China: On track for more growth, more corn and soybean imports

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, March 25, 2013 - Despite a slowdown over the last two years, China is on track for a fourth consecutive decade of growth and could overtake the United States as the world's biggest economy in 2016, according to a new survey by the Organization for Economic Co-operation and Development (OECD).

The new survey, presented in Beijing by OECD Secretary-General Angel Gurría at a press conference Friday, forecasts that gross domestic product (GDP) will grow by 8.5 percent this year and 8.9 percent in 2014, compared to Beijing's official target of 7 per cent average growth in the five years to the end of 2015.

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However, OECD noted that Chinese leaders would need to make major reforms to “ensure a fourth decade of rapidly converging living standards and a greener economy.”

These reforms include deregulating interest rates, opening markets dominated by state-owned enterprises to competition, increasing the supply of building land, treating migrants to cities in an even-handed fashion, taxing carbon and deregulating energy prices.

The OECD also called for overhauling the Chinese land ownership system, noting that “farmers lack the right to sell their land, and the supply of land for residential development near urban areas is tightly controlled.

“Continued urbanization is hampered by the rigid central planning rules governing the conversion of designated cropland into construction land, which partly reflect misguided concerns about food security,” the OECD said.

Other key policy recommendations include:

Competition and innovation. Competition is generally intensifying, boosting productivity, but state ownership needs to be reduced in some sectors, reform needs to be started in others, and the state should pull out of non-core sectors. Publicly-funded R&D should focus more on fundamental research. The intellectual property rights of innovators, domestic and foreign, should be strengthened further.

Inclusive urbanization. Close to a quarter of the population now lives in cities where income per capita is as high as in some OECD countries. Migration from the countryside to cities, and out of agriculture into higher-productivity industry and services, will continue to fuel growth but also brings many challenges. In particular, sufficient land must be made available for the expansion of larger and more productive cities and to meet the demand for more living space. This will help avoid renewed overheating in the real estate sector and improve wellbeing.

Farmers need to be given the same property rights as urban dwellers and allowed to develop, or sell for development, the land for which they have user rights. Internal migrants need to be given the same access to public services as registered urban residents. This is notably the case for education, all the way from primary school to university, and for health care.

Relations between levels of government. Providing adequate basic public services across the country is essential to improve wellbeing nationwide. This calls for a greater portion of transfers to provinces, prefectures or counties to go to lower-income areas.

Greening growth. Some forms of pollution are declining but air and water quality are often poor, imposing sizeable costs. Going forward a broad policy mix is needed to help meet environmental goals in a cost effective manner, including well implemented market-based approaches and better enforcement of existing regulations. To further encourage progress in the efficient use of energy, taxation of diesel and gasoline ought to be raised, while the price of electricity, coal, gas and water needs to better reflect costs. Large ongoing investment in renewable energy should be better harnessed. Continuing to move towards pollution taxes and carbon pricing is also key. So is further lifting standards for motor vehicle emissions and fuel quality. Progress in improving enforcement and information dissemination needs to be built on while targets should be set for a broader range of environmental objectives.

While the flow of Chinese exports has slowed, the demand for agricultural imports is expected to increase dramatically over the next five years. Members of the Iowa Soybean Association, Iowa Secretary of Agriculture Bill Northey and Agri-Pulse contributor Ken Root met with several Chinese leaders last week.

One of the soybean leaders asked Zhu Kunming, who runs aquaculture farms and soybean processing, what he thought China's soybean imports would be in five years. He gave a calculated answer through interpreters, wrote Root in an ISA blog.

“Eighty millon metric tons of soybeans, from all sources,” he told the group.

“That keeps the trend line going up but is still hard to fathom since China was a zero in the 1990's and moved only to thirty million in 2008. This year they are at sixty million so the trend line flattens a bit but still continues its climb,” Root explained.

Zhu then said: “We will also buy thirty million tons of corn!”

With that comment, Root said “the room buzzed as growers and ag leaders had gotten a credible industry estimate that matched the high hopes of market analysts and dreams of trade promotion groups.”




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