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ALI FARHOOMAND

THE COMPETITIVENESS OF THE CHINESE PRODUCE INDUSTRY


Introduction

A large portion of China’s continuous and remarkably high growth of gross domestic product (GDP) in the past 20 years reflects the rapid expansion in manufacturing, the combined result of heavy investments in infrastructure and an increased productivity from the efficient use of labour and capital. In comparison, farming, representing approximately 15% of GDP and employing a workforce of more than 350 million, received only 2% of investment, resulting in an urban and rural economic imbalance.1 Hoping to address this issue, the Chinese government placed special emphasis on developing the country’s agricultural sector in the current five-year plan, giving priority to raising farmers’ incomes. The 2004 agricultural policy includes direct subsidies for grain product, the elimination of agricultural tax and a series of other favourable policies. Given this support would farming in China improve?

China has 22% of the world’s population, but only 7% of the world’s arable land. It is rich in labour, but deficient in land and water resources, and is suitable for labour-intensive crops such as vegetables, tobacco and select livestock. A gradual transformation of the agricultural planning and distribution system over two decades has improved China’s resource allocation, resulting in increased productivity and a significant increase in total output. However, the sector developed under the framework of household responsibility production system (HRPS) with its inherent fragmentation and the “grain self sufficiency” policy. Given this backdrop, would this seemingly different direction work?

This note uses the produce industry, defined as fruit and vegetable products, to represent the labour-intensive agricultural sector. Global trade in the produce industry has grown faster than for any other agricultural sector in the past 20 years: from the 1980s to 2003, the value of exports has tripled to approximately US$90 billion. In the same period, the value of China’s exports grew five fold to US$5.4 billion, accounting for 6% of the total global produce trade.2 As the world’s largest producer, China holds fifth place in international produce trade. Although foreign producers see increased competition from China, they are attracted by its large domestic market.

Using the competitiveness framework for a developing economy,3 we look at questions such as: How competitive is the Chinese produce industry in the international market? What are its strengths and weaknesses? What is the impact of the current policy and regulation? How will this sector integrate into the international market? Does it represent a growth opportunity that attracts investments? Would the industry be able to maintain its comparative advantage in the long term?

1 Shane, M. and Gale, F., “China: A Study of Dynamic Growth”, Economic Research Service, United States Department of Agriculture; http://www.ers.usda.gov (accessed 15th March 2005)
2 Food and Agriculture Organization of the United Nations statistics.
3 Enright, M. (2000), “Note on International Competitiveness and Economy Development”, Asia Case Research Centre, The University of Hong Kong.
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