unwillingness of farmers to sell grain due to the excess of the current market price over the government “protected price” aimed at preventing cheap grain from harming farmers.

When grassroots grain depots find themselves in trouble, foreign capital stealthily moves in by taking advantage of this situation.

To fulfill grain storage tasks and receive various state subsidies, some state-owned grain depots have no alternative but to surreptitiously raise the purchase price. By contrast, some not so courageous state-owned grain depots can only borrow money to finance the purchase of commodity grain at market prices and subsequently figure out a way to pay back such loans.

Behind such distorted grain purchase behavior lies a rough and rugged history of grain price reform in China.