China vastly expands grain infrastructure

by Teresa Acklin
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Project may be the largest grain-related construction effort in history.

   The immensity of the grain-related construction and engineering program about to start in China, aimed at modernizing grain distribution internally and at five ports, came to life in a recent series of interviews with engineers involved in the undertaking.

   Costing $1 billion to $1.75 billion, depending on who is making the estimates, and involving the building of a network comprising nearly 40 million tonnes of up-to-date grain storage facilities at 370 sites, the China project ranks near the top, if not as the largest, of such undertakings in the history of grain-related construction around the world.

   Details of the huge program were disclosed in connection with the announcement that LG Mouchel & Partners, a U.K.-based firm of consulting engineers, had been selected as “chief adviser” on the program's first phase. The project in its totality is expected to extend over at least five years.

   Mouchel's client in the first phase is China's Ministry of Domestic Trade, the name recently adopted by the former Ministry of Commerce. Other ministries, notably Finance, are also involved, and Mouchel's fees, along with the costs of other consulting engineering firms involved, are being paid by the World Bank.

   Working with LG Mouchel, which will supervise and review their work while advising the Ministry of Domestic Trade on technical matters, are Connell Wagner of Australia; C.C.G.S., a Canadian consortium of design engineers that includes the Saskatchewan Wheat Pool; and GEM Engineering of Rotterdam.

   The World Bank deserves credit for providing the main impetus to launch the project, persons working on the massive program indicated. According to western participants in the initial work, the bank, through a loan of $325 million and through an additional credit of $165 million provided by its affiliate, the International Development Association, will provide the principal “hard currency” financing for the project. This World Bank-I.D.A. total commitment of $590 million, it was noted, will be used primarily to acquire from suppliers outside China the equipment and engineering required for the project.

   The World Bank-I.D.A. funding will be expended over five years. It represents slightly more than half of the $1 billion of outlays involved in the engineering work currently under way. In announcing the program in Beijing, officials of the Chinese government estimated the total cost of the program at 10 billion yuan, about $1.75 billion. Local currency requirements will be provided by the national government of China in Beijing and the governments of the provinces in which the new grain facilities will be built.

   The primary focus of the grain infrastructure building — an estimated 80% of the total — will be in China's so-called Northeastern Corridor, made up of the provinces of Heilongjiang, Jilin and Liaoning and a few counties in eastern Nei Mongol. (See map.) Production of grain, primarily maize and soybeans, has grown rapidly in this area in response to steps taken several years ago to free farmers of centralized control and to allow the market to determine prices. The result was a tremendous spurt in grain production.

   Yet, grain storage and distribution capacity did not increase in line with crops, leading to grain rotting in the field because of an inability to move it. This was occurring while other areas of China experienced grain shortages.

   According to Mouchel, the Northeastern Corridor is an extremely fertile area, producing an annual surplus of about 9 million tonnes of maize and soybeans.

   Within the Northeastern Corridor, the project provides for building a network of 280 primary depots and 80 intermediate depots to handle the movement of grain initially by road and then by rail to two new port terminals being built at Daya Bay, in the Dalian port area, and Yingkou.

   The Daya Bay terminal will be the largest of the new port facilities, with 300,000 tonnes of storage capacity and equipment for exporting both maize and soybeans into vessels of up to 30,000 dwt and handling wheat import vessels of up to 80,000 dwt. The Yingkou terminal will have 100,000 tonnes of storage capacity and will have facilities for loading maize and soybeans into vessels of up to 30,000 dwt.

   Other areas selected for the grain infrastructure program are the Yangtze Corridor and the Southeastern Corridor.

   The Yangtze Corridor is made of the provinces of Hubei, Hunan, Jiangxi, Anhui and Jiangsu, all lying along the navigable reaches of the Yangtze river. A number of specialized grain terminals will be constructed at the mouth of the Yangtze in order to receive ships carrying wheat from the world market and maize and soybeans shipped from China's Northeastern Corridor. These imported grains will be loaded onto smaller vessels and barges for distribution to provincial wharves along the lower and middle reaches of the vast river system.

   The Yangtze Corridor represents one of the major rice-growing areas of China, and the new program envisions that a portion of the region's surplus rice crop may be shipped down river, possibly as backhaul freight, to heavy consumption centers around Shanghai and possibly for export.

   The Southeastern Corridor component of the project will be centered on the port of Fangcheng. A new terminal will be constructed at this port to unload ships carrying maize and soybeans from the Northeastern Corridor and the world market. These imports will be transported by rail to a number of distribution centers serving the Guangxi, Guizhou and Yunnan provinces.

   A Mouchel official noted, “Hand in hand with the introduction of the new infrastructure, a program of market reforms is taking place in China's grain sector aimed at liberalizing prices and creating a more market-orientated structure. It is anticipated that these reforms will reduce grain losses by 50%, saving some 500,000 tonnes of grain a year, and will provide the basis for China to participate effectively in the world grain trade.”

   As noted, more than 300 of the sites for building new grain storage and distribution facilities have been selected in the four northeastern provinces. These facilities range from small storage structures designed to accommodate the output of farms in specific areas, to the equivalent of U.S. subterminal and even terminal elevators. The latter will be located primarily along the railroad network in the area, which was designed to move cargo from the interior to ports and vice versa.

   The project does not provide for the building of any new roads or rail lines, leaving aside the modernization of the current transportation system. It was acknowledged that the project at some point, but not in the initial phases, will have to provide for a mammoth increase in the Chinese railcar fleet designed to move grain in bulk. This shift to bulk movement and handling will replace China's historical reliance on shipping grain in bags, introducing an important degree of modernization and efficiency.

   The highest priority in the grain infrastructure modernization program is the efficient movement of grain, especially maize and soybeans, from surplus producing areas in the northeast to net deficit areas in the central and southern parts of China, and possibly surplus rice from the south to the north. But the project also recognizes China's reliance on imports of wheat and its potential for exporting maize, soybeans and possibly rice in future years, as crops expand, into the world market. As a result, the new port elevators for the most part are being designed to handle grain for both export and import movements.

   Each port selected for the new grain elevators is a deepwater port.

   One of the important elements of the grain infrastructure construction program that is still undecided is the ownership and management of the new port elevators. It is apparent that the provincial grain authorities were and are jockeying for management roles in regard to the new grain elevators.

   And while provincial officials might appear to have the upper hand, it also was considered likely that serious consideration would be given to joint ventures with foreign operators and/or investors. This sort of decision, it was indicated, will not be made for some time. Attention was called to the current policy of the Chinese leadership in Beijing aimed at encouraging foreign investment in China.

   The preliminary design phase contracts held by LG Mouchel & Partners and the other consultants for the most part expire at the end of this year. This part of the project will be followed by a second phase, focusing on the preparation of requests for tenders from foreign suppliers to participate in the project.

   This will also involve a decision, not yet made, as to whether these contracts will be on a turnkey basis or will require the participation of Chinese contractors in building the basic structures.

   Foreign, hard-currency suppliers will primarily provide shiploading and unloading equipment, grain drying and aeration systems and conveying and related machinery.

   “We would hope to continue our advisory role for the duration of the project,” said a Mouchel official.