China Said to Lift Control over Its Grain Market

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Last updated at: (Beijing Time) Tuesday, July 02, 2002

China Said to Lift Control over Its Grain Market

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The Chinese government is brewing to further open up its grain market.

Most probably by the next year, the central government of China will completely lift the control over the procurement, distribution and pricing of domestic grain market, the Beijing-based Financial Daily quoted insiders as saying.

For the time being, the State Council, China's cabinet, has designated an office composed by staff from 14 governmental departments to look into such specific issues as subsidies to farmers, appropriate disposal of the State-owned grain enterprises to work out a plan overhauling the longtime inefficient domestic grain distribution system.

China took the first bolder step to fix its problem-ridden grain distribution system in last August, when the government repealed the once ironclad regulations on trading, distribution and pricing of the grain market in eight coastal provinces and municipalities.

These places historically boast well-developed manufacturing, banking and commercial industries, but the grain farming does not seem so economical for them.

A huge population, the meagre per capita arable plot and relatively expensive labor has greatly discounted the competitiveness of the local grain farming.

But in the past, they must, like all the other agriculturally stronger provinces, each ensure on themselves grain security by fully developing their limited farming land.

The central government requires that they must devote their farming land to grain planting and purchase farmers' grain at protective prices, although these prices are higher, sometimes by a large margin, than both grain imported and that produced by other traditional agricultural provinces.

Such an arrangement has not only siphoned off a large sum of money for subsidizing farmers, but has also hedged outside the grain from those agriculturally developed provinces.

As a matter of fact, an excessive stress of a sufficient domestic grain supply, which is, in some government advisors' eyes, a must to ward off the recurrence of the horrible famine during 1959-61 when tens of millions of Chinese died of hunger, has, to a great extent, resulted in the successive grain glut in the domestic market in the past eight years.

First chinks, then more cracks

The eight provinces prove to be the first narrow fissure of the once seemingly off-limits area, which has foiled so far three rounds of reforming attempt since 1985.

By April, central China's Anhui, Hunan and Hubei provinces and Shandong Province in east China and Jilin Province in northeast China started to roll back within their respective jurisdiction the governmental control over the grain market.

They cancelled the protective prices for the low quality grain strains and permitted private grain peddlers to swim across villages and towns to buy and sell wheat and rice, which is still an illegal practice only several months ago.

As for those once over-spoiled State-owned grain enterprises, they just give a "let-go" policy, asking them to feed themselves instead of pumping into them fiscal money as before.

These over-staffed and listlessly-managed State-owned grain firms, which are for a time the back-bone carrier of China's grain distribution system, have been running so badly that they usually increase the grain prices by 30 per cent before sending the grain to consumers, according to a research by the Development Research Center under the State Council (DRC), an major government think-tank.

The reason for the central government's green light to the five provinces is the successful experiment in Zhejiang, a coastal province in east China famous for its thriving small businesses and shrewd businesspeople who seem always good at earning money half-step ahead of others.

Zhejiang's experiment has created a "one stone for three birds" effect: a reliable grain supply, the increased farmers' income and the relatively smooth and stable unload of former State-owned grain firms off government's back.

But the Financial Daily denied the possibility of a complete opening-up of the grain market in this year.

Any backfire?

Some experts are warning of the ensuing reduced farmers' income because of the withdrawn protective prices to farmers' grain.

Selling grain has always been one major means of Chinese farmers to earn cash, despite that immigrating to cities is becoming another source for them to get money.

Moreover, farmers' prospect of earning money through selling their cheap labor seems to be getting dimmer as more urban employees are laid off with State-owned firms' intensified restructuring efforts.

But opponents think such a worry is unnecessary.

They cite, as an evidence of their viewpoint, the small scale of Chinese family-based farming.

The relatively small grain output of each farmer's family has decided that the callback of the protective grain purchase prices will not throw much impact upon their income.

The fundamental way to increase farmers' income should be a sped-up urbanization and transfer them into non-agricultural sectors, they said.

But China's entry of the World Trade Organization is surely an approaching threat.

In fact, Chinese farmers have already been able to touch the sharp edge of their foreign competitors.

The committed quota of grain import by China is 18.3 million tons (including 4 million tons of rice) in this year.

But the number will shoot to 40 million tons, if computed by Chinese statistical standard and convert rice to paddy, and soybean and soybean oil into grain.

The 40 million tons of grain import will slice off the per capita income of Chinese farmers in 12 major grain-supply provinces by 100 to 130 yuan (US$12 to 16).

"This is an impact for which the Chinese government should not feel quite at ease," Chen Xiwen, a veteran DRC agro-economist, was quoted as saying by the China Economic Times, a DRC sponsored business newspaper.

China's accession to the WTO might bring more favorable conditions to those traditional grain-consuming provinces such as those in coastal areas, but will exert a great pressure to the grain-supply areas, according to Chen.

"We need to take into account the geographic difference while making the grain market reforming measures," the newspaper quoted Chen as saying.

By PD Online staff Forest Lee

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