Tuesday, February 10, 2009

How China, A Rising World Power Deals with the Current Crisis and Challenges Facing the World

By Professor Xinhua Zhang
The Center for Policy and Strategic Studies of Shanghai Academy of Social Sciences
Shanghai Vision Consultants Co., Ltd.
SCG Think Tank

Keynote: International Security Conference, Munich, Germany, February 2009

Current Global Crisis and Challenges (PowerPoint Text and Speech)

Having the future of humankind in mind, we have to be aware that we are facing several closely interrelated and interlinked major challenges:

1. Sustainable development of the world economy as threatened by the volatility of financial markets, due to the prevailing short-term profit interest of share-holder value attitude bestowing the capital markets with a casino character.

2. Intensifying scarcity of natural resources, especially the scarcity of fossil energy supply, which is of crucial importance for the transformation-process to a sustainable economy not only because of the risks of global warming, but also the finiteness of fossil energy resources, especially of oil and gas, in the last decades being the main energy-supplier for economic prosperity.

3. Severe situation of environmental destruction and increasing climate change, which is forcing us within the next two decades to set a new course to develop a global economy dramatically dematerialized by introducing resource-efficient technologies and more immaterial-oriented life-styles.

4. Social justice and actual and potential conflicts for survival triggered off due to the scarcity of natural resources and worsening of some social stratus and groups on the global level, which accompany the processes of urban agglomeration to result in a Planet Slum. The spread of terrorism is one of the manifestations.

To sum up, we are facing growing complexity, acceleration and uncertainties. Consequently, whenever we try to elaborate on perspectives and visions of the world of tomorrow, we will have to exploit all our knowledge and ingenuity combined with trans-disciplinary efforts to develop scenarios giving substance and inspiration to the public debate and the decision-makers.

Hence sustainable social and economic development and political stability asking for good governance from local especially urban to global level will constitute a crucial challenge to the world community, including business (corporate) community, the prospects for this endeavour not looking favourable in view of the broad variety of conflict potentials and the deterioration of state authority and governance. Much will depend on the willingness and ability of the old and new big powers jointly facing these risk factors to agree to a multi-polar conflict-management and multi-lateral co-operation.

In this regard, it is a good question to ask: How China, a rising, or emerging world power, or in other words, a global player, deals with the current crisis and challenges facing the world?

A Brief Profile about China’s Overall Situation and Challenges

China’s Achievements as a Global Player

China is a typical large country with comparatively low reserve of natural resources, and is standing in the middle spot of steps of population redoubling with the greatest base and the highest speed of growth.

As an accepted emerging world power, or global player, China has maintained good house-keeping function and has good performance in handling its own affairs and makes progress each day for its own social and economic development. At the same time, China has also impressed the international community by resuming responsibility for global affairs and contributing comparatively largely to international stability and global development (economic and business development).

China’s Foundations of Development

Until 2008, the basic lifeline of Chinese economy has mainly depended on two foundations: one is high national saving; The other is the traditional model of extensive development and incentive foreign trade policy, coupled with the system of compulsory foreign exchange. Now China owns a reserve of over $ 2 trillion of foreign exchange and in equal terms issues about 12 trillion Yuan.

The above two foundations make it possible for China to establish the most active mechanism of capital accumulation without wars and developed its capital markets. Moreover, in recent years, main commercial banks have gone public across boundaries and completed the benign operation of the accumulation system. This "deposit-credit system ", combined with export-oriented economy, reflects a special structure in which China accumulates wealth by investment driving economic growth and relying on international markets, and also shows the weakness of Chinese credit sources and the underdevelopment of its growth mode leading to the vulnerability of its economic and ecological systems. Adding to this is the corruption of civil servants which accompanies high growth rate and institutional flaws.

Threats and Challenges Facing China

Many have rightly pointed out that, in short run, problems of ecology and environment have become the most protruding challenges to sustain China’s economic development; in longer run, ecological deficit and resource scarcity as well as the accompanying social problems increasingly extend to pose the greatest threat to future survival of the economy and the stability of the society.

This situation has naturally brought to attention the issue of sustainability, which questions whether China can sustain its development and maintain high growth rate in both short and longer terms and whether China can successfully handle the transition to a more open, stable and equitable society.

The new situation, especially the unfolding global crisis and challenges pushes China to embark on a new road of unprecedented and far-reaching revolution in its institutions and policies, as well as business governance and development..

In the following, I present some of my reflections to the questionraised by the organizer of this conference from three challenge areas: the unfolding global financial crisis, the issue of energy and climate change, and food.

Chinese Approach to Tackle the Global Financial Crisis

Performance of China’s Economic Wellbeing under the Global Financial Crisis

The special features of the present global financial crisis: ………

Assessing Impacts of Global Financial Crisis on China

In general, the Global financial crisis has so far had comparatively minor impacts on China. Chinese financial firms have bought small amount of American sub-prime lending products, although some of them increases certain commercial risk because of having bought bonds issued by investment banks of Wall Street. Moreover, data shows that China is the greatest holder of American government bonds in the world. But in total the Chinese sovereignty foundation has not fallen into the trap. Therefore, Chinese government does not have to worry too much about this issue in the near future.

But the indirect impacts should not be overlooked. As others China stands to suffer from the adverse consequences of any US recession, even though China’s economic growth has become more broad-based and more resilient than in the past. In the short run, it will not be easy for China to boost domestic demand to offset the unfavourable external disturbances. If the expected US recession is mild and short-lived, it could provide “some welcome cooling agent to the hot Chinese economy”. However, China, like other economies, cannot escape unscathed from a prolonged and severe US recession. So from the macroeconomic perspective, China’s economic cycle has obviously left the gold growth phase of “high growth and low inflation”, evidences of deflation and economic setback are emerging on the horizon.

  • Recent downside catastrophe of the stock exchange market

  • Decreasing consumer confidence and gloomy expectance on the economy, bringing about the down-sliding trend of real estate business (investment and sale)

  • Serious setback and difficulties of China’s export business, resulting in huge employment in export related companies and some foreign investment companies

  • Weakening market demand and difficulties in business operation and performance deterioration indicating macro economy cooling down, growth of Chinese economy slowing and entering a downward trend
Prospects of China Getting out of the Crisis

Despite of the above difficulties, generally speaking, the growth trend of Chinese economy will not change. Its prospects look still promising, although the pace will be slowed down in some mild way. The rationale includes the following:

  • The difficulties Chinese economy is faced with are the ones inherent in the processes of advancing. China has rode onto the speed track of economic growth based on real economic fundamentals. It has experienced substantial productivity gains during its recent spurt of high growth, which lays foundation for new spurs.

  • China does not have to worry about new investment projects and new growth points. China’s industrialization and urbanization is just in the middle of the course. China is now one of the countries with income below middle level, and its urbanization and industrialization require a large amount of investments in infrastructures.

  • China’s position as the world’s manufacture base will not change. It is hard to find a country in the world which has very excellent chains and manufacturing bases to serve the world market.

  • Having a large economic volume with rather good quality and remaining intact substantially in the face of global turbulence, Chinese economy is less vulnerable to the crisis. Thanks to the immensity of its territory and different economic development phases, China has more and larger rooms for the central government to solve financial difficulties and spread crisis.

  • Increasingly mature macro-regulation measures provide for continuously rapidly developing economy with important guarantees.
The present situation in China testifies my viewpoints. The Chinese premier Wen Jiabao said last week in London that there have appeared signs of Chinese economy beginning to recover.

Then, how China achieved all these?

China’s Approach to Tackle the Global Financial Crisis: The New Policy

In China these days people do not used the U.S. term “bailout”. The measures adopted by the Chinese government to face the financial crisis are referred to as China’s “New Policy” because it has more significance than tackling the financial crisis. It heralds a kind of revolution in China’s state governance.

Basic Design of the “New Policy”

The Chinese “New Policy” is designed to bypass the global financial crisis and provide the new type of locomotive in the global economy. Therefore, the key of the New Policy is to manage to transform from export-oriented economy to the greatest economic system mainly relying on domestic demands, and as one of the key strategic aims, to restructure the economy for all round sustainable development in social and economic fields.

Strategic Objectives of the “New Policy”

Therefore, the Strategic Objectives of the “New Policy” are, in short term, to countermeasure the global financial crisis, and in longer term, to create new areas and new points of growth and new market opportunities for both domestic and foreign companies. For the implementation of the “New Policy”, the Chinese Central government has decided to spend 4 trillion Yuan in the coming years. 10 concrete measures have been conceived to put into reality the “New Policy” right away. The local governments have all decided to raise and motivate large amount of capital on their own to supplement the central budget and have made plans to implement the “New Policy”.

Key Components of the “New Policy”

1. By implementing active financial policy and expanding government expenditure to strengthen fixed assets investment in order to stimulate economic growth and ensure stable level of employment. Plenty of projects have been planned for infrastructural construction: railway, airports, urban development & municipal construction, large scale national and regional projects like major water transfer projects, etc., including agricultural and rural development. The all round development of the central and western part, is also one of the key areas of support. Education and R&D is also included for heavy investment.

2. By reducing export tax and giving subsidiaries to export oriented companies to stimulate exportation in order to stabilize employment and expand foreign demand. This measure is being applied especially to small and medium size textile and electronic companies that export to foreign markets.

3. Resorting to financial and tax measures to maintain and support the real estate business, keeping it from further sliding down, is one of the priorities. Two main policy instruments have been used. One is to purchase houses from the developers using public fund and allocate the houses to weak groups and people at marginal state. Another is to reduce loan interest rate at high percentage in order to encourage citizens to buy houses for their own use.

4. Expanding and stimulating all round domestic consumption by all means, including increasing the citizens’ income, delivering purchasing vouches to the households, increasing the level of subsidiary for weak groups, raising financial budget for people’s welfare expenditure, and cultivating new hot points of consumption (3G mobile phone and new generation household appliances).

5. By inputting large amount of public investment and initiating reform in resource price and taxation, to restructure the economy and up-grade the various sectors in order to generate new points of industrial development (energy sector) and technological breakthroughs (counter-measures against climate change). In the fields of economic restructuring and changing of modes of growth (alternative energy, bio-technology, environment protection, food and food-safety, etc. ), ample rooms are being opened for developing new points of growth. For instance, Shanghai plans to spend 10 billion US dollars in the next years to develop environment technology and protect environment (counter-measuring climate change, CDM business).

6. Education and R&D.

7. Most importantly, from my point of view, is to start up the “New Land Reform” and speed up the process of urbanization with strategic goals of expanding domestic demand and revitalizing a large amount of rural assets and liberating rural social productive force. We discuss this last point separately in some details in the following.

The “New Land Reform”

The goal of the “New Land Reform” includes integrating the development of urban areas with the rural and, and re-creating the rural productive forces. Taking the collective use right of land as catalyst, it provides large amount of money liquidity and wealth interests, promoting the formation of the greatest market of domestic demand and quantum increasing the purchasing power and consumption capacity of the Chinese society.

Turning farmer’s assets into capital, the Chinese domestic demand system will be lifted dramatically. Through paths such as mortgage and guarantee, rural immovable property system is open to financing channels, and at least it requires credit of 5-6 trillion Yuan. If it directly goes into the consumption market, theoretically it will increase the domestic demand capacity of about 1 trillion Yuan per year. The opening of the domestic demand system will ensure the economy to enter a summit phase in Chinese history.

The Bedrock of the “New Policies” and the “New Land Reform”: Properly handling State Regulation (Macro Control) and Repairing Systemic and Institutional Flaws

Strategically speaking, what China is doing to tackle the global crisis and challenges is to initiate an anti-cyclical crisis restoration approach by creating a new development cycle domestically, enlarging production in a large scale, which means high growth, high employment and moderate inflation. and building up of a modern credit system in China.

To successfully implement this approach, China must repair the flaws of its economic system. Moreover, these kinds of flaws are developing comparing with international economy. In fact, the mechanism which produces the flaws is more dangerous than the flaws themselves. In this regard, I think the most urgent thing to do is to increase credit resources and start up credit revolution.

It is obvious that the existing Chinese credit resources are insufficient. If they continue to lend most of them, China will not be able to deal with possible large adjustment of domestic asset prices. So the monetary policy has to be tight according to the traditional credit mechanism.

If we reconstruct in a round way the Chinese credit sources and its credit expanding capacity in combination of the modern money market and capital market with traditional deposit system, then the Chinese credit resources will certainly be over 45 trillion Yuan, and its credit capacity theoretically can increase to about 100 trillion Yuan, thus Chinese economy need not to cut the feet to fit the shoes.

Therefore, from strategic perspective, we argue that expending Chinese credit resources becomes the dimensional boundary to re-create Chinese economic development. The New land reform can release huge resources. If these resources can go into circulation and become a new element of the capital market, the problem of Chinese credit resources will certainly be improved to produce a strong economic entity looking down upon the world.

Difficulties and Challenges for Implementing Macro Economic Controls in China

(1) Uncertainties are increasing obviously, so is the difficulty of macroscopic decision-making. Efforts to stabilize market and price are complicated, and therefore, inflation and deflation could appear in turns in the future.

(2) A large amount of capital is likely to flow out of Asia, influencing the balance and configuration of the capital market.

(3) “Market salvation” actions with different intents are likely to cause a new exchange rate war.

(4) Risk factors are apparent, endogenetic and allogenetic elements are accumulating and coupling, which is watchful.

The Chinese government has adopted institutional tools (that is, macro controls) to have eluded the exacerbation and extension of crises for many times. In these processes much risk has been accumulated. Until now many of the factors solving crises were domestic, and in most cases through making worse domestic industrial and social conditions, anti-market measures, to relax or postpone the effects of external factors. While eluding crises one after another, the greatest cost is accumulation and enhancing of a number of internal risk factors. (such as bubbles in some fields, credit crisis, vacancy of efficiency, distortion of market functions, dissimilation of governmental functions, exacerbation of ecological environment, and aggravation of social inequality). In the context of the global financial crisis, external risk factors are beginning to dominate. Whether China can manage to deal with the crisis through more active, wider and stronger institutional measures is worth studying.

China’s Energy Security and Climate Change Actions

Major Problems and Challenges Facing China in Its Energy Arena

To understand China’s energy situation, future prospect and its strategic options of safeguarding energy security, one must first get a better understanding of the problems and challenges which China faces in the fields of energy consumption and supply during the process of social and economic development and transformation. According to my observation the following five aspects constitute the major challenges or problems of China in its energy arena.

Problems with China’s Mode of Production and Model of Development.

1. First, the problem with China’s mode of production and model of development. So far China has been promoting industrialization quickly while maintaining the traditional and backward agricultural mode of production with focus on large quantity and extensive coverage, clearly showing the characteristics of exchanging manual labor for resources and leading to the low efficiency of comprehensive use of energy, extremely high energy consumption per unit of production and severe pollution of the environment. It has become an accepted fact that China is one of the largest energy consumers as well as one of the major polluting agents of the world. This has also become the consensus among Chinese elites and the general public.

Serious Imbalance between Energy Demand and Supply

2. Second, the serious imbalance between energy demand and supply under the above mode of development. The consequences and implications of the above economic features of China’s development on the arena of energy is the large gap between China’s energy reserves and supply and its development demand, which is increasing alarmingly for a country standing in the middle spot of steps of population redoubling with the greatest base and the highest speed of growth. Fortunately, the Chinese leadership and the general public have all been aware of this situation and have had a sober and realistic comprehension of this challenge.

Unquenchible Thirsty for the Consumption of High Quality Energy Products Brought About by Reform and Opening-up

3. Third, the unquenchable thirsty for the consumption of high quality energy products brought about by reform and opening-up. There has appeared in China a severe mis-matching and contradiction between the structure of energy consumption brought about by the development of an affluent society and the domestic energy reserves and production capacity, making the short supply of oil and gas to exasperate and become a sensitive and explosive problem in China’s social development.

The first 20 years of this century is an important period of strategic opportunity for China’s economic and social development. Realizing the goal of building up an affluent society, Chinese economy will increase by 4 times by 2020. By that time the Chinese per capita GDP will exceed $ 10,000 in terms of PPP. According to international experience, this period is vital to the realization of industrialization as well as transformations of economic structure, urbanization process and structures of consumption of citizens. This greatly increases demand for high-quality energy (natural gas and petrol oil products).

In China, urban energy consumption is turning to gas, further increasing the demand for fossil-based natural reserves. Another fact is that China is entering into a car society, which increases greatly the demand for gasoline. All this shows that the security of petrol oil supply is at stake. Due to its importance as a key source of energy for national planning and people’s daily life, the degree of safe supply of this kind of energy has become one of the keys of China’s energy security strategy.

The above three problems together show that energy and environment problems have become the most protruding challenges to sustain China’s economic and social development. In longer run, the present mode of development, the high consumption of energy, resource scarcity, ecological deficits, as well as the accompanying social problems has naturally brought to attention the issue of sustainability, which questions whether China can sustain its development and maintain high growth rate in both short and longer terms and whether China can successfully handle the transition to a more open, stable and equitable society.

International Dimension of China’s Energy Issues

4. Fourth, the international dimension of China’s energy issues. Judging China’s energy situation from the perspectives of its international repercussions, we can see that the continuous economic growth and the ever-increasing demands for energy pushed by social development has greatly increased China’s dependence on imported energy, which is putting China under greater economic and political pressures from abroad. The new version of “China Threat ” just results from wrongly criticizing the energy situation and prospects of China.

Challenges and Problems Associated with Geo-economics/geopolitics and Energy Diplomacy

5. Fifth, challenges and problems associated with geo-economics / geopolitics and energy diplomacy. The Chinese energy diplomacy is meeting numbers of variables and rigid challenges of geopolitics / geo-economics, making energy security the core of China’s national foreign policy and strategy in the 21th century.

Energy is a special goods dyed with political colours and the 21st century is a century characteristic of energy competition. China will surely be challenged and influenced by various geopolitical powers and non-market factors. China’s energy diplomacy will meet with unprecedented pressures.

The above five problems combined together upgrades the issue of energy security to the most important problem of national security strategy, which has become one of the most pressing issues on the agenda of Chinese leadership.

Framework of China’s Energy Strategy

The traditional wisdom of the Chinese nation thinks highly of a pair of complementary concepts: increase income (including exploiting new resources) and reduce expenditure (including saving and reservation). I argue that the main thought line of China’s energy strategy should centre on these two orientations. Actually China’s energy strategy framework is just centre around these two concepts, some of the aspects of which are explained in the following.

“Reducing Consumption” by Way of Market Reform Oriented towards Sustainable Development

1. First, the basic stand of the strategy is market reform oriented towards sustainable development, the focus of which is on transformation of the mode (or pattern) of economic growth and model of social development by way of “reducing expenditure”. So the new strategy strives to update technologies through market mechanisms in order to solve the problem of energy demand and supply. Energy technology can be regarded as breakthroughs of the 6th industrial revolution and energy related sectors can become a new economic growth point and a new opportunity for Chinese business development. In order to reach the above aim, China is taking both legislative and administrative measures to build up an energy-saving economy and medium consumption society.

Thoughtfully Adjusting and Optimizing Energy Consumption Structures

2. Second, to meet the dual objectives of longer perspective development of energy bases and every day safe supply, China is thoughtfully adjusting and optimizing its energy structures. The present stance is to centre on coal as the main source of energy supply and rely on electricity as the chief supplier of the secondary energy source. For electricity development and production, the strategy is to transit gradually and actively to the use of alternative energies, such as wind, water, solar, tide, and nuclear as the primary sources. That is to say, operationally, China is focusing on the development of a secondary energy system with the renewable as primary energy, and reasonably collocating the primary and secondary energy systems to build a national supply system with electricity as the backbone. This strategy aims at relaxing demand-supply conflicts and thus establishing a sustainable state-level long-term supply framework. This is the combination of increasing income and reducing expenditure.

The medium and long development strategy is to focus on energy saving, greatly promote low carbon economy, including nuclear energy, water electricity, wind energy, natural gas, clean utilization of coal. First, we will focus on increasing quality rather than expanding production in coal industry, radically settling the coal security. Second, electricity production focuses on medium and long-term projects, quickening the adjustment of electricity price. Third, the production of natural gas will be a industry with strong demand for a long time, and we still determine the demand by relying on supply.

Parallel Development of Two Markets and Two Sources, the International and the Domestic

3. Third, from the vantage point of exploiting sources, that is to increase income, China’s new strategy puts more emphasis on the parallel development of two markets and two sources, the international and the domestic. While mainly relying on the exploitation and development of domestic resources, China has started to participate actively in international cooperation for energy development. There are two major areas of endeavour, one being the multi-directionary energy diplomacy, the other being getting involved in international option trades for fuel products by way of giving play to the mechanism of oil financing.

By energy diplomacy, we mean to enhance a nation’s safe supply of oil though diplomatic measures. Energy security is assuming a more and more important position in China’s foreign policy making. China’s energy diplomacy first attracted the world’s attention when the story of China competing with Japan for Russian oil field exploitation was made open. We should honestly say that China has the right and all the reasons to assume its position in the world’s energy strategic geography. This position can be ensured only when China actively engages in energy diplomacy and cooperate and compete with other international partners or competitors. This is also to meet the requirements of coordinating international relations at the age of energy crisis and competition. The degree of China’s dependence on foreign energy import will remain high for quite a period of time. Frictions and conflicts are surely to emerge during this period, for the resolution of which, energy diplomacy can serve as kind of lubricating oil.

Developing and Implementing a National Strategy for Alternative Energy Exploitation (R&D in Renewable Energy Development)

4. Fourth, China has developed and implementing a national strategy for alternative, or renewable, energy exploitation, the long term focuses of which are developing coal liquefying technology and hydrogen technology.

In order to decrease the dependence on imported energy, China is drawing its map of energy territory and drafting its road map towards alternative energies. Taking into consideration of different conditions in different regions and localities, wind power, solar energy, geo-thermo energy, tide, and nuclear power, are being developed as alternative energy sources. A national strategic framework with apparent Chinese characteristics for alternative energy development has taken shape. The longer-term objective is to partly substitute fossil energies (fuels). The short-term objective is to satisfy energy needs of the vast rural areas and remote regions for the construction of an all round comfortable society. We can predict that in the next 20 years China’s alternative energy exploitation will assume rather large scale, laying a solid foundation for China to transit into a more fossil energy free society. In this regard, the long term focuses of efforts are developing coal liquefying technology and hydrogen technology, which are highlighted as the strategic emphasis of the 21st century.

SAIC will invest 2000 million Yuan in R&D of new energy cars. The public company and controlling shareholders have established a venture: Jie Nen company, to develop new driving technologies. State will subsidize the purchase of new energy vehicles. The distribution and application project of large-scale industrialization of new energy auto, based on small demonstrations, will be promoted to the fields such as public transportation, taxi, city administrations and post services in selected 10 large cities. 90% of them are auto with hybrid energy. Supported by state policies, we try to have 60000 vehicles with new energy by 2012.

Combustible ice, hydrate of natural gas, is one of new-type clean energy in century 21. Recent studies show that it exists in north slope of China South Sea, trough of Spratly Islands, and slope of East Sea. Together with other institutions, Guangzhou Energy Institute of CAS has begun to study the three-dimensional experimentation simulation technology of combustible ice. This means that China has made a key progress in the field.

Developing Energy Industry with Focuses on Alternative Energies as the Key Emphasis of National Economic Development

5. Fifth, to develop energy industry with focuses on renewable and alternative energies is the only long-term strategy for China in this regard. For countries with high consumption of energy like China and in the context of oil price reaching its peak, it is a necessary path to invest in energy industry. China now is short of large-scale investment project of Trillions Yuan like this, so to develop a similar investment plan is a feasible way to respond to the economic cycle. From the perspective of businesses and local economy, currently some provinces of China have developed solar energy, wind energy and water electricity to some degree as a breakthrough point for local governments to find new economic growth points.

Actively Incorporating Energy Strategy with Its Commitment to Cut Pollutant Emission and Protect the Environment

6. Sixth and finally, China is actively incorporating its energy strategy with its commitment to cut pollutant emission and protect the environment. China has set the goal during 11th Five-Year Plan: the energy consumption of 10000 Yuan GDP will be reduced by 20% and the pollution by 10%. After rapid growth for many years, it seems that Chinese energy consumption and emissions of greenhouse gases are getting less and less quickly. One of the main reasons is that the Chinese policies of energy saving and renewable energy are impacting on local behaviours. However, in its recent economic stimulation plan of 4 trillion Yuan expenditure, it has not ignored environmental protection. 12% of the expenditure will directly go into energy saving and environment improving. It is done mainly by promoting the adjustment of economic structures and developing green infrastructures. A new and more inflexible power grid infrastructure is essential to increase the efficient utilization of traditional fuels and renewable energy. For example, Shanghai alone will invest 86000 million Yuan in environmental protection, 68000 of which will be put in the key projects of 4th Three-Year Action of Environmental Protection. This action will focus on improving living environment in the city, including controlling pollution cars, application of “State IV” standard to new cars, eliminating cars of heavy pollution, gas reclaim at gas stations, and etc.

From the perspective of climate change and other environmental problems, cleaner and more efficient development strategy occupy the superior position in Chinese general goals of industry and employment even in the face of economic slowing. This is very promising.

Foodstuff Security in China
The Meaning and Indicators of Foodstuff Security

The real meaning of foodstuff security is: ensuring whenever everyone can get sufficient food of good nourishment. It includes first the supply of food, then the accessibility of food, third, the reasonable utilization of food.

Recently, concerns over foodstuff security come from the following reasons. First, after reaching the peak in 1998 and 1999, food production and the national food reserves have been declining successively; second, the SARS suddenly breaking out in 2003 caused our state leaders to deeply consider national security, especially food security; third, in September – November, 2003, food price began to increase after declining for 6 years, leading to the hot discussions about establishment of a warning system of food security, many worrying about our food security and asserting it would meet a “inflection point” by about 2006 and have a probability of crisis.

Moreover, the symbol of global food crisis sharpened the concerns. The latest data published by UNFAO are more worried: the price of global food increased by 12% in 2006, 24% in 2007 and over 50% in the first 8 months this year. The number of population suffering from starvation increased from 850 millions to 925 millions by early this year.

The evaluation indicators of foodstuff security include output, storage, export and import dependence, and sufficiency of food for people in poverty. There is a standard given by FAO of measuring food security, including 3 measures : first, national food self-support rate need to reach over 95%; second, yearly food output per capita needs to reach over 400 kg.; third, national foodstuff reserves need to be equal to 18% of yearly food consumption, 14% being the warning line.

Food Security Challenges Facing China

According to the above standard, in 2007, China’s gross food output is 501.5 million tons; net export of grain is 7.96 million tons; that of bean is 30.87 million tons; self-support rate of grain including bean is over 95%; per capita foodstuff output reaches 400 kg.; by the end of 2006, ratio of reserves/consumption is about 33% and it is estimated that is about 40%-45% by the end of 2007.

However, the National Framework for Medium-to-Long-Term Food Security (2008-2020) published on Nov. 13, 2008, drafted by the National Development and Reform Commission pointed out that, although the grain production and its demand and supply situation have been developing well, agriculture is still the weak point in our national economy; foodstuff security is meeting severe challenges; as industrialization and urbanization are developing, there emerges new problems in food security: increasingly difficult for stable growth in grain production; demand and supply will be tense for a long time; trade deficit appearing in farm product exporting and importing, and increasingly greater importing of bean and cotton; prices of main subsidiary agricultural products increasing sharply, becoming a great problem in economic development.

Lacking of land resources: land resources in China are characterized by “one large and three small”, that is, the absolute amount is large, per capita possession is small, land of high quality is small and reserve resources for development are small. For cultivated land, there exist problems such as desertization and “three wastes”. Land with middle and low output accounts for two thirds of the total.

Plowland resources are decreasing yearly: the area of plowland greatly reducing has been a severe problem since Reform and Openness. Affected by adjustment of agricultural structures, ecological reuse of farmland, natural disasters and non-agricultural utilizations, farmland resources are reducing yearly. According to studies, the area of national farmland is 1826 million mu in 2007, reducing by 125 million mu comparing with 1996, with less 0.11 million mu per year.

Lack of water resource influencing growth of grain production: for grain production, water resource is an important restriction factor. Some experts argue that it affects food security greatly than farmland reducing. According to the statistics, in China water resource per capita is 2000 cubic meter, ranking 121th in the world. China is one of 13 countries with poorest water resource per capita. Moreover, water distribution is imbalanced in north and south, and most of provinces of producing food in the north China are short of water. Climate change will exacerbate the trend of water shortage.

Enthusiasm for farmer to grow grain is lost: investment in agriculture is still far not sufficient though china government has invested more in it in recent years. The pricing mechanism in domestic grain market is not profitable to the farmer. Recently, the grain price has been kept low, the saying is “cheap crops hurt the agriculturers”, and the lost enthusiasm for farmer to grow crops is another trouble for foodstuff security.

Other factors challenging the Chinese comprehensive capacity of growing crops: they include shrinking area of absolute farmland; sharply reduced really sown acreage; decreasing yield per unit area; insufficient scientific and technological support; weak infrastructure of water conservancy; discontinuing farmer class; and low positivity of the farmer to grow crops.

On the whole, demand-supply of grain is a tight balance in China for a long period.

In the past 10 years, the demand for grain has increased greatly in China. As Chinese economic force increases, people have changed their food structure: fish, meat and egg getting larger proportions, and one ton of poultry requires two tons of grain while one ton of pork requires four tons. From 1996 to 2007, grain for feedstuff has increased rapidly, increasing by about 50% in the 10 years. In 1996, it was 10491 ten thousand tons and in 2007 reaching 15700 ten thousand tons, increasing by more than 5000 ten thousand tons.

According to some scholars, every 1% of economic growth requires 0.7% of demand growth for grain. So if the economic growth is 7.5% per year, the demand for grain will grow by 5.2%. This is true of China. Above all, the Chinese demand for grain will continue to grow. It is predicted that per capita grain consumption will be 389 kg. by 2010 and the total demand will reach 5250 million kg; by 2020, per capita grain consumption will be 395 kg, the total demand will be 5725 million kg. Restricted by reduced farmland, insufficient water resource and climate changes, our demand-supply of grain will be a tight balance for long time, and grain security will meet challenges. China has great pressure in ensuring the national food security and the sufficient supply of main farm products.”

International Dimensions of Chinese Foodstuff Security

In future 1-2 years, Chinese grain reverses as high as 30% can ensure the consumption security. However, the current industrialization of growing crops and its strength are both low and from the perspectives of climate changes in future 10 years and of our demology and consumption structure upgrading, net importing of grain is a necessary trend. The Chinese demand-supply of grain has still 10% to be met. This means China has to import grain for a population of about 1300 ten thousands.

Our grain production has two weak points: bean and grease. Now the farmer is using a large amount of grain to feed livestock. People’s food structure has changed greatly, and the volume of cooking oil consumed by ordinary families is also increasing. To ensure normal development of our stock raising, government has to import large amounts of soybean. Two thirds of soybean in domestic market are imported. China consumes about 50% of global soybean. Our yearly consumption of plant oil is 2500 ten thousand tons, but we can produce only less than 1000 ten thousand tons. Over 60% requires to import from international market. We import more than 800 ten thousand tons per year, and if it were produced by ourselves we would use farmland of 1800 ten thousand mu. We import also two or three ten thousand tons of cotton, if it were produced by ourselves, we would require another 4000 or 5000 ten thousand mu of farmland.

China is under the dual pressures of increasing population and decreasing farmland in the future. Our dependence on international grain market is getting stronger and stronger. We are making full use of it, equal to using sown acreage of over 500 million mu. We require 2800 million mu of farmland to support our existing living level, but we have only 2300 million mu. So from this perspective, the Chinese grain security has not been practically settled. We have about 15% of farm products to be imported from the international market.

Two Contrasting Views Concerning China’s Foodstuff Security

The two views are mainly opposite to each other. One argues that we should give up the self-supply rate of 95%, which is embraced by economist community and some agencies. Their reasons are that the agricultural resources are rich in North America, Brazil and Africa and our exchange reserves are sufficient, we can settle the problem only by paying money. Another view argues that we must stick to the self-supply rate of 95%, which is embraced by agricultural agencies and related academia. Their reasons are that China government used to promise clearly to international community; international grain market is controlled by advanced nations, and once we have lost grain security, we are bound to be enslaved to them. The situation of international foodstuff security is complicated with many uncertainties and its potential resources are difficult to employ. We cannot highly think of their value.

Chinese Government’s Basic Goals and Strategies for Foodstuff Security

Based on all the perspectives, Chinese government has decided to stick to the base line of the self-supply rate of 95% of grain and soybean and to settle the grain security by mainly depending on ourselves. Our goals of grain security are that we should keep the grain self-supply rate to over 95%; by 2020, maintenance volume of farmland is not less than 18 million mu and the comprehensive capacity of growing grain reaches over 5400 million kg.

Self-dependence is the fundamental approach to solve China’s grain security problem. This is determined by the national characteristics in terms of grain growing and consuming. It is unpractical and non-economical to settle the dining problem of Chinese people by importing large amounts of grain. Specifically, first, China is a large country of both population and grain producing and consuming. Its farmland accounting for 9% of global total needs to support a population accounting for 10% of the total in the world, which is the greatest contribution to the world made by China. Second, the volume of global grain trade is limited, only 23 million tons per year. If large countries like China imports large amounts of grain, it certainly robs others of importing shares, leading to raising the price and destructing the relations between China and them. Third, dependence on importing grain is bound to be enslaved to others, leading to political and economic passivity. Fourth, growth of grain is a main source of increasing the farmer’s income in grain producing areas. Importing large amounts of grain from abroad will certainly influence their incomes, which has profound historical lessons and can not be ignored.

Measures for Ensuring Foodstuff Security:

The Chinese government will adopt various measures to reach the above goals.

1. Framework focuses on a long-term future, and a set of plans of 10 projects will be developed, one of which is the production capacity plan (2009-2020) of with an increase of 50000 million kg grain the countrywide.

2. To meet the consumption growth of grain in the future, China will make efforts to stabilize the areas of farmland for growing grain, ensuring over 1260 million mu for it, including 450 million mu for rice. China will also try to recover the sown acreage for coleseed and peanuts to about 180 million mu.

3. It is developing policies to improve the grain price system, making the price reasonable and favourable to the sustainable development of grain production and the income increase of farmers. Reasonable price relations will be established with international grain price. National
Development and Reform Commission declared that from the going market of new grain in 2009, the lowest purchase price of three kinds of wheat, including white wheat, red wheat and mixed wheat, will increase by 13%, 15.3% and 15.3% respectively comparing with those in 2008. The lowest purchase price of rice will be adjusted correspondingly.

4. Great efforts will be made to develop high-tech biological technologies focusing on essential agricultural ones, trying to make greater breakthroughs in yield per area and making it reaching about 325 kg by 2010, 350 kg by 2020.

5. The Chinese government will increase its investment in agriculture. The Financial Ministry will create 8 long-term mechanisms, increasing financial supports to help farmers and giving subsidies to buying farming machines. The policy of farming machine buying subsidies has been put in practice for 4 years since 2004 and government investment has increased from 7000 ten thousand Yuan in 2004 to 4000 million Yuan in 2008. The standing conference of State council held on Dec. 10, 2008 decided that government would finance 10000 million Yuan for subsidizing purchase of farming machines in 2009, increasing 6000 million Yuan comparing with 2008. The favored will cover all the counties engaging in agriculture and stockbreeding.

6. The reform of the grain circulation system will be speeded up and be promoted, ensuring national grain security and the income growth for farmers.


Blogger manilaman said...

This Document projects China as a Nation responsibly coping with the challenges of Food & Fuel Security to bring prosperity to its own people.

As a Filipino Senior Citizen ever aware of my Country's prior Territorial Claim to the Spratly Group-of-Islands, the sooner for the UN to take over jurisdiction & to settle contesting Claims over the Spratlys, the better for a "Peaceful" Spratlys.

February 10, 2009 7:44 PM  
Anonymous Anonymous said...

In my opinion China must immediately decouple its economy as far as possible from U.S. economy by reducing its huge dependence on exports to America. In order to create a very big base of affluent middle class which also will act as main consumption class the country may parcel its total agricultural land into small family owned units. Production will increse in this small family owned food plots and a very big consumer base will be created. Apart from that salary of government employees will be raised to such high level that aggregate demand will invrease. It happened in India and India is comparatively well off as its export dependence is relatively low.

February 11, 2009 7:08 PM  
Blogger Jack Reylan said...

China has just started using biologically cloned humanoid drones in its factories and military to counter population aging from one child policy. This biocloning began in the early 1990s to produce star athletes but was aggressivley advanced. The clones are grown in the wombs of slave women from allied African dictators. and have been known to appear on American soil as illegal workers. Given their blatant disregard for American safey in products they sell, because they don't care if we stay alive after we enrich them, it is worrisome that these clones have not been adequately tested for potential disease transmission.

May 14, 2009 2:24 AM  
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December 22, 2009 11:58 PM  
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March 15, 2010 11:21 AM  

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