China stockpiles food as energy crisis and Covid outbreak threaten Xi’s grip on power

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China Xi Jinping
China Xi Jinping

China’s absence from Cop26, while the world’s biggest polluter wrestles with the impact of climate change on soaring food prices, is an irony which will not be lost on leaders gathering this week.

Its strongman president Xi Jinping – who has not left the country since the advent of coronavirus – is to push through legislation at a key Communist Party meeting next week to help him secure another five years in power.

But before then, more immediate concerns are filling Xi’s in-tray. The Ministry of Commerce has warned households to stockpile food for the winter, and urged local authorities to stabilise prices and ensure supplies.

The alarming message sparked a flood of 17m comments on Weibo, China’s version of Twitter, with some speculating that an attack on Taiwan must be looming.

Sudden scrutiny over China’s ability to feed its 1.4bn people comes amid a raft of other headaches for Xi including a worsening outbreak of Covid cases, an energy crisis and a potential property crash exemplified by the woes of indebted developer Evergrande.

Combined, they have the ability to rock the country’s social and economic order: Xi’s worst fear.

“The big focus is always social stability above all else,” says Craig Botham, chief China economist at Pantheon Macroeconomics. “Xi’s ability to maintain social order will be the main way the party will judge him.”

While China always attempts to stockpile fresh vegetables and pork in the run-up to the national Lunar New Year holiday, efforts have become more important after extreme weather in October flooded crops in Shandong province, the country’s biggest vegetable producer.

Food prices are soaring in China - ALEX PLAVEVSKI/EPA-EFE/Shutterstock
Food prices are soaring in China - ALEX PLAVEVSKI/EPA-EFE/Shutterstock

Prices have surged, spooking Beijing and sending food producers’ share prices surging this week. The cost of cucumbers, broccoli and spinach have doubled in less than a month – with the latter dearer than some cuts of pork at 16.67 yuan (£1.91) a kilo.

The Government urged “families to store a certain amount of daily necessities as needed to meet daily life and emergencies”, as well as encouraging local authorities to release vegetable reserves “at an appropriate time” to secure supply and keep a lid on prices.

Likely to add to food costs is a looming cold snap and high diesel prices. China – the biggest importer of soybeans and corn and a consumer of almost 20pc of the world’s wheat – also faces a squeeze on food from the US as Hurricane Ida causes delays to imports, according to ING Bank’s China economist Iris Pang.

“Everything is going to be quite messy this winter,” she adds. Wheat prices hit their highest level since 2012 this week.

The grain’s surge underlines growing concern among China’s leaders over food security. In its latest five-year plan, released in March, a target for food security was included for the first time while the legislature is drafting a law on the issue. In June, executive vice premier Han Zheng called for an upgrade to the country’s food reserves system.

Officials have also launched a new action plan on grain conservation, according to China-focused consultant Trivium.

Botham adds: “It's been a relatively long term theme, the whole question of food security, because in terms of arable land and farming, they've been under pressure in China. It's been sold off and used for constructing apartments.”

But as worries mount, state-backed media sought to play down the stockpiling comments. The Economic Times warned Weibo users against having “too much of an overactive imagination” and stressed the guidance was simply intended to make sure households had enough essentials if forced to isolate due to Covid.

But the pandemic presents another large headache for Xi as China’s economically damaging zero-Covid strategy frays at the seams while the delta variant spreads. The number of domestically transmitted cases has almost doubled in a week to the highest since mid-September and the virus has spread to 14 different provinces.

Last weekend, in a demonstration of the extreme measures, Shanghai’s Disneyland theme park was locked down and more than 38,000 visitors and staff prevented from leaving until they had been tested - all due to a single coronavirus case.

Visitors wearing protective face masks pose for a picture at Shanghai Disney Resort - EUTERS/Aly Song
Visitors wearing protective face masks pose for a picture at Shanghai Disney Resort - EUTERS/Aly Song

Draconian quarantine requirements are meanwhile causing major economic damage for Hong Kong, where growth has slowed to a crawl and almost half of major companies are considering their future in the financial hub.

Gareth Leather, senior Asia economist at Capital Economics, said: “Sticking with their zero-Covid strategy with the delta variant just doesn't seem feasible as a long term strategy. The longer they go ahead with this, the more damage it's likely to cause in their economy.”

Most economists expect the world’s second-largest economy’s growth to ease to between 3 and 4pc next year – a rate not seen since the early Nineties as a concatenation of troubles takes its toll.

Xi’s firefighting has at least eased pressure on one front as the cost of thermal coal has fallen by half from mid-October peaks.

A reopening world economy sent electricity demand from Chinese factories – and coal prices – soaring but many power stations refused to operate at a loss on electricity prices set by the state, causing blackouts.

That prompted the president to intervene to ramp up coal production and curb speculation in the commodity. Analysts do, however, expect the issue to linger until next year.

Power shortages and surging commodity prices have weighed on manufacturing, according to official figures for October that showed a contraction in production for the second month in a row, exposing further weakness in the economy.

Meanwhile China’s property firms are under huge strain. The woes of Evergrande, saddled with $300bn in debt and seemingly in line for a state restructuring, have spread contagion in the sector as other developers default or delay payments, putting increasing financial pressure on even the more well-capitalised players.

But Leather argues that Xi has chosen to “trade off” faster growth against increasing his grip over China’s economy through strategies such as a year-long clampdown on tech giants, which has tightened control over a raft of e-commerce and social sites.

He says: “The fact that they're happy to come down on these sectors means that there is this acceptance that they're prepared to tolerate slightly slower growth in return for having more control of the economy.”

For all his authoritarian ambitions and desire to supplant the West, however, the president will be keeping a wary eye on food bills as a difficult winter stretches ahead.

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