CHINESE AGRICULTURE
Self-Sufficiency Stability and self-sufficiency are key factors
for continued economic growth. Zhao said, “stable supply and price is what the Chinese government and people expect so that is the starting point for almost all policies in the agriculture area... The government still emphasizes 95% self-sufficiency for major grains; this remains the requirement of the central government.” Zhao expects total grain production in China to reach 650 million kg/yr, up from 600 million kg/yr today. Although China’s supply of many commodities has increased, it is not keeping pace with demand. Zhao continued, “China will import more of almost every major grain including wheat, rice, soybean and corn. Especially soybean and corn.” He also expects to see an increase in fruit imports. According to Adams, China now imports just over one fifth of all feed grains used domestically. According to the OECD–FAO study, “from 2001 to 2012, China’s agricultural trade (imports and exports) increased from USD 27.9 billion to USD 155.7 billion. Import dependence doubled from 6.2% to 12.9% with China’s net trade deficit in agriculture and food standing at USD 31 billion in 2012.” Kullavanijaya said, “on the food side, demand for basic staples – in particular grain for direct to consumer and animal feed – will go up in China because Chinese are eating more meat. China’s grain production has increased, but demand for protein is going up even faster. “China is the largest producer of pork and pork continues to
be the main protein source, but beef and chicken will also see increases.” According to data from the Earth Policy Institute, pork represents 73% of China’s meat demand, followed by chicken at 19% and beef at 8%. And China’s per capita meat consumption is approximately 53 kg, roughly half that of the US at 105 kg. Adams said, “for the medium to long
term view, while population growth is slowing in China, there are still hundreds of millions of people who have yet to enter the global middle class demographic. A tighter labour market will raise blue-collar wages in China. For the supply side, over the medium to long term, pessimists have historically been proven wrong. So there is reason to think there are technologies out there to help supply growth.” He also talked about further bottlenecks. “Over 5-10 years, I see more reasons to see prices rise than to fall,” he concluded.
Zhao has a similar long term view:
10% 12% 14% 16%
0% 2% 4% 6% 8%
2000 2003 2006 2009
The Growing Pressure For China To Shine More Light On Financial Risks
China is at a turning point. The country is entering its next stage of development at the same time that it undertakes economic and financial reform. Standard and Poor’s expect its economic growth to slow to 6-7% annually over the next 10 years after averaging 9.8% for two decades. These conditions will likely reveal inefficiencies that high growth and strong liquidity have previously masked.
China has impressively lifted millions out of poverty and reached US$7,000 in GDP per capita from US$500 in 1993. But recent growth has relied on cheap labour and low factor prices. The result has been mispricing of resources, excessive credit creation, and over- investment – particularly in the past decade. One indication: overall debt in China rose to 213% of GDP in 2013 from about 140% in 2007.
China’s new leadership outlined its reform blueprint following the third plenum of the Communist Party late last year. The central government’s commitment to restructure the economy included financial liberalization and internationalization of the Chinese currency. These initiatives should open up China’s financial system, which has been repressed by a closed capital account, where capital may not move freely in and out of the country, and state domination of the banking system. In the past, these characteristics provided a much-needed liquidity cushion as the economy developed. They also spurred high investment that is tapering off, especially in the public sector. It is commonly held that China now needs more efficient investment in the public sector, higher investment from the private sector, and greater domestic consumption to sustain its high economic growth.
“[China] will have to pay more because growth in demand will break the balance in global markets and push prices higher. China will import a larger proportion of grains and other cash crops in international markets, driving demand through 2030.”
Core Scenario Anticipates Gentle Decline in Growth SG Consensus
7.7%
6.9% 6.7% 6.7% 6.0% 5.5%
2012
2015
2018 In their ‘core scenario’ Société Générale see Chinese growth decelerating
gradually – though at a slightly faster pace than the consensus anticipates – to 5.5% by 2018.
Source: SG Cross Asset Research, Bloomberg March 2014 59
YoY GDP Growth
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