In the process of accession to the WTO, China opened up its agricultural market to a large extent, cut its agricultural tariffs by 72%. The current agricultural tariff is less than 1 / 4 of the average international level, lower than developing nations such as India and developed economies such the EU and Japan. China also scrapped all forms of subsidies on export. It’s fair to say that China’s agricultural sector is more open than other WTO members.“China was most worried about agri- cultural issues before its entry into the WTO. Accession negotiations on agricultural issues were the most difficult among all aspects. Many people predicted before the China’s entry into the WTO that Chinese agricultural sector might not be able to withstand the impact of imported agricultural products, since it is less advanced, operated in small scale, with low scientific and technological content, and in lack of market awareness.” said Cheng Guoqiang, former leader of the team of agricultural negotiations of the Chinese delegation of WTO accession negotiations, and deputy director of the Institute of Market Economy of the Development Research Center of the State Council.
Today ten years after China’s entry into the WTO, we realized that the misgivings were not paranoid. The impact of imported agricultural products on the nation’s agricultural sector is stronger than imagined.
China delivered its commitments and witnessed rapid development
During the accession negotiations, China committed to implement the WTO Agreement on Agriculture, reduce agricultural tariffs, eliminate nontariff measures, and open up markets for agricultural

products. It also pledged to restrain domestic agricultural subsidies, scrap export subsidies, and regulate animal and plant health measures.
The transitional period China obtained during the accession negotiations basically ended in the beginning of the year 2005. China cut its agricultural tariffs from 23.2% to 15.35% as it committed to, which is far below the world average agricultural tariff of 62%, and even lower than that of the EU. China became one of the nations with the lowest agricultural tariffs and most open market for agricultural products.
China fully liberalized the import and export rights in 2004. Since then, quotas on imports of foreign wheat, corn, rice, sugar, cotton and other products accounted for over 5% of China’s domestic consumption, higher than the upper limit under the WTO rules.
In 2005, China abolished the system of designated operation of imported wool and wool top, opened the retail and wholesale of pesticide and plastic film to foreign capitals, and lifted the tariff quota on fertilizer imports to the highest level.
In 2006, China abolished the tariff quota on soybean oil, palm oil and rapeseed oil to levy a single duty of 9%. The retail and wholesale of fertilizer was opened to foreign capitals in 2007. Besides, China scrapped subsidies on exports of agricultural products as soon as it entered the WTO. It set an upper limit of 8.5% for the amber box subsidiaries of the domestic support, lower than other developing countries.
In 2008 when the transitional period for foreign companies to enter China’s grain circulation sector ended, international companies without agricultural business such as Goldman Sachs started to acquire pig enterprises in China to enter the agricultural sector.
Despite the large-scale cut of agricultural tariffs, high-level market accession for foreign capitals, and tough challenges, China’s agricultural sector has actively responded to the cut-throat international competition, frequent trade frictions, the impact of international financial crisis and severe volatility in the agricultural product market, and overcome such difficulties as rising costs, weakening comparative advantage and frequent natural disasters, to maintain a steady growth. China’s agricultural sector has not only ensured a stable supply of grain and other important agricultural products, but also increased farmers’income and laid a solid foundation for the economic and social development.
China’s trade in agricultural products has seen rapid and sustainable development since the nation’s accession to the WTO, with the total trade value climbing to $121.96 billion in 2010 from $27.92 billion in 2001. In detail, imports increased to $72.55 billion from $11.85 billion, an average annual increase of 22.3%; exports increased to $49.41 from $16.07, an average annual increase of 13.3%.
China is the world’s fifth largest exporting nation of agricultural products after the United States, the European Union, Canada, and Brazil, and the world’s fourth largest importer of agricultural products after the European Union, the United States and Japan. It takes an important position in the world market of agricultural products.
Industry insiders believe that there are three reasons for the accomplishments mentioned above. First, China has always given priority to causes involving agriculture, famers, and the countryside. Second, the nation has constantly strengthened its support for agriculture. It has basically established a favorable agricultural policies system, and realized the transformation from “negative protection” to “positive protection”. Third, the nation set a new strategy on the trade of agricultural products of serving the national food safety and ensuring the supply of major agricultural products. On the one hand, China has adjusted the structure and model of agricultural products export, shifted the goal from earning foreign exchanges to creating jobs, modernized the agricultural sector, enhanced the exports of competitive agricultural products, and optimized the structure of the export of agricultural products. On the other hand, the nation has imported an appropriate amount of agricultural resources, and set up a mechanism that integrates the international and domestic markets, the agricultural products and resources. Fourth, China has strengthened and improved the control of import and exports of agricultural products.
Downfall of the soybean industry and the voracious invasion of foreign capitals
The “Downfall of the soybean industry” was the most controversial topic among the agricultural sector in 2008. Since the accession to the WTO, foreign soybeans have been flooding into the domestic market, damaging China’s soybean industry chain and fueling the nation’s dependence on imported soybeans.
In 2004, China imported 20.23 million tons of soybeans, 1.27 times that of the domestic soybean production. By the end of April, 2004, soybean price on the international market witnessed sharp fluctuations. Market risk spilled rapidly into China via multinational companies, causing 5 billion yuan worth of losses to domestic soybean crushers. Meanwhile, international companies, led by U.S. ones, established a large number of oil joint ventures in coastal China. In just a few years, most of Chinese soybean processing enterprises were annexed by international ones.
China suffered $4.6 billion worth of trade deficit in 2004, following two decades of surplus in trade in agricultural products. China’s agricultural exports registered $40.5 billion in 2008, with the increase rate
falling to 9.4% from the 17.9% in the previous year. Trade deficit was $18.16 billion, 3.4 times that of the previous year. The figure increased to $23.14 billion in 2010.
With the further opening of the Chinese market, multinational corporations started to get directly involved in the planting, processing and sales of agricultural products. The mature agricultural industry system behind the multinational corporations has challenged China’s vulnerable peasant economy. With long-term plans, the multinational corporations ate into China’s agricultural industry step by step. Some of the sectors of the agricultural industries have been completely controlled by multinational corporations.
There was much news about foreign capitals investing in agriculture in China in the year 2008. Blue Mountain China Capitals and KPCB China Fund announced in June 2008, that it has completed the$30 million investment in the bio-pesticide company Jiangxi Tianren Ecological Industry Co., Ltd. Statistics showed that the Australian company Nufarm and Softbank Asia Infrastructure Fund jointly invested$30 million in Sichuan Fuhua Tongda Pesticide Technology Co., Ltd in July. There came the news in August that Wilmar International spent $3 billion buying soybeans in northeast China. The American Agfeed Group announced that it would acquire another four Chinese pig famers, following its acquisition of 26 pig farms in Fujian province and other places. Agfeed now owns 30 large-scale pig farms.
China’s agricultural industry was believed to be a shelter against inflation and depression in 2008 when the economic crisis swept the world and international financial markets faced great risks.“We noticed that international capitals often go to basic agricultural sectors with deep industrial chain and strong profitability.” The international investment guru Rogers made no secret of his interest in investing in China’s agricultural sector, saying that“investment in agricultural products brings the best return in China.”
“The inflow of foreign capitals brings along it the advanced standardization and business model in the developed nations, which could put China’s agricultural industry in line with the international practice, alleviate the thirst for capital in China’s agricultural development, diversify the sources of investment in agriculture, and enhance the management of the agricultural industry.” Du Zhixiong, researcher with the Institute of Rural Economic Development of the Chinese Academy of Social Sciences, said in an interview with the reporter.
However, insiders pointed out that foreign investment into the Chinese agricultural sector is a double-edged sword. It might be able to speed up the industrialization of local agriculture in the short term. However in the long term, since there are al- most no restrictions on foreign mergers and acquisitions of Chinese agricultural companies and foreign investments are often made in industrial sectors with high concentration, wide consumption market, high profit margins and strong growth potential, there is the risk that foreign capitals control the agricultural product resources and the pricing in these sectors.
“As agriculture-related industries are not highly concentrated, it is very difficult to exercise effective control of foreign investment. In an increasingly open market environment, China need to optimize the agricultural structure, promote large-scale production, put in strong capital and human power in agricultural sectors, strengthen the development of key agricultural technologies, in addition to efforts to ensure food safety by such measures as domestic circulation and policy regulation.” said Du Zhixiong.
International competition and comparative advantage
Agriculture was the focus of China’s WTO accession negotiations. Some experts believe that following China’s fulfillment of its WTO commitments, competition in the agricultural sector went from domestic to international and Chinese agricultural product market went international.
People expected the Chinese agricultural sector, which has gone global, to share the huge benefits brought by the economic globalization and WTO multilateral agricultural trading system. The internationalization of the agricultural sector is also expected to improve the international competitive environment for Chinese agricultural products, promote the export of Chinese agricultural products; further open up the Chinese agricultural sector, create a more liberal, transparent and stable investment environment, attract more foreign capital, technology and managerial experience; facilitate the restructuring of the nation’s agricultural industry, utilize the international and domestic resources and markets, optimize the allocation of resources, gain comparative advantage, enhance resource efficiency; maintain the order of international trade in agricultural products, and establish a stable, fair and equitable trading environment.
However, some of the benefits of the internationalization of agriculture can only be enjoyed when there are systematic and supportive reforms and policy changes at home. Some of the benefits are long-term, and can be enjoyed only after a long time of hard efforts.
Research on the comparative advantage of China’s agricultural products shows that competitive edges of Chinese grain, cotton, oil-bearing crops and other land-intensive products have weakened since mid-1990s. They have almost lost the international competitiveness till now. From the perspective of resource cost, China would loose 0.15 yuan

and 0.11 yuan respectively for each kilo of wheat and corn it produces in 1997. The allocation of resources was not efficient. However, the nation enjoys comparative advantage in rice, livestock, horticulture and other labor-intensive products.
The comparative advantage of Chinese agricultural products from the perspective of resources is in fact the potential comparative edge, not exactly the real market competitiveness. In order to turn the resource advantage and comparative advantage into competitive edge on the market, arduous efforts need to be made in such aspects as the quality and marketing of agricultural products, corporate management, transportation, distribution costs, and corporate credit.
For example, China has comparative edge in meat, vegetables, fruits, flowers and other laborintensive agricultural products. But for too long these products haven’t met international standards on quality, health and technical standards. They are often subject to high technical barriers in foreign nations. Therefore, it’s difficult to turn the comparative edge into competitive edge and export these products.
As the market becomes more and more open, trade in Chinese agricultural products continued to grow rapidly. Total trade value increased to $121.96 billion in 2010 from $27.92 billion in 2001. Specifically, imports increased to $72.55 billion from$11.85 billion, with an average annual growth of 22.3%; exports to $49.41 billion from $16.07 billion, with an average annual growth of 13.3%. Substantial increase in imports has filled the domestic demand and eased pressure on resources supply, but at the same time posed challenges on the nation’s agricultural development.
In recent years, China has seen expanding trade deficit in agricultural products. The deficit increased to $23.14 billion from $4.6 billion in 2004. Soybean, wool, rapeseed, cotton and other products are highly dependent on import. According to calculations, the soybean self-sufficiency rate is less than 30%, edible oil less than 50%, cotton around 60%. New markets for soybeans and wool are almost all occupied by imported products. 60% to 82% of new market for cotton is taken by imported products. As a result of imported products’ over-occupation of the new markets, the agricultural production hasn’t increased along with the strong growth in demand, limiting the development of the agricultural sector.
The situation facing China’s agriculture has aroused the attention of national authorities. The Vice Minister of Agriculture Niu Dun noted at the Tenth Anniversary of Accession to the WTO & China’s Agricultural Development Seminar that during the 12th Five Years, China’ agriculture will face increasing competition and risks. Trade protectionism is rising. Domestic support and market protection continue to be strong in other countries. The volatility on the international agricultural market will have stronger impact on China’s agricultural sector via the conduction of price. China is yet to establish a sound system to strengthen the international competitiveness of its agricultural sector. The structure of trade in agricultural products is not reasonable. The pattern of development needs to be transformed. The measures and mechanisms to ensure the safety of the agricultural industry is not yet mature. The nation still needs to strengthen its international agricultural information platform, international marketing of its competitive agricultural products, and its public services.
Since China’s per capita agricultural resources are insufficient, it needs the international market and resources. Entry into the WTO makes it more convenient for the nation to allocate resources on a global basis. But as a large agricultural country with 1.3 billion people, the steady supply of main agricultural products, especially the food supply can not be highly dependent on imports. They must be highly self-sufficient. This is the lesson we learned from the“Downfall of the soybean industry”, the food crisis and the global financial crisis.
Along with the nation’s rapid economic development in recent years, China has made remarkable achievements in agriculture. However, the major feature of small-scale agricultural production remains unchanged. The average agricultural land per farming household in China is only 0.5 hectare, 1 / 40 of the European Union and 1 / 400 of the United States. In the future, China’s small-scale agriculture will continue to face the direct competition from major exporting nations of agricultural products, and at the same time assume the responsibility to ensure national food security and the livelihood of hundreds of millions of small farmers, and promote social stability and harmonious development. Therefore, in the process of opening up, the nation must give the agricultural sector reasonable support and protection.