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Grain Drain

Beyond crackdowns, China’s grain reserve system needs radical systemic reform and supervision to fight rampant corruption

By Xie Ying , Yuan Suwen , Wang Diya Updated Jul.1

A former grain reserve director who fled China while facing an investigation for corruption is in police custody. Li Xi’an, who headed the Municipal Grain Bureau in Xi’an, Shaanxi Province, was photographed in April escorted by two plainclothes police officers at a Chinese airport.  

The visibly tired Li, 65, was reported to have left China in February, allegedly to avoid an investigation by the Central Commission for Discipline Inspection (CCDI), the top Party disciplinary body.  

Li served as the bureau’s director for 10 years before retiring in 2018. While no official details have been released about Li’s case, media reports claim he was deeply involved in corruption related to grain reserves.  

China has central and local grain reserve bureaus across the country, but corruption in the purchase, renewal and storage of reserves is common.  

The CCDI started its anti-corruption campaign targeting the grain reserve system in August 2021. Within a year, it released information about 73 cases. From January to April 2023, the CCDI exposed an additional 40 cases of corruption, involving both government departments and State-owned grain enterprises.  

An unnamed official from China’s office of fugitive repatriation and asset recovery hailed Li’s arrest as among the campaign’s major successes.  

After Li’s arrest, the Shaanxi provincial discipline inspection authority revealed seven more cases of grain reserve corruption involving fake businesses, bribes and illegal profits.  

Mao Zhaohui, director of the Research Center of Anti-Corruption Policies at the Renmin University of China, believes that only systemic reform can root out the rampant corruption. “The present clampdown will pave the way for future reform in the grain reserve system and we may use the cases and facts to promote that,” he told NewsChina. 

‘Selling Quotas’ 
China’s current grain reserve system, established in 1990, stabilizes the grain market and protects farmers’ interests by setting up central and local grain reserve bureaus to manage granaries, reserve purchases, sales and renewals.  

The State-owned SinoGrain oversees the purchase, sales and renewal of strategic reserves at the central level, a professor at China’s largest State-owned grain enterprise, COFCO Corporation, told NewsChina. The National Food and Strategic Reserves Administration (NFSRA) serves as an administrative department for guidance and supervision, while the National Development and Reform Commission defines reserve quotas for subordinate bureaus to purchase grain, with a price floor set to protect farmers.  

“The grain reserve system could be interpreted as a State insurance the government buys for itself,” the professor, who requested anonymity, said.  

The cost of grain reserves is entirely covered by the central government, which also provides additional allowances to those responsible for the reserves. This invites corruption at all links in the chain.  

A common way is “selling quotas” – accepting bribes from grain enterprises for distributing quotas. Examples include Yang Suiting, the former Party secretary and director of the Shanxi Grain Bureau, who allegedly received 14 million yuan (US$2m), and Zhang Tianxi, director of Inner Mongolia Autonomous Region Food and Strategic Reserves Bureau, who allegedly received bribes of 2.5 million yuan (US$361,000).  

Central-level departments and enterprises also deal with corruption. In January 2022, Xu Baoyi, SinoGrain’s former deputy manager, was investigated for allegedly taking bribes of 13 million yuan (US$1.9m) from companies bidding on contracts to manage SinoGrain’s subordinate granaries. In June 2022, former NFSRA Party secretary and director Zhang Wufeng was arrested for corruption. 

‘Grain Laundering’ 
Corruption in the restocking process involves selling old reserves for new ones. To ensure quality, the central government requires grain bureaus to purchase grain from farmers each year to replace old reserves in the granaries. The older grains are often auctioned back into the market.  

“It’s important to note that not all old reserves are of poor quality. In fact, some grain may actually improve in quality over time. For example, wheat reaches its nutrient peak six months after harvest,” the professor said. The older grain can even be sold at a higher price than the original purchase price, generating profits for the reserve granaries. Additionally, the central government covers the cost of restocking the granaries, the professor said.  

This facilitates corruption. The CCDI’s findings show that some granaries illegally profited and deceived the central government by faking restocks. They colluded with grain enterprises and falsified new stocks for old reserves sold to the enterprise, while claiming to purchase new grain. However, no new grain existed, and they covered this up by manipulating the numbers. The old reserves were actually delivered and kept at the grain enterprise for some time before they were returned to the granary, passed off as new. Some granaries skip these steps and simply fake invoices. The CCDI described such fraud as “grain laundering,” where the same batch of grain returns to its place of origin.  

Another common form of corruption is falsifying reserve losses. The central government permits a maximum loss rate of 0.1 percent over six months due to natural causes like water evaporation. The government then reimburses these losses. However, many granaries have profited by inflating their loss rates.  

“Just a 0.1 percent difference results in [reimbursements for] dozens of tons of grain to flow into individual’s pockets,” an insider told China Economic Weekly on condition of anonymity.  
CCDI reports indicate that corrupt officials have also profited by inflating purchase prices or illegally selling old reserves without replenishing them, resulting in empty granaries.  

Several officials involved in grain storage and reserve projects have been exposed for corruption. Zeng Guiliang, a former director of granaries in Guilin, Guangxi Zhuang Autonomous Region, was found to have illegally rented substandard granaries for storage and accepted bribes of more than 100,000 yuan (US$14,444) in a granary construction project.  

Similarly, Wang Dongfeng, a former Party secretary and president of the Stateowned Shaanxi Food & Agriculture Group, reportedly took bribes of 6.75 million yuan (US$1m) in granary upgrades and reserverelated projects, while Hu Dongsheng, a former Party secretary and director of the Heilongjiang Province Grain Bureau, was found to have taken bribes of over 29 million yuan (US$4.2m).  

Additionally, CCDI reports suggest that officials Yang Suiting, Zhang Tianxi and Wang Dongfeng have embezzled government allowances for grain reserves, posing a significant food safety risk. 

‘Resolute Reform’ 
In early May, the Supreme People’s Procuratorate announced its involvement in the central government’s crackdown on corruption in the grain reserve system. It called for close cooperation between prosecutors and other law enforcement agencies in dealing with cases related to grain reserve corruption. It also aimed to identify central problems in the grain reserve system to improve management and supervision.  

“Corruption has infiltrated key links such as purchase, sales, renewal and supervision within China’s grain reserve system, indicating institutional problems,” Mao told NewsChina.  

He believes systemic reform is necessary as the current management and supervision involving multiple bodies cause decentralization and fragmentation.  

He criticized the unclear responsibilities of SinoGrain, a non-profit organization that manages national grain reserves and receives government funding, while also being a subordinate enterprise under the State-owned Assets Supervision and Administration Commission, which requires meeting performance quotas. “It means that SinoGrain has to fill grain reserves while working to develop business,” he said.  

“When an enterprise aims to serve both policies and profits, it cannot stay focused on one and will become vulnerable to corruption while expanding,” he added.  

Zhuang Deshui, deputy director of the Research Center for Government Intergrity-Building at Peking University, believes that the issue with corruption lies in inadequate and incompatible supervision. “Our supervision is often absent before corruption occurs and current supervision lacks precision,” he said, adding that the complex nature of grain reserves requires professional expertise to detect corruption.  

“We can’t conduct full monitoring of the grain reserve system due to confidentiality concerns. Besides, purchase and sales criteria require some flexibility, which confuses supervisors... because it can be manipulated,” Zhuang said.  

According to Zhuang, although the government has already worked out standards for each link of the grain reserve system, real-time supervision and effective analysis of financial data is still impossible. “In this situation, the system can only rely on general principles and severe punishment through campaigns to establish its prestige,” he said. “But in the future, innovations such as a big data platform for real-time supervision and auditing may be introduced,” he added.  

“While the special campaign may temporarily reduce corruption in the grain reserve system, which could also shift to new or latent forms of corruption... resolute reform in the grain reserve system is more important,” Mao said.

Spotlighting corruption in the grain reserve system remains a challenge for officials (Photo by Xinhua)