Trade Liberalization and China’s Food Economy in the 21st Century:
Implications to China’s National Food Security
Jikun Huang, Cunlai Chen
Center for Chinese Agricultural Policy
Chinese Academy of Agricultural Sciences
and
Scott Rozelle
University of California, Davis
A Paper Presented in "China's Agricultural Trade and Policy: Issues, Analysis, and Global
Consequences," San Francisco, California, June 25-26, 1999; A Mansholt Seminar on
September 15, 1999, Wageningen University; A Conference on "The Effects of Trade
Liberalization on Agriculture," CGPRT/ESCAP, United Nations, Bogor, October 5-8, 1999; the
Kobe International Symposium on Food Security Issues in Northeast Asian countries in the
21st Century, November 13-14, Kobe University, and A Policy Seminar, International Food
Policy Research Institute, Washington DC., November 16, 1999.
Trade Liberalization and China’s Food Economy in the 21st Century:
Implications to China’s National Food Security
I. Introduction
Since the economic reform initiated in the late 1978, China’s economy has been
growing substantially. The annual growth rate of China’s GDP was 8.5% in 1979-84,
9.7% in 1985-95 and 9.2% in 1996-97 (Table 1). Despite the Asian financial crisis since
1997, China's economy continued to grow though at a slower rate than the previous
years. The GDP grew at 7.8% in 1998 and nearly 8% in the first half year of 1999
(compared to first six months of 1998), the growth rates were still among the highest in
the world (SSB, 1999).
China’s foreign trade has been expanding even more rapidly than its overall
economic growth (Table 1). With the rapid growth of the external sector, foreign trade
has been playing increasing role in the national economy since reform started in the
later 1970s. China’s trade to GDP ratio increased from 13% in 1980 to 36% in 1997
(Table 2).
During the same period, the total value of China’s agricultural trade increased from
US$9.29 billion to US$25.15 billion, with an annual growth rate of 6.0% (Huang and
Chen, 1999b). China applied to join GATT and then the World Trade Organization
(WTO) in 1986, although China has not been accepted as a member of the WTO, China
has committed to comprehensively implement the Uruguay Round agreements upon its
accession into the WTO.
With 13 years negotiation on China’s WTO accession, particular the recent
progress made during Premier Zhu Rongji’s visit to the United States in April of 1999,
it is likely that China will join the WTO before the end of 1999. The sheer size of
China’s economy and its rapid growth will make China a crucial player in the future
development of world markets for inputs and outputs of food and agricultural products,
agribusiness, and industry. While the negotiation is still undergoing, there has been
also growing concern on the impacts on China’s accession to WTO on China’s
domestic agricultural production, price and market, employment and the farmer’s
income, particularly in the short term. How to sustain agricultural growth, achieve food
security, and increase farmers’ income with the process of agricultural trade
liberalization has been the priority concern of not only the policy makers but also the
farmers. What are the impacts of trade liberalization on China’s agricultural production?
What are the implications of the trade liberalization to China’s food security and world
trade? What are the policy implications of the changes in the economy resulted from the
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trade liberalization in the future?
The answers to these questions are by no means clear. While all studies show that
both China’s economy as a whole and the rest of the world will benefit from the China’s
WTO accession, their impacts on China’s agriculture are highly debated. Some
researchers claim that the impacts of China’s accession to the WTO on China’s
agricultural production and world trade are marginal (Anderson, 1997). Others believe
that the impacts of trade liberalization on China’s agricultural sector should not be
understated (Wang, 1997; the State Council, 1998; Huang, 1998; Huang and Chen,
1999a, 1999b).
To have a better understanding of the questions raised above, the overall goals of
this study are to examine the reform process of China’s foreign trade sector and its
impact on China’s agriculture trade patterns in the past 2 decades, to explore the
possible effects of trade liberalization on China’s food balance and its implication to
agricultural trade, and to provide some policy recommendations for the smooth
implementation of agricultural trade liberalization in China.
The paper is structured as follows. The next two sections present an overview of
the reform in China’s external sector and its impacts on agricultural trade in the past 2
decades. In the fourth section, the effects of the trade liberalization on China’s
agriculture are projected using a agricultural sector wise general equilibrium model.
Finally, conclusions and policy implications from the study are summarized in the last
section.
II. Reform in China’s External Sector and Agricultural Trade Pattern
Foreign Trade Regime in the Pre-Reform Period (Before 1979)
After the founding of the People’s Republic of China in 1949, China soon
established the socialist planning economy. Under the desire of accelerating the
national economic growth and industrialization, like many other developing countries,
China adopted the “import substitution” industrialization strategy, and established a
highly centralized and planned foreign trade regime. Under this foreign trade regime,
export was aimed to serve import and foreign trade was aimed to serve national
industrialization (Lardy, 1992 and 1995). This planned foreign trade regime was
implemented strictly under the rules and regulations on trade organization and
operation, trade management and control, trade planning, and trade financing.
The foreign trade rights were granted by the Ministry of Foreign Trade to only a few
state owned enterprises (SOE) or corporations. For a national as a whole, only 12
national specialized general foreign trade corporations and their port sub-corporations
had the trading rights. These 12 national specialized general foreign trade corporations
and their port sub-corporations monopolized all foreign trade business in China before
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1978. For example, foreign trade of agricultural products was monopolized by COFCO,
China National Native and Animal Products Import and Export Corporation, and China
National Textiles Import and Export Corporation.
Foreign trade management and control were mainly based on government
administrative means (Huang and Chen, 1999a). The state foreign trade plan was
mandatory and covered all aspects of foreign trade, including foreign trade
procurement, transfer and allocation, export, import, foreign exchange earnings and
payments and so on. Foreign trade corporations were not responsible for making profits
and losses from trade. The Ministry of Finance was responsible for all profits and losses
and also provided all working capital to foreign trade corporations.
The Early Reform Period (1979-1987)
China implemented a series of important policy and measures in the early period of
foreign trade reform. The highly centralized and monopolized foreign trade operation
system was gradually reformed and partially decentralized by establishing more new
trade-ports and granting more corporations and production firms the direct foreign
trading rights. From 1979 to 1987, more than 2,200 foreign trade corporations were
established, increasing 11 times than the number of foreign trade corporations in 1979.
The single mandatory planning foreign trade system was also replaced by a new system
that introduced the guidance plan and market adjustments to the old mandatory plan in
order to improve the trade response to the domestic and international market changes in
1985. This new foreign trade system covers most majority products except a few bulk
products which are important to the national economy and people’s livelihood,
including most agricultural products (mainly grains), and the imports of whole set of
equipment and technology.
The reform of foreign trade management system was gradually performed by
reducing government direct administrative intervention and by introducing trade
instruments to manage foreign trade. In 1980 China established the quota system and
restored the licensing system to manage import and export of commodities including
agricultural products. Meantime, the experiments on linking foreign trade corporations
with production firms were carried out in order to improve the quality of export
products and increase competitiveness in the international market in 1982. To promote
export, China introduced export tax rebate in the early 1080s, and experienced a trade
contract responsibility system in 1987 (see the next sub-section for details of the
contract system).
Toward A More Market-Oriented Trade Reform Period after 1987
Despite the progress made in reforming China’s foreign trade sector in the early
stage of reform, the fundamental problems in the foreign trade sector remained, namely
the efficiency of the trade and the budget financing system. The foreign trade reform
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since the late 1980s has been trying to fully implement the trade contract responsibility
system and to introduce a more market-oriented trade regime in the economy. Other
major trade policies include regional open door policies, foreign direct investment
policies, fiscal policies, monetary policies, foreign exchange policies, and foreign trade
control (tariff and non-tariff measures) policies.
Foreign Trade Contract Responsibility System
Drawing on the experiences of the foreign trade contract responsibility system
experimented on the national specialized general foreign trade corporations in 1987,
the foreign trade contract responsibility system has been implemented national wise
since 1988-90. The contract system consisted of three major components: foreign
exchange earnings of exports, the shares of foreign exchange earned between the
central government and trade agencies, and overall economic efficiency.
To facilitate the implementation of foreign trade contract responsibility system, the
Chinese government introduced a number of complementary measures. The foreign
exchange control (use right) was relaxing. Although China introduced foreign
exchange retention system that allowed the enterprises and local governments to retain
certain proportion of foreign exchange earned through their expanded exports as the
early as 1979, the use of the retained foreign exchange had been strictly controlled by
the central government before 1987. The 1988 policy allowed local governments and
enterprises to have their own rights in disposal or use of the retained foreign exchange
through the foreign exchange swap centers that was established in the same year in the
key cities of each provinces and Special Economic Zones (SEZs). Enterprises,
including foreign funded enterprises, could purchase and sell foreign exchange at the
foreign exchange swap center at the managed floating exchange rate. This policy had
been in effective until the unification of the official and swap foreign exchange market
in 1994. In December 1996 RMB became convertible on the current account. Other
polices related to the responsibility system include providing more decision-making
powers to local governments and enterprises in granting foreign trading rights to
foreign trade enterprises, in FDI for the coastal economic areas in approving foreign
direct investment, in controlling quotas and licenses, and in importing materials for
processing.
Export Subsidies
Under the planned foreign trade regime, foreign trade corporations were not
responsible for their profits and losses incurred from foreign trade business. The
Ministry of Finance was not only took all profits and covered all losses but also
provided all working capital for foreign trade corporations. Because of the distorted
domestic pricing system, the export subsidies were a common phenomenon under the
planned foreign trade regime. China fixed its export subsidy for 1988-90 to a level
equal to about 4% of the total export value in the 1987 in order to curb the rising trend
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of the subsidy that caused not only the financial difficulty, but also inefficiency of the
trade sector. Finally, the government decided to phase out export subsidies to all
foreign trade corporations in 1991.
Export Tax Rebate
To promote export and to increase the competitiveness of China’s export
commodities in the international market, China started to use export tax rebate in 1983
for only 17 export commodities on an experimental base. This policy then had been
extended to cover more export commodities since the mid-1980s and apply to almost
all export commodities after 1988. The type of export tax rebate has included the
product tax, value-added tax, business tax and special consumption tax since 1988.
The principle for the rate of export tax rebate is that exports should be zero-rated
and eligible for a full rebate on the value-added tax (13% for some selected
commodities mentioned above and 17% for all other commodities) and consumption
tax paid. This export tax rebate policy applies to all export commodities except crude
oil, refined oil, export commodities for foreign assistance, commodities prohibited for
export by state, and sugar. However, in the actual implementation of the new export tax
rebate, the claims for rebates on value-added tax paid on inputs imported for export
production substantially exceeded expectations, thus in 1995 the rebate on inputs
purchased for export production was reduced to 14% and latter to 9%. The value-added
tax on inputs purchased for export production imposes an effective net tax on exports.
Improvement in the administration of the law that would raise the collection rate and
allow a return to zero rating for exports would substantially improve trade performance
(World Bank, 1997).
Trade Related Monetary Policies
China’s monetary policy refers to the measures which the People’s Bank of China,
the central bank, takes in controlling the money and credit supply to bring about the
desired changes in the economy. Since economic reform China has been gradually
moving away from a planned economy towards a market economy. As a result, China
has been increasingly using the monetary policy as one of the main means in its
macro-economic adjustment and control. To help and promote foreign trade after
phasing out export subsidies, China established the Import and Export Bank to provide
the trade cooperatives with import and export credits in 1994
Foreign Exchange Policies
With the unification of the two-tier foreign exchange rate systems, the foreign
exchange retention system has been finally abolished since 1994, and the RMB has
become convertible on the current account since 1996. Historically, the overvaluation
of domestic currency for trade protection purposes has reduced exportable incentives.
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Real exchange rates remained constant and even appreciated during the 30 years prior
to reforms, but depreciated rapidly after reforms, with the exception of several years
following the high domestic price inflation of 1985. From 1978 to 1992, the real
exchange rate depreciated more than 400 percent. Economic productivity growth and
technological innovation in agriculture, foreign trade, and industry contributed to low
inflation and the success of exchange rate adjustments. Within Asia, China is second
only to Indonesia in aggressively adjusting exchange rates over the last two decades
except for recent 5 years (real exchange rate has been appreciated by about 30 percent
from 1992 to 1997). Falling exchange rates increased export competitiveness and so
have contributed to China’s phenomenal export growth record (i.e. non-grain food
products) and the spectacular national economic performance of the 1980s.
Tariffs and Non-Tariff Measures
China’s average tariff was 47.2% in 1991, one of the highest countries in the world
(World Bank, 1997). Since then, China has gradually reduced its import tariff rates. In
April 1996 China reduced its import tariff rates for more than 4,900 items, lowering the
simple average tariff rate from 35.9% to 23%. In October 1997 China further reduced
the import tariff rates for more than 4,800 items and brought down its simple average
tariff rate from 23% to 17% (23.6% for agriculture). Currently, relevant departments
are studying specific products and implementation steps for tariff reduction. Apart from
that, China has actively participated in the consultations on the tariff-related actions for
early voluntary sectoral liberalization.
According to China’s 1997 Individual Action Plan submitted to APEC, in the short
term China committed to reduce its average tariff rate to 15% by 2000 (Table 3). In the
medium and long term from 2001 to 2020, China will reduce its average tariff rate for
industrial products to 10% by 2005. China will eliminate tariffs of 185 information
technology products by 2005 except a few of them by 2007. China will take actions
actively and steadily toward tariff reduction in sectors identified for early voluntary
sectoral liberalization in accordance with relevant agreement or arrangement concluded
by APEC members. And China will further lower the overall tariff level.
During the 1980s China extensively used quotas and licensing to control its foreign
trade. However, since the early 1990s China has progressively and drastically reduced
the number of items subject to export and import quotas and licensing administration.
The products subject to quota, licensing and other import control measures accounted
for only 5% of the total import tariff lines in 1998.
In sum, through nearly 20 years reform, China’s foreign trade regime has gradually
changed from a highly centralized, planned and import substitution regime to a more
decentralized, market-oriented and export promotion regime. While significant
progress has been made since the economic reform in liberalizing the trade regime,
China’s foreign trade regime still has major inefficiencies. China still largely
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monopolizes international trade in agricultural products.
Domestic Support of Agriculture
Fiscal and financial policies
Government fiscal expenditure on agriculture has been consistent higher than
fiscal revenue from agricultural tax and other fees collected from agriculture (Huang,
1999). However, this fiscal revenue from agriculture based on explicit tax and fees is
only small portion of the total agricultural capital contribution to the industry and to the
urban sector. A significant capital outflow from agriculture to industry occurred in the
last 2 decades through financial system, particularly through Rural Credit Cooperatives
(Huang and Ma, 1998). After accounted for agricultural explicit tax through
government procurement system, they show that China accumulated a total amount of
about 313 billion yuan (at 1985 price) from agricultural sector for the national
industrialization in 1978-96, and about 563 billion yuan from the rural sector for the
urban economy in the same period. Moreover, the shifting capitals from the agriculture
to the industry, and from the rural sector to the urban have shown an increasing trend
since the reform initiated in the late 1970s.
Agricultural Protection
Price and market reforms are key components of China’s development policy shift
from a socialist to a market-oriented economy. The price and market reforms initiated
in the late 1970's were aimed at raising farm level prices and gradually liberalizing the
market. These reforms included increases in quota and above quota prices, reduction in
quota levels, introduction of above quota bonuses for cotton, tobacco, and other cash
crops, negotiated procurement of surplus production of grains, oils, and most other
commodities, and flexibility in marketing of surplus production of all categories of
agricultural products privately.
Table 4 shows the estimates of nominal and real protection rates based on various
producers' prices from 1978 to 1998 for selected agricultural commodities. Several
observations may be made from Table 4. The quota prices consistently represented a
disprotection to farmers. The introduction of negotiated procurement significantly
reduced the disprotection from government procurement operations. Not surprisingly,
the most heavily taxed commodities are the exportable – rice. Wheat, importable
commodity, is more favored. Aside from the lower quota price NPR for rice, the
proportion of grain procurement at the higher negotiated price is typically higher for
corn and soybeans. It is also worth to note that the NPRs for wheat and maize at free
market prices have been about 20-25 percent since the mid-1990s.
In sum, despite substantial efforts to liberalize the price and market structure of the
agricultural sector, most major agricultural commodities continue to be heavily
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penalized by commodity specific policies. When the impact of the overvaluation of the
domestic currency due to the trade protection system is considered, the agricultural
incentives would even be more undervalued. These distortions in price incentives
depress agricultural production and redistributes income from farmers to urban
consumers and the agro-processing sector.
III. Patterns of Agricultural Trade
Trends of Total and Agricultural Trade
One of the most significant features of China’s open door policy and the shifting
trade regimes is the remarkable expansion of China’s international trade. The average
annual export rose from US$ 22.16 billion in 1980-84 to US$160.84 billion in 1995-97,
increased more than 7 times or with an annual growth rate of 14.6% (Huang an Chen,
1999b). Although the import also increased significantly, increased more than 6 times
during the same period, the annual growth rate of the import (12.2%) was lower than
the export growth. This led China moving from a trade deficit in 1980s to a significant
trade surplus in 1990s. China has enjoyed annual trade surplus of about US$ 23 billion
since the mid-1990s. Currently, China has about US$ 140 billion foreign exchange
reserve (SSB, 1999).
Because of the fast growth of international trade, China has greatly improved its
position and increased its share in the world trade. China’s exports ranked only the 26th
place in 1980 , however, it ranked the 11th in 1996 among the world trading nations, and
in 1997 China was the 10th largest trading nation in the world. In the same time, China’s
share in the world total trade also increased, for example, its export share increased
from 0.9% in 1980 to 2.9% in 1996.
Agricultural trade had been an important contributor to China’s foreign trade.
However, because of the declining trend of agriculture in China’s economy, the
importance of agricultural trade in China’s total trade has been declining since 1980 and
particularly since the early 1990s. The share of agricultural trade in China’s total trade
was 21% in 1980-84 and declined to 8.7% only in 1995-97 (Table 5). The shares of
agricultural export and import in China’s total export and import presented the same
declining trend.
Despite the share of agricultural trade in China’s total trade has declined, however,
China’s agricultural trade has also increased during the past two decades but with a
slower growth rate as compared to the much faster growth rate of China’s overall
foreign trade. As shown in Table 11, the annual China’s agricultural trade value
increased from US$9,112.8 million in 1980-84 to US$25,772 billion in 1995-97, with
an annual growth rate of 6.0%. During the same period, the annual growth rate of
agricultural export was 8.0%. China’s agricultural trade balance has been in a surplus
position since 1983. Annual agriculture trade surplus reached about US$ 4-6 billion in
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1990s.
In terms of the degree of “openness” of China’s agricultural sector, as shown in
Table 2, China’s agricultural sector has been relatively less open to the world economy
than the rest of China’s economy. However, the ratio of agricultural trade to agricultural
GDP has increased from 10.3% in 1980 to 14.9% in 1997, indicating that while the
sector’s participating rate in the world market is relative low, China’s agricultural sector
has been increasing its participation in the world agricultural market since 1980s.
Comparing agricultural export and import, from 1980 to 1997 the ratio of agricultural
export to agricultural GDP increased from 4.6% to 9.1%, while the ratio of agricultural
import to agricultural GDP has barely changed. This may suggest that China’s
increasing participation in the world agricultural market is mainly in its agricultural
export sector, a reflection of moving from import-substitution strategy to a more export
promoting regime.
The Changing Structure of China’s Agricultural Trade
For the purpose of analysis, we grouped the agricultural trade data in two ways.
First, in the analysis of the composition of China’s agricultural trade, we divide the
agricultural trade data into four categories based on the nature of commodities, namely
grains and edible vegetable oils, horticultural products, animal products and other
agricultural products. Second, in the analysis of the patterns of China’s agricultural
trade, we grouped the agricultural trade data into three categories based on the factor
intensity of production, namely land intensive agricultural products, 1 labor intensive
agricultural products,2 and labor/capital intensive agricultural products.3
China has been exporting mainly horticultural and animal products, while
importing grains and edible vegetable oils. These patterns of agricultural trade are
1
Land intensive agricultural products include: cereals; vegetable oil seeds and oleaginous fruits; edible
vegetable oils; raw cotton; and other vegetable textile fibres.
2
Labor intensive agricultural products include: live animals; fish and crustaceans, and other aquatic
invertebrates; dairy produce, bird's eggs, natural honey, edible products of animal origin; live trees and
other plants; bulbs, roots and the like; cut flowers and ornamental foliage; edible vegetables and certain
roots and tubers; edible fruits and nuts, peel of citrus fruits or melons; coffee, tea, mate and spices;
products of the milling industry, malt, starches and wheat gluten; plants for industrial and medicinal use;
rice straw and forage; lac, gums, resins and other vegetable saps and extracts; vegetable plaiting
materials; vegetable products not elsewhere specifies or included; animal fats and waxes; raw silk; and
raw wool.
3
Labor/Capital intensive agricultural products include: meat and edible meat offal; preparations of meat,
fish and crustaceans, and other aquatic invertebrates; sugars and sugar confectionery; cocoa and cocoa
preparations; preparations of cereals, flour, starch or milk, and pastry products; preparations of
vegetables, fruits, nuts or other parts of plants; miscellaneous edible preparations; beverages, spirits and
vinegar; residues and waste from the food industries; prepared animal feeds; tobacco and manufactured
tobacco substitutes; raw hides and raw furs.
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consistent with China’s resource endowments.
Tables 6 and 7 present the annual shares of exports and imports of the four
commodity groups in China’s agricultural trade from 1980 to 1997. As the tables show,
in terms of exports, the changing trend in the patterns of agricultural exports has
occurred since 1985. The shares of horticultural products and particularly the animal
products increased steadily and their combined share increased from 57% in 1985 to
75% in 1997. In contrast, the share of grains and edible vegetable oils has declined
continuously from 33% in 1985 to 21% in 1997. For import commodities, the changing
trend is not as clear as that for exports.
The patterns of China’s agricultural trade for the commodity groups based the
factor intensity are presented in Tables 8 and 9. The results show that China’s
agricultural exports were overwhelmingly dominated by the exports of labor intensive
agricultural products and labor/capital intensive agricultural products. Their shares
accounted for 47% and 35% of China’s total agricultural exports, respectively in the
period of 1980-97, and have presented an increasing trend since the mid-1980s. While
the exports of land intensive agricultural products accounted for only 19% and the share
of their export declined in the same period.
In terms of imports, China’s agricultural imports were dominated by the imports of
land intensive agricultural products, accounting for 59% of China’s total agricultural
imports. While the imports of labor intensive agricultural products and labor/capital
intensive agricultural products accounted for only 20% and 21% of China’s total
agricultural imports, respectively. Similar to the results presented in Table 7, no clear
trend was found in the imported commodities.
In sum, the above discussion of the patterns of China’s agricultural trade has
revealed two main points. First, in terms of the aggregate level, the pattern of China’s
agricultural trade is consistent with China’s domestic resource endowments. China was
a net exporter of labor intensive and labor/capital intensive agricultural products, like
horticultural products, animal products and processed agricultural products, and a net
importer of land intensive agricultural products, like grains, cotton, and edible
vegetable oils. Second, in terms of the changing trend, there are evidence and reasons to
argue that over the past two decades the patterns of China’s agricultural trade have been
moving more closely towards playing its comparative advantage especially in
exporting more labor intensive and labor/capital intensive agricultural products.
IV. Impacts of Trade Liberalization on China’s Agriculture
A Brief Discussion of the Model
In order to evaluate the impacts of trade liberalization on China’s agriculture in the
future, we apply an existing CCAP's Agricultural Policy Simulation and Projection
Model (CAPSiM). CAPSiM was developed out of need to have a framework for
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analyzing policies affecting agriculture in general, polices related to the
macro-economy, trade, and policies directed to agricultural commodities in particular.
CAPSiM is a partial equilibrium model, or sector-wise general equilibrium model
(considering all cross price impacts for both demand and supply equations). It is the
first most comprehensive model for China’s food demand, supply and trade analysis.
Most of the elasticities and parameters used in the CAPSiM are estimated
econometrically with imposition of theoretically constraints. In the projection or policy
simulation, prices can be determined endogenously or exogenously. CAPSiM explicitly
accounts for urbanization and market development (demand side), technology,
agricultural investment, environmental trends and competition for labor and land use
(supply side), as well as the price responses of both demand and supply.
The main purpose of the CAPSiM is to project key agricultural variables in the
short-term as well as in the long run in response to the changes of the exogenous shocks
to the economy. It is also designed for analyzing the likely impacts of specific policies
on key variables such as crop sown area, yield, production, prices, consumption,
commodity demand and its components (food, feed and other use), stock, and export
and import for each agricultural commodity. Details of the model description could be
found in Huang and Rozelle (1998), and Huang and Chen (1999b).
Defining Projection Scenarios
All simulations begin with the year of 1994-1996, the base period. Base period
data on production and utilization are three-year averages centered on 1995.
Baseline Scenario
Income growth and population growth will remain an important determinant of
food balance in the future. Population growth peaked in China in the late 1960s and
early 1970s. Since then, fertility rates and the natural rate of population growth have
begun to fall. Relying on the United Nation's demographic predictions, the growth rate
during 1996-2000, is assumed to be 1.11 percent per annum. This annual rate falls
during the next 5 years to 0.88 percent, a level that is considerably under the world's
projected growth rate (1.70-1.80 percent), but above recent projections by China’s
demographers. The shares of urban population will rise from 28 percent in the base
year to 31 percent by 2000 and to 35 percent in 2005, and 46% in 2020.
Baseline per capita income growth rate is forecast to average about 4 percent in the
rural sector and 4.5 percent in the urban sector. The growth rates in the late 1980s and
early 1990s were substantially above this level in the urban economy (around 6-7
percent), and significantly below this in rural areas (less than 1 percent per year
between 1985 and 1992). But in recent years the overheated urban growth has slowed,
and since 1991, the rural economy has begun to pull out of its recession, growing at 4
percent per year.
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The agricultural commodity prices under baseline are endogenously determined
and are generated from the simulations using CAPSiM model, assuming the current
trade policy (tariff levels and non-tariff restrictions) remained.
Supply will respond most to prices, new technology and irrigation investment. The
fertilizer price is assumed to be constant in the projection period. But the opportunity
costs of land for crop production and labor for the whole agricultural sector are
assumed to grow 1 percent and 2 percent, respectively, in 1996-2005.
Technological change has significantly contributed to China's agricultural growth
in the past (Huang and Rozelle, 1996; Fan and Pardey, 1997). However, annual
expenditures on research declined from 1985 to 1990, and irrigation expenditures
dropped from 1975 to 1985. Because of lags, these early investment dips will keep
baseline projections of investment growth below historic rates in the early projection
period. The recent recovery in research and irrigation investments, together with the
experience of other Asian countries and China's commitment to a strong domestic grain
economy, leads to the expectation that China will sustain its recent upturn in investment
funding over the long run. The annual growth rates of research and irrigation
expenditure are assumed to be 4.0 percent and 3.5 percent respectively in the future.
Erosion and salinization are expected to continue to increase at a steady but slow pace.
Alternative Scenarios: Free Trade and Productivity Enhancement Growth
Scenarios
While China is not a WTO member, it is likely that China will join WTO soon
given the progress that has made in recent various WTO’s negotiations. On the other
hand, a preside formulation for a scenario that China will fit in after its join WHO is
difficult as the final agreement has not been reached despite after 13 years negotiations.
In order to have a better understanding of the impacts of China’s accession to the WTO
on China’s domestic agricultural market and trade, we assume that China will continue
liberalizing its agricultural sector and reach a free trade environment for the most
agricultural commodities by the year of 2005. Specifically, the free trade scenario in
this study assumes 14 major agricultural products (7 grain products including rice,
wheat, maize, soybean, sweet potato, potato and other grains, and 7 animal products
including pork, beef, mutton, poultry, egg, milk and fish) will gradually reduce its tariff
level, export subsidies, and trade barriers after 2000, and will reach a zero tariff,
completely phase out non-tariff trade barriers by the year 2005. This represents a
maximum impact of trade liberalization on China’s agriculture. The actual impact of
trade liberalization and China’s joining WTO will lay between the simulation results of
the baseline scenario and the free trade scenario.
Under the free trade scenario, both import tariff and trade barriers for agricultural
inputs such as fertilizer and pesticide will also be reduced and eventually be phased out
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in 2005, therefore the fertilizer and pesticide prices are assumed to decline by 20
percent from 2000 to 2005. All other assumptions are the same as those defined in the
baseline scenario.
It is worth to note that the CAPSiM model is a country model. The impacts of
China’s trade liberalization on the world market prices are not examined given the
nature of the model. It is expected that the increase in the import of feed grain under the
free trade scenario will raise the international market prices of feed, particular maize
price. Similarly, as we will see from the simulation results presented in the next section,
trade liberalization will increase China’s pork and poultry export. Therefore, we are
expecting the world pork and poultry prices will decline with the extent of China’s trade
liberalization.
In order to estimate the impacts of the world agricultural price changes (due to
China’s trade liberalization) on China’s agricultural trade, we simulate the free trade
scenario in 2 stages. In the first stage, the world prices of all agricultural products are
assumed to be constant in the real term in 2000-2005. The results from the first stage on
China’s imports and exports of various agricultural commodities then are used as the
information to adjust the possible changes in the world market. In the second stage, the
model will simulate with the changes in the world prices. This procedure could be
repeated until the marginal changes from additional round of simulation in the imports
or exports of agricultural commodities are minimal.
In order to provide a long term prospects on China’s food security under a free
trade regime, we project China’s food supply, demand and trade toward 2020 under a
free trade scenario without and with the progressive improvement in agricultural
productivity enhancement investment. The later assumes that the annual growth rate of
agricultural research expenditure will rise from 4 percent (baseline assumption) to 6
percent.
Impacts of Trade Liberalization on China’s Agricultural Prices
Table 11 presents the price differences of the selected agricultural products in
China’s domestic markets under the baseline scenario and the free trade scenario from
2000 to 2005 projected by the CAPSiM.
Under the baseline scenario, the increases in the domestic production of rice, wheat,
other grains, and the most of animal products will nearly meet the increase in the
domestic demand for these commodities, the changes in their trades over the period of
2000-2005 will be marginal (see next sub-section).
Therefore the changes in the
domestic prices (real term in 1995 price) of most these commodities will range only
from –1 percent to 2 percent in 2000-2005 (Table 11). This implies that China’s
domestic grain prices, except the price of rice, will continue to be higher than the grain
prices in the world market from 2000 to 2005. On the other hand, the animal products,
13
mainly livestock sector will continue to be heavily taxed. Furthermore, the differences
between grain prices in China’s domestic and the world markets will increase from
2000 to 2005. In particular, the price of maize, wheat and soybean in China’s domestic
market will far exceed the prices in the world market.
In contrast, under the free trade scenario, China’s domestic grain market prices
(except for rice) will decline gradually from 2000 to 2005. The prices of wheat, maize
and soybean in China’s domestic market will decline significantly, ranging from –10
percent to –20 percent, in 2000-2005.
Table 20 also shows the price differences between the baseline and the free trade
scenarios. The results indicate that the producers of crops (except for rice) will loss
their income from the farming activities under the free trade scenario (compared to the
baseline scenario) as the most crop product prices decline with the trade liberalization.
While the most of animal product (except for beef, mutton, and milk) producers,
particularly the farmers in raising hog and poultry, will benefit from the trade
liberalization. The prices of the pork, poultry, egg, and fish will be about 5 percent to
15 percent higher than those under the baseline scenario in 2005.
Among various grains, rice is the only commodity, its price rise with the trade
liberalization. The increase price of rice is the results of increase in the rice export and
the reduction of rice demand due to the cross-price substitution of other food grains
(mainly wheat). Under the free trade scenario, the percentage changes of wheat, maize
and soybean prices related to the baseline will be as high as 19.9%, 26.0% and 20.4%,
respectively, in 2005 (Table 11).
The impacts of trade liberalization on the prices of sweet potato, potato and other
grains in China’s domestic market are similar. Under the free trade scenario, the prices
of these coarse grains will be about 10 percent lower than the prices under baseline
scenario in 2005 (Table 11).
Trade liberalization will tend to increase the prices of animal products in China’s
domestic market. Our projection shows that the domestic pork price in the free trade
scenario will be about 14% higher than that in the baseline scenario in 2005. Similar
positive effects of trade liberalization the domestic prices are found for poultry (10%),
egg (4%) and aquatic products (6%). On the other hand, the trade liberalization will
significantly decrease the domestic price of milk. The milk price under the free trade
regime will decline by more than 20% over the period of 2000-2005.
The decline in the prices of grain with trade liberalization, particularly maize,
wheat and soybean will dampen the profitability of grain production, reduce the
earnings of the farmers whose incomes are mainly from grain production. While
demands for maize, wheat and soybean are expected to rise with the decline in their
prices. Grain production growth is expected to be slow down with the increasing
14
liberalization of agricultural trade. In contrast, the increase in the prices of pork and
poultry will directly increase the returns of these animal products and, therefore,
increase the income of pork and poultry producers. Such a “windfall” income increase
to these animal product producers will stimulate their incentives in the production of
pork and poultry. Consequently, there will be an expansion in the production of animal
products particularly the production of pork and poultry in China after trade
liberalization.
The interesting point is that the feed grain consumers are the animal product
producers. On the one hand, animal product producers will gain from the increase of
animal product prices. On the other hand, animal product producers who are also the
feed grain consumers will gain from the decline in the feed grain prices, which will
reduce the production costs of their animal products. Consequently, we will expect that
there will be not only a large increase in feed grain demand, but also a large expansion
in animal product production after trade liberalization.
Impacts of Trade Liberalization on Agricultural Production, Demand and Trade
Tables 21 and 22 present the impacts of the trade liberalization (the difference or
percentage difference relative to the baseline) on production, consumption and trade of
grains and animal products under the baseline scenario in 2000-2005.
Baseline Scenario
According to the analysis, per capita food grain consumption in China hit its zenith
in the late 1990s and falls over the remaining forecast period. The average rural resident
will increase slightly food grain consumption through 2005, and urban resident food
grain consumption will level off in the projection period. The ebb of per capita food
grain demand at the national level occurs at a time when both rural and urban food grain
demands do not decline because of the impact of urbanization.
Because of the higher quality of fine grains, total rice and wheat consumption per
capita will rise slightly through the year 2000, reflecting their still positive, albeit small,
income elasticities, both rural and urban consumers demand higher quantities of rice
and wheat. Per capita demand for other food grains, however, falls monotonically over
the projection period.
In contrast, per capita demand for red meat is forecast to rise sharply throughout
the projection period. Rural demand will grow more slowly than overall demand, but
urbanization trends will shift more people into the higher-consuming urban areas (in
middle 1990s an urban resident consumed about 60 percent more red meat than his/her
rural counterpart). While starting from a lower level, per capita demand for poultry rise
proportionally more. The projected rise in meat and poultry product demand will
stimulate aggregate feed grain demand.
15
Baseline projections of the supply of grain show that although China’s domestic
total grain production will increase from 431.68 mmt in 2000 to 463.78 mmt in 2005
with an annual growth rate of 1.44%. The production growth rate fells bellow domestic
grain consumption growth rate (1.60%), indicating a widening gap between domestic
supply of and demand for grains. The growth rate of grain production in 2000-2005 will
be much lower than the growth rates obtained in 1980s and 1990s, an evidence of the
impacts of declining the public investment intensity in agricultural R&D since the
mid-1980s (Huang et. al., 1998). The grain net imports will rise to nearly 20 mmt in
2005 (Table 12). Despite the increase in the grain import in the period of 2000-2005,
grain self-sufficient level will remain as high as 95-96% in the early 21st century.
In the livestock and aquatic sector, the increases in the domestic production nearly
match the increases in demand. The annual production growth rates of various animal
products will range from 3% to 7% in the period of 2000-2005, the growth rates are
equivalent to the growth rates of the demands for these products in the same period
(Table 13). The sector will continue to be an exportable one, but the amount of
exported livestock products and fish are very small compared to the size of the total
domestic production or consumption.
Pork, which accounted for about 70% of meat or nearly 90% of red meat
consumption, its demand will rise from 23.20 mmt in 2000 to 27.46 mmt in 2005 with
an annual growth rate of 3.43% in 2000-2005 (Table 13). Under the baseline scenario,
pork production is also projected to growth at 3.39% annual, a growth rate level close to
the demand growth (note: the livestock data used in this paper are significantly different
from the data published by the State Statistical Bureau. CAPSiM model uses a complete
new set data that correct for over-report of livestock production and under-report of its
consumption). The trends of production, consumption and trade of beef and mutton are
roughly the same as those for pork.
The poultry and milk are the only two animal products that require import (4-5% of
domestic consumption) to meet the increasing demand. Poultry consumption will rise
from 6.29 mmt in 2000 to 7.89 mmt in 2005 with an annual growth rate of 4.61%.
Because domestic poultry consumption is higher than domestic poultry production in
the base year, although the growth rate of poultry production is slightly higher than that
of poultry consumption, China still will be a net poultry importer in 2000-2005. The
annual import of poultry will be around 0.25 – 0.29 mmt in 2000-2005. Milk import
will present a slightly increasing tread, rising from 0.30 mmt in 2000 to 0.33 mmt tons
in 2005, account for 3.4% of the total consumption (Table 13).
Free Trade Scenario
Under free trade scenario, domestic grain price (except for rice) will fall. The fall
in the domestic price of grain raises the grain consumption and slowdown the
16
production. Our projection shows that China’s domestic grain production will fall far
behind domestic grain consumption under the free trade scenario. Compared to the
baseline scenario, grain deficit between domestic supply and demand will be further
enlarged. China’s net grain imports will increase to 59.61 mmt in 2005 (Table 12, a
level representing about 12% of the total grain consumption in China. Comparing with
the baseline scenario, China’s domestic grain production will decline by 10.63 mmt (or
2.3%), while China’s domestic grain consumption will increase by 29.28 mmt (or 6.0%)
in 2005.
The most serious impacts of trade liberalization on grains are maize, and then
followed by wheat and soybean. Under the free trade scenario, China’s domestic maize
production will fall far behind maize consumption. The production will grow annually
by 0.69% only, while the consumption will grow by 5.91% as a results of the decline in
maize price and surging feed demand for livestock production expansion after trade
liberalization. Consequently, the imports of maize will increase dramatically from less
than 2 mmt in 2000 to 39.31 mmt (nearly one quarter of maize consumption in China)
in 2005. China would likely be the world largest importer of maize in the coming years
if the sector would be completely liberalized. Comparing with the baseline projections,
as shown in Table 21, the net impacts of trade liberalization on the annual maize
production, consumption, and trade will be –5.38 mmt, 11.39 mmt, and 16.76 mmt,
respectively, for the average of 2000-2005. In the year of 2005 when the completed
trade liberalization reached, the net impacts of trade liberalization (relative to baseline)
on the maize production, consumption, and trade will reach the highest levels as –10.42
mmt (or a reduction of 7.8%), 20.21 mmt (or an increase of 14.2%), and 30.62 mmt (or
an increase of 3.52 times), respectively.
Although wheat is food grain and the food grain consumption response to the price
change is weaker than that of feed grains, the impact of trade liberalization on wheat is
also substantial. From 2000 to 2005, the annual growth rate of wheat production will
fall from 1.29% in the baseline to 0.43% in the free trade scenario (Table 12). While
wheat consumption growth rate will rise from 0.93% in the baseline to 2.06% in the
free trade scenario in the same period. Wheat production is projected to be only 110.46
mmt in 2005, 5.06 mmt (or 4.4%) lower than that in the baseline projection. By 2005,
the wheat imports will rise sharply from the 11.73 mmt in 2000 to 22.26 mmt in 2005.
Comparing with the baseline projections, wheat consumption under the free trade
scenario will tend to increase by 7.28 mmt (or 5.8%) in 2005. And the net impacts of the
free trade verse baseline scenarios on wheat import will be as high as 12.34 mmt (rise
from 9.92 mmt to 22.26 mmt) in 2005.
The soybean is the other grain crop that will be affected significantly by the trade
liberalization. By 2005, soybean consumption will reach 16.10 mmt (5.4% higher than
baseline scenario), about 9% higher than its production (14.79 mmt, or 4.3% lower than
the baseline)). Soybean net import will reach more than 1.3 mmt or about 8% of the
domestic soybean consumption in 2005.
17
Rice and other coarse grains (mainly millet, sorghum and barley) are the only crops
within grains that will benefit from the trade liberalization. Under the free trade
scenario, rice production will rise from 132.52 mmt in 2000 to 144.65 mmt in 2005
with an annual growth rate of 1.77% (compared to the baseline of 0.89% in Table 12).
The higher rate of production growth is the results of the rise in rice price and the
decline in the prices of inputs such as fertilizer and pesticide under the free trade
scenario. Meantime, the increase in the rice price reduces the annual rice consumption
growth rate from 0.8% in the baseline to only 0.55% in the period of 2000-2005.
Combined impacts of production and consumption imply that the impact of trade
liberalization on rice export is substantial (7.12 mmt in 2005).
The impacts of trade liberalization on China’s animal sector are also significant.
But in contrast to the grain sector, the trade liberalization will raise domestic prices of
pork and poultry substantially, and a moderate rise in the prices of egg and fish. The
increase in the prices of these major animal products and a decrease in the feed price
resulting from the trade liberalization will stimulate the domestic production of these
products on the one hand, and dampen their consumption on the other hand. Livestock
and fish product exports will expand considerable (Table 13).
For example, under the free trade scenario, China’s domestic pork production will
increase from 23.12 mmt in 2000 to 25.73 mmt in 2005 (Table 13), with an annual
growth rate of 6.33% (3.39% in under the baseline scenario). While at the same time
pork consumption annual growth rate will decline from 2.43% in the baseline to 2.16%
in 2000-2005. The impacts on the pork export will reach 6.0 mmt in 2005.
A similar large impact of the trade liberalization is found for the production,
consumption and trade of both poultry and fish simply because of the changes in their
poultry prices. The only product that will be significantly and adversely affected by the
trade liberalization is milk. About one quarter of the milk consumption will have to
import from the world market after 2005, compared to about 3% only of imported milk
only in the baseline scenario.
Impacts of Trade Liberalization on China’s Grain Self-sufficiency
Food security has been and will continue to be one of the central goals of China’s
policy. While food security has many dimensions, one of the targets that was set by
Chinese government recently is to achieve grain self-sufficiency level at or above 95%
in the future. Although this level of grain self-sufficiency has been widely debated
since it set up, any changes including the trade liberalization that could result in the
grain self-sufficiency level in the long term far bellow 95% would be hardly adopted by
the current government if there is no alternative solutions available.
Table 14 presents China’s grain self-sufficiency rates under three scenarios for the
18
period of 1995-2020. The third scenario assumes that the growth rate of agricultural
research expenditure in the real term raises from 4% (the assumption use in the other
scenarios) to 6% during the entire period of the projection.
Several interesting points could be derived from the results presented in Table 23.
First, under the baseline scenario, while the grain self-sufficiency rate will decline over
time (from 98.1% in the 1994-96 to about 96% in the most years of the next two
decades), China will be able to achieve one of the major components of its food security
(grain self-sufficiency) target in the future. Only grain that will fell its self-sufficiency
level bellow 95% in the long term is maize. Maize self-sufficiency rate will decline
significantly from 101.4% in 1994-96 to 93.9% in 2005 and further down to less than
90% in 2020.
Second, although the baseline scenario or the policies embodied in the baseline
assumptions would ensure the high level of grain self-sufficiency, the costs related to
this scenario should not be underestimated. All grain prices except rice in domestic
markets will considerably exceed the prices in the international markets. For example,
maize, wheat and soybean domestic prices will exceed international prices by about
26%, 20% and 21% in 2005, respectively, and the gap between the domestic and
international prices will enlarge notably after 2005, particular maize price. Maize price
will reach as high as wheat price by 2020. Whether government budget and consumers
can sustain such a high level of grain price protection policy and how this will affect on
the livestock production and export are the issues that needs to be considered.
Third, the completed trade liberalization (the free trade scenario) will obviously
challenge the current food security goal defined by the government. China’s grain
self-sufficiency rate will decline rapidly from 98% in the mid-1990s to 88.4% in 2005
(Table 14), a level is hardly accepted by the current government. Although the grain
self-sufficiency rate will rise gradually after 2005, there will be still about 8% of
domestic grain demand that needs to be met by the imported source in 2020. However,
it is worth to note that this is an extreme case (the free trade regime), representing a
maximum impact of the trade liberalization on China’s grain economy. The actual
impacts of China’s joining the WTO will be lower than the results from this free trade
scenario.
Fourth, the most effective policy that could improve China’s food security and
raise grain self-sufficiency level in the long term is to increase the agricultural
productivity enhancement investment such as agricultural R&D, rural infrastructure
and water control (i.e., irrigation). For example, Table 23 shows that China could
achieve its grain self-sufficiency target in the long term (after 2015) under the free trade
regime if the annual growth rate in agricultural research investment raises from 4% to
6%.
Finally, the shocks of the trade liberalization on China’s grains differ largely
19
between food and feed grains. Maize will be the major imported grain and used in
producing exportable livestock products. Therefore, it is not maize, but rice and wheat
their domestic productions and self-sufficiency have directly and the most important
impacts on food and, particular grain, security (food grain self-sufficiency) in China. If
the food grain self-sufficiency concept could replace the total grain self-sufficiency and
be adopted in China, China will achieve its 95% food grain self-sufficient level even
under a completely liberalized market in the future (Table 14).
V. Conclusions and Policy Implications
Reform and trade liberalization in China's external sector, because of its strategic
role in the economy, has proceeded gradually. Gradual trade liberalization as the
reforms in the other sectors of China's economy has its logic. In the initial stage,
reformers only implemented measures that provided incentives to sets of corporations
and institutions. As the experience gained from the reform grows and the objectives of
trade could be achieved through alternative settings of institutions and policies, trade
liberalization has been processed smoothly since the late 1980s. Understanding the
process will enhance the discussion about China's international trade and help the
reader to put into perspective what leaders have done so far, what else they may be
intending to do, and why or why they have not gone faster or further.
In the past 20 years, this study shows that the highly centralized and monopolized
foreign trade operation system has been gradually reformed, decentralized, and
commercialized through granting trade rights to more trade corporations and reducing
government direct administrative intervention.
Trade regime has also been gradually moving from import substitution system to a
more export-oriented system. Moving toward a more market-oriented trade system is
evidenced from various aspects of China's trade policies and trade patterns. The
centralized trade management and operation system was first replaced by the foreign
trade contract responsibility system, and then was further replaced by taxing system;
the foreign exchange retention system was abolished and replaced by foreign exchange
bank settlement system; a single managed floating foreign exchange system was
introduced in 1994; government export subsidies were phased out; and the financial
system related to foreign trade was adjusted to meet the reformed trade system.
Foreign exchange control, though still highly intervened, has been relaxed
significantly since the late 1980s by introducing foreign exchange retention system and
establishing foreign exchange swap center in the early reform period, and the two-tier
exchange rate was consolidated in December 1993. RMB became convertible on the
current account at the end of 1996. While tariffs now are still high compared to the
existing WTO's member countries and some non-tariff measures are commonly applied
to "strategic products" such as agricultural and food products, foreign trade control in
China has also significantly liberalized since the early 1990s. China’s average tariffs
20
reduced from 47.2% in 1991 to 17% in 1998. Apart from these, China has actively
participated in the consultations on the tariff-related actions for early voluntary sectoral
liberalization.
During the 1980s China extensively used quotas and licensing to control its foreign
trade. However, since the early 1990s China has progressively and drastically reduced
the number of items subject to export and import quotas and licensing administration.
The products subject to quota, licensing and other import control measures accounted
for only 5% of the total import tariff lines in 1998.
In sum, through nearly 20 years reform, China’s foreign trade regime has gradually
changed from a highly centralized, planned and import substitution regime to a more
decentralized, market-oriented and export promotion regime. While significant
progress has been made since the economic reform in liberalizing the trade regime,
China’s foreign trade regime still has major inefficiencies. China still largely
monopolizes international trade in agricultural products.
The reforms of the economy have significantly impacted on the structure of the
economy. Even a more rapid growth and the trade pattern changes are recorded for
China’s external sector. Because China’s overall trade growth has been much faster
than that of agricultural trade, the importance of agricultural trade in China’s total trade
has been declining considerably since 1980 and particularly since the early 1990s.
Within various agricultural commodity trades, this study reveals two main points. First,
the patterns of China’s agricultural trade were consistent with China’s domestic
resource endowments during the reform period. China was a net exporter of labor
intensive and labor/capital intensive agricultural products, like horticultural products,
animal products and processed agricultural products, and was a net importer of land
intensive agricultural products, like grains, cotton, and edible vegetable oils. Second,
the study shows that since 1985 the patterns of China’s agricultural trade, particularly
the patterns of agricultural exports, have been gradually moving more closely towards
reflecting China’s resource endowments.
However, this study also reveal that the room for the further liberalization exists in
terms of tariff reduction, limiting non-tariff measures to control agricultural imports,
further commercialization of state trading, and the efficiency of the foreign trade
management. In deed, China has decided to take a further trade liberalization in the
coming years. This is evidenced in the recent Joint China-US Statement signed by
China Premier Zhu Rongji and US President William Jefferson Clinton on the Status of
Negotiation on China's accession to the World Trade Organization in April 1999.
With the further trade liberalization and adjusting China trade regime consistent
with joining WTO, it is expected that China will face great challenges in maintaining its
current food self-sufficiency, a central agricultural policy that has been a top priority in
setting China's all agricultural and agriculture related policies since the founding of the
21
People's Republic of China in 1949.
Our simulation results on the trade liberalization conclude that the producers of
most crops (except for rice and horticulture) will loss their income from the farming
activities not only because of the decline in the price the farmer will received, but also
the reduction in the production. While the most of animal product (except for beef,
mutton, and milk) producers, particularly the farmers in raising hog and poultry, will
benefit from the trade liberalization as the increase in the export demand rises the
livestock price and increase in the maize import declines in the feed price.
The impacts of trade liberalization on China’s agriculture are remarkable not only
on agricultural price and trade, but also on domestic production and consumption.
Under free trade scenario, the fall in the domestic price of grain raises the grain
consumption and slowdown the production. Our projection shows that China’s
domestic grain production will fall far behind domestic grain consumption under the
free trade scenario. Compared to the baseline scenario, grain deficit between domestic
supply and demand will be further enlarged. China’s net grain imports will increase to
about 60 mmt in 2005. Among these, 40 mmt or two third imported grains are maize.
Our study also concludes that maize, the third major crop just bellow rice and
wheat, will soon grow over rice and wheat, and become a top crop not only in the
quantity of its domestic consumption (demand), but will soon become the number one
imported crop in China. China would likely be one of the world largest importers of
maize in the coming years if the market will be liberalized.
In contract to many scholars’ believe, while the trade liberalization will raise wheat
import in the short run, the wheat import will be soon declining after the initial shock of
the trade liberalization. China will become a nearly self-sufficiency in wheat in the
long term (by 2020). On the other hand, China is likely to be one of the major exporters
of livestock products in the world. Pork and poultry exports will expand profound with
the trade liberalization.
In related to the food security and grain self-sufficient issues, a completely
liberalized economy in the short term will challenge the current food security goal
defined by the government. China’s grain self-sufficiency rate will decline rapidly
from 98% in the mid-1990s to less than 90% in 2005 if the free trade regime is assumed
by the year of 2005. However, it is worth to note that this is an extreme case,
representing a maximum impact of the trade liberalization on China’s grain economy.
The actual impacts of China’s joining the WTO will be lower than the results from this
free trade scenario.
When regarding the world food situation, our results suggest that China will
neither empty the world grain markets, nor become a major grain exporter. It does
seem likely, however, that China will become a more important player in world grain
22
markets as an importer in the coming decades. Both potential exporters outside of
China and those charged with managing China's food needs through domestic
production and imports need to be ready. Exporting nations--especially those dealing
with wheat (in the short run) and maize (in the long run) --will undoubtedly be the
beneficiaries of these trends.
If China's policy makers believe the projected level of imports are too high (either
politically or because they see some other physical or economic constraint), investment
strategies need to be revised in the near future. In the long term, the most effective
policy that could improve China’s food security and raise grain self-sufficiency level is
to increase the agricultural productivity enhancement investment, particular
agricultural R&D. If these policies are formulated properly, China could achieve its
grain self-sufficiency target in the second decade of the next century even the grain
market will be completely liberalized in 2000-2005.
China should allow a greater role for the market to determine trade patterns in
order to reap comparative advantage gains. This would probably mean increased
overall agricultural trade and a shift towards importing more land intensive agricultural
products and exporting more labor intensive agricultural products. Policy steps to
achieve comparative advantage gains might include removing implicit taxes on farmers
and reforming domestic grain pricing and marketing system.
23
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Wang, Z. (1997), “The Impact of China and Taiwan joining the World Trade
Organization on U.S. and World Agricultural Trade: A Computable General
Equilibrium Analysis”, An Economic Research Service Report, Department of
Agriculture, the United States, Technical Bulletin Number 1858.
World Bank (1997), “China Engaged: Integration with the Global Economy” in
China 2020, The World Bank, Washington D.C.
World Bank (1999), Rural China: Transition and Development, World Bank Report,
Rural Development and Natural Resources Unit, East Asia and Pacific Region, the
World Bank, Washington D.C..
25
Table 1. Annual Growth Rates (%) of China’s Economy, 1970-97
Pre-reform
Reform period
1970-78
1979-84
1985-95
Gross domestic products
4.9
8.5
9.7
1996-97
9.2
Agriculture
Industry
Service
2.7
6.8
na
7.1
8.2
11.6
4.0
12.8
9.7
4.3
11.4
8.0
Foreign trade
20.5
14.3
15.2
7.6
Import
Export
21.7
19.4
12.7
15.9
13.4
17.2
10.8
3.8
Population
1.8
1.4
1.37
1.03
GDP per capita
3.1
7.1
8.3
8.2
Note: Figure for GDP in 1970-78 is the growth rate of national income in real term.
Growth rates are computed using regression method. GDP and per capita
consumption growth rates refer to the value in real terms.
Source: State Statistical Bureau, China Statistical Yearbook, various issues.
Table 2. Foreign trade to GDP ratios (%) in China, 1980-97.
Year
Total
Agricultural
Total
Total
Agricultural
Agricultural
trade to
trade to
export to
import to
export to
import to
national GDP agricultural national GDP national GDP agricultural
GDP
agricultural
GDP
GDP
1980
12.7
10.3
6.0
6.7
4.6
5.6
1985
22.8
9.6
9.0
13.8
6.7
2.8
1990
29.8
14.5
16.0
13.8
9.1
5.4
1995
40.1
18.6
21.3
18.9
10.2
8.4
1997
36.0
14.9
20.3
15.8
9.1
5.8
Sources: State Statistic Bureau, China Foreign Economic Statistical Yearbook, various issues; China’
Customs Statistics, various issues; China Statistical Yearbook, various issues.
26
Table 3. China’s Simple Average Applied Tariff Rate (%), 1998-2000.
Item
1998 simple average
2000 simple average
applied tariff rate
applied tariff rate
Agricultural products (excluding fish products)
23.6
32
Fish and fish products
20.0
29
Petroleum oils
7.9
5
Wood, pulp, paper and furniture
14.5
17
Textiles and clothing
27.2
22
Leather, rubber, footwear and travel goods
17.0
20
Metals
10.1
9
Chemical and photographic supplies
11.9
10
Transport equipment
26.8
25
Non-electric machinery
14.2
11
Electric machinery
16.8
13
Mineral products, precious stones and metals
11.5
11
Other manufactured goods
16.8
13
All goods
17.0
15
Source:
MOFTEC (1998), 1998 China’s Individual Action Plan on Implementing APEC Trade and
Investment Liberalization and Facilitation (unpublished).
The higher rates for some
commodities in 2000 are due to the conversion of the trade control measures from non-tariff to
tariff.
27
Table 4. China’s Nominal Rates of Protection (%), 1978-98
1978-79
1980-84
1985-89
1990-94
1995-98a
Evaluated at the official exchange rate
Quota procurement prices
Rice
Wheat
Maize
Soybean
-42
15
12
2
-43
-3
-15
13
-30
4
-13
-13
-37
-14
-35
-32
-18
-9
-2
-26
Negotiated procurement prices
Rice
Wheat
Maize
Soybean
-6
72
65
22
2
50
28
25
-5
34
12
15
-16
14
-7
7
-7
0
8
2
Market retail price
Rice
Wheat
Maize
Soybean
38
89
92
40
19
58
46
44
14
52
37
39
-2
26
12
26
4
20
25
13
Procurement prices
Rapeseed
Cotton
Sugarcane
Sugarbeet
11
0
na
na
22
4
na
na
-1
-19
na
na
8
-26
-27
-11
0
-5
-15
3
Evaluated at the real exchange rate
Quota procurement prices
Rice
Wheat
Maize
Soybean
-73
-46
-48
-52
-73
-54
-60
-47
-69
-54
-61
-61
-70
-59
-69
-67
-41
-35
-29
-48
Negotiated procurement prices
Rice
Wheat
Maize
Soybean
-56
-20
-23
-43
-52
-30
-40
-41
-58
-42
-48
-49
-60
-46
-55
-49
-34
-29
-23
-28
-36
-12
-10
-34
-44
-26
-32
-32
-50
-34
-40
-38
-53
-39
-46
-40
-26
-14
-10
-20
-48
-53
na
na
-43
-51
na
na
-56
-63
na
na
-48
-65
-64
-56
-31
-35
-42
-29
Market retail price
Rice
Wheat
Maize
Soybean
Procurement prices
Rapeseed
Cotton
Sugarcane
Sugarbeet
a: the period is 1995-96 for rapeseed, cotton, sugarcane and sugarbeet.
Note:
China’s import or export unit values are used as border prices except in the case of maize, for
which we used U.S. Gulf Port prices time 1.10 as the border price. No quality adjustments are
made for all products.
28
Table 5. Annual Agricultural Trade Indicators in China, 1980-97.
Agri.
Agri.
Agri.
Agri.
Agri. share in
Agri.
share in Agri. share in
trade
Period
trade
total
export
total
import
total
balance
(million
trade
(million export (million import (million
US$)
(%)
US$)
(%)
US$)
(%)
US$)
80-84
9113
21.0
4368
19.8
4745
22.4
-378
85-89
11906
13.4
7664
19.7
4243
8.5
3421
90-94
17048
10.4
11625
13.7
5423
7.0
6201
95-97
25772
8.7
14908
9.3
10864
7.9
4044
Annual growth
rate (%)
6.0
8.0
3.9
Sources: State Statistic Bureau, China Foreign Economic Statistical Yearbook, various
issues; China’ Customs Statistics, various issues; China Statistical Yearbook,
various issues.
29
Table 6. China’s Agricultural Exports by Commodity Grouping, 1980-97.
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Source:
Grains and Vegetable
Oils
Value
Share
(US$ million)
(%)
684
16.39
894
21.27
610
14.78
837
19.73
1321
25.94
1927
33.14
2009
30.04
1874
24.81
2301
25.52
2191
23.70
2020
21.17
2748
26.55
2860
24.45
2868
24.17
3512
23.94
1860
12.68
1926
13.09
3178
20.72
Horticultural Products
Value
(US$ million)
1883
1778
1926
1922
2035
2004
2382
2771
3365
3743
3785
3992
3803
4018
5075
5924
5725
5294
Share
(%)
45.12
42.29
46.68
45.30
39.96
34.46
35.62
36.69
37.31
40.48
39.67
38.57
32.51
33.86
34.60
40.37
38.91
34.52
Animal Products
Value
(US$ million)
1342
1355
1424
1272
1335
1302
1568
1880
2379
2471
2947
2830
3822
3858
5191
6218
6346
6203
Share
(%)
32.16
32.23
34.51
29.98
26.22
22.39
23.45
24.89
26.38
26.73
30.89
27.34
32.68
32.51
35.39
42.37
43.13
40.44
Other Agricultural
Products
Value
Share
(US$ million)
(%)
264
6.33
177
4.21
166
4.02
212
5.00
401
7.88
582
10.01
728
10.89
1028
13.61
973
10.79
841
9.10
789
8.27
781
7.55
1212
10.36
1123
9.46
890
6.07
672
4.58
715
4.86
663
4.32
Huang and Chen, 1999a.
Table 7. China’s Agricultural Imports by Commodity Grouping, 1980-97.
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Grains and Vegetable
Oils
Value
Share
(US$ million)
(%)
2806
54.89
3309
55.41
3506
60.65
2591
65.35
1959
67.65
1154
47.16
1341
49.93
2199
55.45
2540
46.22
4160
62.85
3503
62.45
2792
56.02
2808
53.27
1972
48.25
3666
51.16
6879
57.00
6032
56.30
5419
55.24
Horticultural Products
Value
(US$ million)
226
344
379
215
285
398
434
551
676
487
373
438
506
493
366
895
1043
870
Share
(%)
4.42
5.76
6.56
5.42
9.84
16.26
16.16
13.89
12.30
7.36
6.65
8.79
9.60
12.06
5.11
7.42
9.73
8.87
Source: Huang and Chen, 1999a.
30
Animal Products
Value
(US$ million)
298
335
511
382
325
642
709
863
1292
838
552
799
1207
1450
1809
1982
1972
1873
Share
(%)
5.83
5.61
8.84
9.63
11.22
26.24
26.40
21.76
23.51
12.66
9.84
16.03
22.90
35.48
25.24
16.42
18.41
19.09
Other Agricultural
Products
Value
Share
(US$ million)
(%)
1782
34.86
1984
33.22
1385
23.96
777
19.60
327
11.29
253
10.34
202
7.52
353
8.90
987
17.96
1134
17.13
1181
21.06
955
19.16
750
14.23
172
4.21
1325
18.49
2313
19.16
1667
15.56
1648
16.80
Table 8. China’s Agricultural Exports by Factor Intensity, 1980-97.
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Land Intensive Products
Value
Share
(US$ million)
(%)
642
15.38
806
19.17
506
12.26
713
16.80
1368
26.87
2119
36.44
2116
31.64
2088
27.64
2157
23.92
1878
20.31
1689
17.70
2415
23.33
2237
19.12
2222
18.72
2590
17.66
875
5.96
1007
6.84
2158
14.07
Labor Intensive Products
Value
Share
(US$ million)
(%)
2346
56.22
2291
54.50
2341
56.74
2202
51.90
2239
43.97
2199
37.82
2761
41.29
3378
44.72
4280
47.46
4620
49.97
4971
52.10
4891
47.25
5049
43.16
4919
41.45
6726
45.85
7095
48.35
6496
44.15
6538
42.63
Labor/Capital Intensive Products
Value
Share
(US$ million)
(%)
1185
28.40
1107
26.33
1279
31.00
1328
31.30
1485
29.16
1497
25.74
1810
27.07
2087
27.63
2581
28.62
2748
29.72
2881
30.20
3045
29.42
4411
37.71
4726
39.82
5352
36.49
6704
45.69
7209
49.00
6642
43.30
Source: Huang and Chen, 1999a.
Table 9. China’s Agricultural Imports by Factor Intensity, 1980-97.
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Land Intensive Products
Value
Share
(US$ million)
(%)
4256
83.26
4820
80.71
4182
72.34
2846
71.78
1952
67.40
1072
43.81
1246
46.39
2077
52.37
2275
41.40
4545
68.67
4032
71.88
2989
59.97
2339
44.37
1173
28.70
3245
45.28
6575
54.48
5603
52.30
4644
47.34
Labor Intensive Products
Value
Share
(US$ million)
(%)
314
6.14
375
6.28
572
9.89
431
10.87
395
13.64
680
27.79
761
28.33
961
24.23
1411
25.68
949
14.34
642
11.45
867
17.40
1581
29.99
1793
43.87
2596
36.23
3278
27.16
2289
21.36
2179
22.21
Source: Huang and Chen, 1999a.
31
Labor/Capital Intensive Products
Value
Share
(US$ million)
(%)
542
10.60
777
13.01
1027
17.77
688
17.35
549
18.96
695
28.40
679
25.28
928
23.40
1809
32.92
1125
17.00
935
16.67
1128
22.63
1351
25.63
1121
27.43
1325
18.49
2216
18.36
2822
26.34
2987
30.45
Table 10 Trade Balance of Agricultural Commodities in China (US$ Million), 1980-97.
Annual Average
1980-84 1985-89 1990-94 1995-97 1980-97
Total
Total Agri. Imports
-378
3421
6201
4044
Grain & Edible Vegetable Oils
-1965
-218
-147
-3789
-1279 -23016
Cereals
Cereal products & animal feed
Oil seeds
Edible vegetable oils
-2287
87
225
10
-913
369
578
-253
-337
312
553
-675
-1863
-468
34
-1491
-1293 -23272
136
2439
382
6878
-503 -9061
1619
2344
3699
4712
2914
52446
764
296
-62
233
388
1223
414
-136
295
547
2054
455
304
318
568
2850
486
521
272
583
1598
405
116
280
515
28756
7284
2092
5047
9267
975
1051
2566
4313
1995
35904
355
424
50
316
-159
-10
340
517
11
629
-476
31
435
896
42
1100
-277
370
448
2206
111
1323
-564
789
388
878
47
789
-347
240
6990
15803
845
14193
-6249
4322
-1007
245
82
-1193
-388
-6978
-299
43
-752
-260
88
416
131
243
-291
-281
369
-1280
-166
165
-387
-2982
2978
-6974
Horticultural Products
Vegetables and fruits
Coffee and tea
Tobacco
Raw silk
Other horticultural products a
Animal Products
Live animals
Meat products
Dairy and egg products
Seafood products
Raw wool
Other animal products b
Other Agri. Products
Sugar
Beverages
Raw cotton
Source: Huang and Chen, 1999a.
32
3242
58356
Table 11. Impacts of trade liberalization on agricultural commodity prices in China (the
free trade vs baseline scenarios), 2000-2005
Price in 2005
Price change
Percentage price
(yuan/ton in 1995
in 2000-2005
difference in 2005
price)
(%)
(%)
Baseline Free trade Baseline Free trade Free trade vs baseline
Rice
2333
2415
-0.4
4.1
3.5
Wheat
1756
1406
-1.1
-20.2
-19.9
Maize
1459
1080
7.5
-20.1
-26.0
Soybean
2918
2322
0.4
-20.2
-20.4
Sweet Potato
1208
1066
0.7
-9.6
-11.8
Potato
1211
1085
-0.4
-9.5
-10.4
Other grains
2290
2097
-1.8
-9.7
-8.4
Pork
12795
14633
0.8
14.8
14.4
Beef
14666
14518
1.8
0.0
-1.0
Mutton
18841
18345
3.4
0.0
-2.6
Poultry
11643
12798
0.9
10.4
9.9
Egg
6557
6831
-3.5
0.0
4.2
Milk
3379
2672
1.5
-20.2
-20.9
Fish
9032
9529
-4.8
0.0
5.5
33
Table 12. Impacts of the trade liberalization (free trade) on grain production, consumption,
and trade, 2000-2005.
Free trade vs baseline
Baseline
Free trade scenario
scenarios
In the
Annual
In the
Annual
Annual
Commodity
year growth rate
year
growth Difference average
of
in
of
rate in
in 2005
difference
2005
2000-05
2005
2000-05 (000 tons) in 2000-05
(000 tons)
(%)
(000 tons)
(%)
(000 tons)
Rice
Production
138908
0.89
144652 1.77
5744
2419
Consumption
139690
0.88
138313 0.55
-1377
-248
Net import
782
-6339
-7121
-2668
Wheat
Production
115519
1.29
110458 0.43
-5061
-2672
Consumption
125440
0.93
132721 2.06
7281
4059
Net import
9921
22263
12342
6731
Maize
Production
133209
2.33
122793 0.69
-10416
-5375
Consumption
141898
3.35
162105 5.91
20207
11389
Net import
8689
39312
30623
16764
Soybean
Production
15459
1.37
14792 0.47
-667
-331
Consumption
15278
1.46
16102 2.41
824
533
Net import
-181
1310
1491
865
Sweet potato
Production
25712
1.33
25502 1.26
-210
-233
Consumption
25599
1.34
26872 2.17
1273
792
Net import
-113
1370
1483
1024
Potato
Production
10678
1.45
10588 1.35
-90
-95
Consumption
10732
1.43
10831 1.48
99
107
Net import
54
243
189
202
Other grains
Production
24292
0.84
24360 0.93
68
14
Consumption
24943
0.39
25810 1.01
867
498
Net import
647
1450
803
485
Total grains
Production
463777
1.44
453145 1.02
-10632
-6272
Consumption
483577
1.60
512753 2.69
29176
17130
Net import
19799
59608
39809
23402
Note: Consumption (or demand) includes stock changes.
34
Table 13. Impacts of the trade liberalization (free trade) on livestock products and fish
production, consumption, and trade, 2000-2005.
Free trade vs baseline
Baseline
Free trade scenario
scenarios
In the
Annual
In the
Annual
Annual
Commodity
year growth rate
year
growth Difference average
of
in
of
rate in
in 2005
difference
2005
2000-05
2005
2000-05 (000 tons) in 2000-05
(000 tons)
(%)
(000 tons)
(%)
(000 tons)
Pork
Production
27703
3.39
31984 6.33
4281
2071
Consumption
27462
3.43
25727 2.16
-1735
-839
Net import
-241
-6257
-6016
-2910
Beef
Production
3015
4.49
3090 4.94
75
39
Consumption
2998
4.54
3119 5.49
121
53
Net import
-17
29
46
14
Mutton
Production
1746
4.35
1779 4.68
33
18
Consumption
1745
4.36
1841 5.58
96
42
Net import
-0.5
62
63
24
Poultry
Production
7595
4.66
8683 7.42
1088
525
Consumption
7885
4.61
7502 3.66
-383
-187
Net import
290
-1181
-1471
-712
Egg
Production
14848
4.21
16478 6.32
1630
799
Consumption
14817
4.21
14547 3.89
-270
-129
Net import
-31
-1931
-1900
-927
Milk
Production
9364
6.86
8888 5.68
-476
-209
Consumption
9697
6.67
11716 10.90
2019
910
Net import
333
2828
2495
1118
Fish
Production
15081
5.89
15721 6.72
640
307
Consumption
14909
5.73
14581 5.37
-328
-169
Net import
-172
-1140
-968
-476
Note: the production and consumption data used in CAPSiM model are significantly
different from the data published by the State Statistical Bureau. The database in
CAPSiM on the livestock and aquatic production and consumption correct for the
problems on over-reporting productions and under-estimating consumption of these
products.
35
Table 14. Grain self-sufficiency rates (%) under various scenarios, 1995-2020.
1994-96
2005
2010
2020
Baseline:
Total grain
98.1
95.9
96.1
96.9
Rice
99.7
99.4
99.9
101.3
Wheat
92.2
92.1
95.1
99.7
Maize
101.4
93.9
91.3
89.8
Soybean
100.1
101.2
101.9
102.9
Free trade
Total grain
98.1
88.4
89.9
92.1
Rice
99.7
104.6
107.1
114.7
Wheat
92.2
83.2
88.3
96.9
Maize
101.4
75.7
74.4
72.2
Soybean
100.1
91.9
94.4
95.5
Free trade with raise in
agri research expenditure*
Total grain
98.1
88.4
90.4
97.2
Rice
99.7
104.6
107.6
119.5
Wheat
92.2
83.2
88.8
102.1
Maize
101.4
75.7
75.0
77.7
Soybean
100.1
91.9
95.0
100.7
*: The third scenario assumes that the growth rate of agricultural research expenditure
in the real term raises from 4% (the assumption use in the other scenarios) to 6% during
the entire period of the projection.
36