China
The Enigma
China - the enigma
• China – potted background
– How big is China?
– Political evolution
– Economic evolution
• Understanding the influence of China
– Demand
• Feeding 1.3 billion people
• size in the market
• Reserve stocks and controlling the economy
• Alternative finance
• Future Outlook
– Fewer surprises – has the mystery been removed?
– China’s economic challenges
China – It’s huge, right?
• China is only the 4th largest
country by land area
• The UK is 39 times smaller
• It is the most populous with 1.34
billion citizens
• It is not the most densely
populated
• China’s population growth rate is
0.481% - 152nd in comparison to
the world
China – Political Evolution
•
China has a recorded history of nearly 5000 years
•
Organised society began about 1700 BC with the
Shang Dynasty
•
Ancient china gave the world paper making, the
compass, printing, Soybeans and gunpowder
•
In 1840 after the opium wars foreign powers occupied
‘concessions’ and divided China into a semi-colonial,
semi feudal society
•
In 1911 a democratic revolution abolished the feudal
monarchy, and established the Republic of China
•
After 20 years of civil war Mao Zedong led the
communist party to victory in 1949 and established
the Peoples Republic of China. Mao dies in 1976
•
New government begins ‘Open Door’ policy in 1978 to
promote economic growth
•
March 2013 - 56 year old Vice-President and
Communist Party chief Xi Jinping takes over as
president
China – Economic Evolution
• Since the late 1970s China
has moved from a closed,
centrally planned system to a
more market-oriented one
that plays a major global role
• This restructuring of the
economy and resulting
efficiency gains have
contributed to a more than
tenfold increase in GDP since
1978. In 2010 China became
the world's largest exporter.
• China overtook Japan in 2009
to become the worlds second
largest economy after the
United States.
• Biggest asset is the huge
pool of cheap manual labour
Feeding 1.3 Billion People
• The number one priority for the state
• China has to feed a fifth of the worlds population
with just 7 percent of the worlds arable land
• China is short of water – it has one of the lowest
indexes per capita in the world
• China’s population is currently 47% urban with a
2.7% rate of change, most western country’s are
80% and < 1%
• By 2030 China will have added more new city
dwellers than the entire U.S population – 350 million
people
Feeding 1.3 Billion People
•
Urban populations are more
reliant on being fed, and their
diets become more
sophisticated = more meat!
•
Pork consumption per urban
inhabitant is increasing by
half a kilo each year
•
China’s average annual meat
consumption per person has
risen from 25 kilos to 54 kilos
since 1990
•
The resources needed to
produce a kilo of meat are the
same as those needed to
produce several kilos of grain
Feeding 1.3 Billion People
There are 1100 McDonalds outlets
with another 900 planned over
the next three years
There are 4200 KFC branches
Pizza Hut and Taco Bell are next
Feeding 1.3 Billion People
•
China wants to remain self sufficient in
terms of food such as rice.
•
This is not possible with other products
such as Soya or Corn which are used to
feed animals
•
China has three strategies to secure it’s
supplies
1. Buy from the global market
2. Acquire shares in international food
companies in order to control them
3. Buy land in other countries
•
Option 1 is the least desirable for security
reasons – what if the U.S or Brazil decided
to put a ban on exports?
Feeding 1.3 Billion People
• In order to protect it’s supplies, China has been
aggressively securing it’s raw materials through
ownership and investment
• For example China’s leading Soya producer –
Beidahuang State Farms Business Trade Group is
investing $1.4 billion in a project to develop
320,000 hectares of land in Argentina which is
currently unusable
• The farmers ‘benefit’ from loans to buy Chinese
farm equipment and seeds depending upon which
crop Beidahuang decides needs planting.
• China has exclusive rights to the produce, at
market price, for twenty years
China’s livestock industry
•
China is the world’s
largest livestock
producer and
consumer
•
Pigs and poultry are
the most popular
meat consumed in
China
•
Milk and dairy
product consumption
is increasing
significantly,
encouraged by the
Chinese government
as a means of
improving national
health
Global Feed Production
Demand – China’s feed industry
*2010
China
EU
US
Poultry
(combined)
48%
34%
52%
Pig Feed
37%
33%
15%
Aquaculture
9%
0.7%
Ruminant
4%
26%
26%
Demand – China’s feed industry
Source:USDA
China’s weight in global demand
Myn mt
Corn
% of Total
Wheat
% of Total
Soyabeans
% of Total
China
207.00
24.18%
120.00
18.31%
76.83
28.49%
EU-27
67.50
7.89%
121.00
18.46%
12.85
4.77%
United
States
262.57
30.68%
37.72
5.76%
47.08
17.46%
Brazil
53.00
6.19%
10.90
1.66%
38.70
14.35%
Southeast
Asia
32.60
3.81%
15.38
2.35%
7.03
2.61%
Source:USDA
Strategic Stocks
•
China keeps a majority share of global grains as strategic stocks
•
Used to ensure civil harmony
•
China uses a mix of reserve ratio increases and price suppression to control food
inflation
Source: USDA
‘Alternative’ Finance
Get paid and
lend to Real
Estate mkt at 15%
Get paid,
pay back
loan
keep 5%
Sell beans to
1. Borrow at 2%
Chinese Crusher
Shadow Financier
Buy Beans
Pay 3% for 365
Days credit
The Future
• China faces numerous economic challenges
– Reducing it’s high domestic savings rate &
correspondingly low domestic demand
– Sustaining adequate job growth for tens of
millions of migrants and new entrants to the
workforce
– Reducing corruption and other economic crimes
– Containing environmental damage related to the
economy's rapid transformation
– Infrastructure
– First nation in history to get old before it gets
rich
The Greying of China
• China is one of the most rapidly aging countries in
the world
• The rapidly changing demographic will cause a
labour shortage – each new generation is 20%
smaller than the last one
• The country's existing pension system cannot
support the looming wave of retirees
• This could slow economic growth
• In 2007 China had six people in the workforce for
every retiree, this ratio will fall to 2:1 by 2050
• Still huge opportunities for further growth
China, that old chestnut
• Since the open door policy of the late 1970’s the
information flow is vastly improved
• With this and increasing experience in dealing with
China, our understanding of their demand and
decision drivers is much greater
• Sheer size of their market means their demand trend
can influence global price trend
• It’s also not how much they buy, it’s how they buy it
• Shocks from China will now surround lack of
growth as the new leaders set a path for durable
economic expansion
• Far East will be the new China as it develops
China – the enigma
‘Observe and analyse calmly, secure
our position, tackle changes patiently,
hide our abilities and wait for the right
moment, keep a low profile, never
claim leadership, carry out business
modestly.’
Strategy announced by Deng Xiaoping (Chinese Leader
1976-1997) early 1990 as a way of managing the global
changes
China – The Enigma
Thank you for your time