Market Matters Blog
Katie Micik DTN Markets Editor

Tuesday 11/12/13

China Wants to Give Markets "Decisive" Role in Economy

China's economic leaders want the markets to play a more decisive role in the management of natural resources, the Wall Street Journal reports. The Chinese government also appears to be poised to bolster the rights of China's rural population.

The Journal put together a nice package of stories covering's the Third Plenum, essentially a gathering of China's leadership that determines the direction of the economy.

American farmers know that a prosperous China means more purchases of essential inputs from other countries, so the evolution of China's economy is a critical component of future demand for U.S. agriculture goods. While the latest economic news from China's veiled in the vague language that typically surrounds formal proceedings, it appears that "Beijing is intent on accelerating reforms that would loosen the tight control over the country's natural resources, which has created significant distortions in its economy. In the energy sector, for example, refining companies have dragged their feet on improving fuel standards due to Beijing's control over oil prices. Foreign and domestic energy companies have been reluctant to invest in unconventional oil and gas. Electricity and natural-gas shortages frequently occur during periods of intense demand in the summer and winter."

Then there's the cotton stockpiling program. Over the past several years, China's purchases dominated the market. Huge quantities of imports from India forced that country to ration exports to protect its domestic textile industry, a major disruption to global trade flows. Roughly seven out of every 10 bales produced in the U.S. is sold on the export market. China's buying patterns matter to these farmers. One Tennessee cotton grower told me that a big factor of his acreage decisions on whether or not China's in the market to buy.

China's facing internal pressure from its cotton-textile manufacturers to do away with trade quotas and import licensing controls, which provides state support for domestic cotton prices, the Journal reports. If China backs away from its domestic supports, it could grow the market for foreign grown cotton.

This brings me to the next big point of WSJ's article, greater rights for China's rural population. Most farmers in China only farm an acre or two. One thing we know about these farmers is they don't grow many acres of soybeans -- those numbers have been on the decline ever since China pumped up its coastal crushing centers -- and prefer corn, wheat and rice.

Unlike American farmers, these farmers don't own their land. A recent New York Times piece shows how government driven efforts to push the population toward urban centers, and make way for those growing city centers, led at least 39 farmers to choose death over eviction from their land. These stories have made it into Chinese media, and the social pressure has forced the Chinese government to consider changes. Documents surrounding the Third Plenum show the government's seriously considering giving farmer and rural residents greater property rights, although "the communique didn't outright endorse giving farmers the title and rights to sell the land that they farm but which is collectively owned," the WSJ article stated. "Economists said giving rural resident greater property rights could help make farm production more efficient and free farmers to sell their land and move into cities."

So, the important take-away for a U.S. audience:

1) China may start using the markets to make decisions on how they use, distribute and purchase natural resources, including agricultural goods. Depending on how they go about it, it could be a good thing for U.S. exports. At the very least, it may addresses concerns about China's trade protections.

2) China's farmers may get more rights. With more ability to make decisions about the use of their farmland, it could increase their productivity, something crucial to feeding their growing populations.

3) China's attempting to transition to rely less on exports and heavy investments on the home front and more on consumption. As they shift to a consumer economy, the demands of the population will become a driver of China's production. What do middle class consumers want, regardless of where they live: More protein in their diets.

Want to read more about China's economic summit? Here's a link to the Wall Street Journal article I referenced: http://on.wsj.com/…

And if you'd like to read a moving narrative about the plight of China's farmers, the New York Times story can be found here: http://nyti.ms/…

Posted at 12:37PM CST 11/12/13 by Katie Micik
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