As the world's leading importer and exporter of grain, China influences the world grain market in many ways even with its policy of grain self-sufficiency. With population expansion, economic growth, and urbanization in China, concerns arise regarding China's future ability to feed itself and its impact upon the world. Technologically speaking, China will be able to feed its people. But its traditional policy of swapping different grain varieties will be irrational from an economic standpoint.
China is at this moment debating the possibility of changing its grain trade policy from a policy of self-sufficiency to that of somewhat greater reliance on the world market. Smooth policy transition will bring a win-win situation to both China and the international community: The international community will benefit from greater access to China's grain market, less volatility in the world grain market, and enhanced security promoted by China's greater involvement with world grain trade; through greater reliance on grain imports, China will pay less for grain than it would adhering to strict self-sufficiency. Despite potentially mutual benefits, however, the successful transition of China's grain policy will be impossible without a favorable environment at both internal and external levels. China's movement toward trade liberalization is confronted with China's concerns over its food security, possible farmer unemployment, and international payments. To aid China in overcoming many difficulties, measures taken by the international community will be crucial to encourage a smooth transition in China's grain trade policy.
Introduction
The Chinese feel proud of their agricultural achievement: feeding 22% of the world's population with only 7% of the world arable land. Behind this achievement, however, lies a serious challenge to China's future ability to feed its population. China's industrialization and urbanization have prompted both Chinese and foreign experts to recognize the increasing difficulty for China to meet its rising food demand. With the recognition, China's current policy of grain self-sufficiency is under serious scrutiny.
In Who Will Feed China? Lester R. Brown of the Worldwatch Institute forecasts that China will need to import 200 to 369 million tons of grain by the year 2030. His estimate aroused international debates over China's long-term food prospect and alarmed the Chinese government. In response, the Chinese government released a "white paper" entitled On China's Grain Issue. In contrast to Brown's pessimistic stance, the government report expressed optimism by arguing that China can feed its people by itself. International organizations such as the World Bank were also involved in the discussion. In its research report, At China's Table, the World Bank drew the conclusion that China will be able to meet 90% of its grain need by domestic production with an import requirement of 60 million tons by the year 2020, an amount which will not shock the international market.
Regretfully, almost all the participants in the discussion have focussed primarily on the physical constraints on China's grain production. The discussion, therefore, evolved into a technological debate. Those who thought China would not be able to produce enough grain assumed that China would have to import a significant amount of grain and paid little attention to China's grain trade policy. As a matter of fact, even under current technological conditions, additional agricultural investment can greatly increase grain production in China, not to mention after two decades.
International experience reveals that the grain issue has never been a technological question in the past and will not be in the future. Rather, it has been an economic and political question. Market protection and export subsidies-through the Common Agricultural Policy (CAP)-transformed the European Union (EU) from a grain importer into an exporter.
The price of rice in Japan, which is several times higher than the international market price, ensures that Japan achieves self-sufficiency in rice while the supply of other grains mainly relies on imports. Similarly, the grain issue in China is more of an economic and political question than a technological one. The key question is whether China's grain requirement can be met by domestic production if costs meet international levels.
Agricultural resources put China at a disadvantage in producing grain. The per capita arable land and water resource levels in China are much lower than world averages. To reach the goal of grain self-sufficiency, therefore, China must require its farmers to use most of its arable land for grain; in grain exporting countries, there are large areas of arable land left fallow. The Chinese government, accordingly, has tried its best to increase domestic grain production to meet the rising demand: To be self-sufficient in grain, it has successfully controlled imports under 5 percent of domestic grain production, the ceiling of the current self-sufficiency policy. Despite the relative success of government controls, with domestic grain costs increasing and domestic grain prices surpassing those of the world market in 1994, Chinese scholars began to question the rationality of the self-sufficiency policy.
It is of great significance to analyze the possibility of China's grain policy reform and gain insight into Chinese thinking on trade liberalization. China has adopted an economic open-door policy since the late 1970s and has been significantly involved in the international economy. China's ratio of trade volume to its gross domestic product (GDP) is as high as about 30% in 1998, the highest ratio among the world's most populated countries. In addition, China has been the second largest foreign direct investment (FDI) host since 1994. On the other hand, China has remained self-reliant in some strategic goods such as energy and grain, leading some foreign observers to argue that China has not been fully integrated into the international economy and that China's future is still uncertain. Indeed, many factors inhibit China's movement toward greater reliance on grain imports: food security, long-term foreign payment ability, and farmer unemployment, as well as economic efficiency. Since the international community has significant influence over these factors, analysis of China's grain policy suggests how the international community can promote China's full engagement in the international trading system.
Also significant, agriculture, along with services, is the most challenging sector in China's negotiation for membership in the World Trade Organization (WTO). The international community regards China as one of the largest potential markets for grain exports. Because the main grain exporters-the United States, the EU, Canada, and Australia-are at once industrial countries and main trade partners of China, grain market access to China has become one of the most difficult topics during the negotiations for China's accession to the WTO. For instance, the importance of grain market access was emphasized when U.S. Trade Representative Charlene Barshefsky stated in a Beijing press conference in March 1999 that a successful WTO package must include a settlement on long-standing U.S. concerns over citrus, wheat and meat products.
Without a doubt, China's concession on grain-the pillar of China's agricultural sector-will influence the prospect of China's WTO membership.
Given the importance of grain to the Chinese and to the international community, this paper begins by assessing China's grain trade and its impact on domestic and international markets. From a purely economic perspective, the second chapter estimates China's grain import needs. The third chapter analyzes the factors affecting China's decision to open its grain market and examines the possibility of China's greater reliance on the world market. The paper concludes with the implications of China's grain policy for the international community.
Chapter 1: China's Grain Trade
China in the World Grain Market
Overview
From 1977 to 1997, China's grain imports accumulated to 248.7 million tons and exports to 110.3 million tons, with net imports of 138.4 million tons. In the past 20 years, China has been a net exporter of grain for 6 years and a net importer for 14 years. In the 1990s, the average annual world grain production has been 1.7 billion tons and international trade about 227 million tons, which constitutes approximately 13% of the world grain production. China's ratio of net imports to d