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[Abstract] After describing the background of Chinese agricultural economy as it evolved since 1957, this paper presents the analysis of impacts of WTO accession on Chinese agricultural trade and the change of trade pattern. The evaluation of the change and policy adjustments is provided. The paper also examines the liberation process and challenges of Chinese agriculture industry.
[Key words] Trade liberalization Trade pattern Comparative advantage
Introduction
The paper below presents a thorough analysis of Chinese agricultural economic development. The paper provides a historical context for the analysis by focusing on China’s agricultural economic structure fifty years ago. This development is to highlight the transition of the agricultural economy from a socialist regime to a market-oriented economy with a political structure that still supports state-ownership. The analysis mainly presents impacts and perspectives of WTO accession on China’s agricultural trade patterns, characteristics, and the policy adjustments for Chinese government. The analysis also presents the perspectives on liberalization of Chinese agriculture industry with respect to the accession into the WTO.
Background on Chinese agricultural economy
Before 1957, China embarked on an economic model that was based on the economic and political principles of socialism, most notably state ownership of the factors of production and industrial development driven by the agricultural sector and increased industrialization that was aided by the Soviet Union, (Morrison 9).Under this plan, China faced increased growth and even had an expansion in national income in 1957.
However, after 1957 there was a growing divide between the industrial and agricultural sector in China, economic and political power was dispersed at the local government level rather than the centralized political decision-making model that was being practiced before.The new plan between 1958 and 1960 was labelled the Great Leap Forward and the underlying principle was to transform the agricultural sector into an expansive industrialized economy with investments in capital goods and services that would transform the primary production sector, (Wong and Wong 22).The idea was to gain economic control by using land or agriculture as the control mechanism for production and consumption, which would translate to economic independence – this was typical of many socialist economic policies. The plan had a fleeting success and was later the pivotal point of an economic crisis as the agricultural sector faced a slumped, the social conditions in China deteriorated, and the economic crisis was exacerbated by the withdrawal of the Soviet Union’s support in the 1960s. The economy went through a depression during this period with widespread famine and troughs in the business cycle, (Laurenson 2).
Between 1961 and 1966, the government focused on expanding the agricultural sector and using this sector to increase and grow the economy.The key aspects of the revitalization of the agricultural sector was decreased taxes in the sector, lowering the cost of inputs which increased supplies, and making agriculture more competitive relative to other sectors. The sector boomed during this period, which led to growth in China that surpassed past periods, (Morrison 8). Political upheavals in the mid 1960s characterized as the Cultural Revolution which was the basis of a proliferation of China’s political policies that entailed the internal party struggles to uphold the social regimes and policies of the party, (Morrison 4).
Noted political figures in the 1970s include the Gang of Four that were against the government socialist policy and economic reform, the political uncertainty and turmoil resulted in an economic downturn during the period examined.After the fall of this group, economic policy that focused on the modernization and increased investment in the industrial and agricultural sector resulted in a recovery for China in the late 1970s, (Morrison 5).
Economic reform in the 1980s included socialism with some elements of capitalism that minimized the control of the government and focused on some market activities.This market-mechanism framework also created tension within the political arena that questioned the role of communism in a market driven economy.
The reform process was the beginning of using economic policies within popular within the market economy to gain stability in China.At the center of economic policy in the 1980s was to expand exports so that China could enter the international trade regime and market, (Morrison 7).This resulted in high growth rates, reduction in poverty, and less income inequality in China. By the mid 1980s, international trading activities was a major component of Gross Domestic Product with China loosening barriers to trade and encouraging foreign investment in the region, (Morrison 8).
WTO accession and policy adjustments
China joined the WTO on November 11, 2001; it became the 143rd member of the WTO. The WTO’s main mandate is to oversee the rules of trade between countries and to promote free trade.It has the sole power to oversee all negotiations and disputes that either directly or indirectly affect the auspices of free trade. The WTO is considered the ‘guard dog’ of liberalization and usually resolves trade disputes through negotiation.
China has made many efforts to encompass aspects of liberalization so as to encourage WTO accession. China’s acceptance into the WTO is dependent on adhering to rules that promote free trade in the region. This liberalization mandate is important to since the China wants to be integrated within the international economy. Almost 80% of Chinese population work in the rural area, so the agricultural sector becomes the very important aspect in the whole economy after WTO accession.
According to Chen, Entry into the WTO has brought unprecedented opportunities and challenges, propelling agricultural development in China into a new phase. The resultant changes affect the pattern and characteristics of China’s agricultural trade. The shifts in the patterns of trade in agricultural industries will require Chinese agricultural policy to undergo further adjustment and reform to honor its commitments on WTO.
After entry into the WTO, the trade pattern of Chinese agriculture has been changed dramatically compare with the previous years. From 2001 to 2005, the share of the agricultural trade in the total trade decreased compare with 1990s. From Chen’s statistical investigation, after accession into WTO, the importance of agricultural trade in China’s total trade has been declining. The share of agricultural trade in China’s total trade declined from 5.8% in 2001 to 4% in 2005. The share of agricultural export in China’s total export declined even more rapidly from 7% in 2001 to 3.5% in 2005. The share of agricultural import in China’s total import declined marginally from 4.8% in 2001 to 4.5% in 2005. (Chen 3). Chen also investigates the trade patterns of agricultural export and import after WTO accession.From 2002 to 2005, the annual growth rate of agricultural import was 31.5%, while that of agricultural export was 11.6%.As a result, in 2004 and 2005, agricultural import exceeded agricultural export and China has had two consecutive years of agricultural trade deficit since the 1990s. (Chen 5)
The above analysis is based on the relative value and percentage measures about the agricultural share in the whole international trade. In the absolute value, Chinese agriculture trade increased dramatically after WTO accession.In terms of the absolute value, China’s agricultural trade has increased dramatically during 2002-05. After the entry into the WTO, the value of China’s agricultural trade increased dramatically up to US$50.44 billion in 2005, an increase of 90% than that of 2001. (Chen 7)？
According to the theory of comparative advantage in international trade, China used to have more comparative advantage in labour intensive agricultural products due to the abundant and cheaper rural population. After accession into the WTO, these characteristics of agricultural sector have been changed. These changes affect the trade pattern of Chinese agricultural sector. Chen points out that after China’s entry into the WTO, the comparative advantage of China’s agricultural sector has been declining in general, and the comparative advantage of China’s farming sector has been declining in particular. The comparative advantage of horticultural product and animal products declined rapidly after the entry into the WTO. (Chen 8).
Behind these facts about China’s agricultural trade pattern and development after WTO accession, one might think about the reasons that have caused these changes. These results are mainly due to the economic reform and infrastructure adjustments in China after WTO accession. Chen points out that the growth of manufacturing and services sectors have been much faster than the growth of agricultural sector. Consequently, the share of agricultural sector in China’s economy has been declining. China’s remarkable industrial growth played a large part in driving up agricultural imports. In particular, growing textile production is generating demand for cotton and wool that is beyond China’s production capacity. After the establishment of the WTO and the implementation of the Uruguay Round Agreement on Agriculture (URAA), with tariff and non-tariff barriers greatly reduced, liberalization of trade in agriculture has sufficiently advanced. (Chen 11-12)
With the impacts of WTO accession on agriculture pattern and in view of its commitments to WTO, the Chinese government has adjusted its agricultural policies. Facing WTO regulations and the competition of the international market for agricultural products, China has to accelerate the structural adjustments in agriculture sector. In order to increase the competitiveness of agricultural products in the world market, China has made some great efforts in its agricultural infrastructures. Bingseng Ke argued that China committed to eliminate direct export subsidy on any products and formalize the tax system in agriculture industry. The regional planning for the Ministry of Agriculture carried out different products based on comparative advantages, which helped improve product quality and enhance competitiveness of China’s agricultural sector. China also revised the market access conditions for agricultural services, which ensured the consistency with WTO requirement.
Liberalization of agriculture industry in China
China’s current policy has been the transformation of the economy from a centrally planned structure to a more market oriented economy. This reform/transformation has lifted China’s population from poverty to one of prosperity and increased growth, (Morrison 9).Economic growth has been driven via international trade.
The calculated or discussed gains from the liberation of the agriculture industry in China has had mixed reviews; however Yuan shows that the Chinese agriculture industry was already near a state of prefect competition before foreign products entered the financial market, (Yuan 519).Yuan argues that the idea of evaluating the liberalization of the agriculture industry in China cannot be focused on competition from foreign products since it has been empirically proven that the agriculture sector in China is very competitive.The authors use a ？rigid statistical technique to analyze the degree of competition in the Chinese agriculture industry before its affiliation with the WTO and found that before the 2001 affiliation the agriculture sector had a very high degree of competition, and was even perfectly competitive among small-scale banks, (Yuan 533). Hence the promotion of competition via the policies outlined would not have been successful since the industry was already competitive by international standards.
The liberalization of the agriculture industry has been somewhat stalled due to “state-owned enterprises, perceived excessive competition in China’s economy, mergers and acquisitions by foreign companies, the treatment of administrative monopolies, and the enforcement of antitrust law, (Owen et al 1).Due to China’s unique economic structure, the success of the liberalization policies has been dampened in wake of the fact that institutional and structural frameworks have not been extensive, and a generic liberalization policy reform will not transform the agriculture industry, since China requires policies and procedures that are specific to their agriculture sector.
Yao also measured the success of the liberalization process; he used a stochastic frontier production function and found that the Chinese agriculture sector could gain from liberalization. Similarly, harder budgets will minimize inefficiency in the agriculture industry, (Yao 629).Liberalization has faced limited success in the Chinese agriculture industry, since local sector agriculture has been transitioning promptly.Yao posits that with the structural framework and institutional challenges then the liberalization of the agriculture industry in China may take a long time to be at an efficient level, (Yao et al 641). In order to properly assess the how liberalization is affecting the Chinese economy and agricultural sector, it is essential that there be monitoring and control of key domestic factors and regulations. They are critical to the overall sustainability of the agricultural industry in China
Conclusion
China is a very clear model to explore some of the noted economic paradigms surrounding economic trade and globalization. The entry into the WTO has boosted China’s agricultural trade, especially in agricultural imports. WTO accession also has important impacts on Chinese agricultural trade pattern and characteristics. China has made some adjustments and reforms on agricultural polices to honor its commitments to WTO. There still some great challenges for Chinese agricultural policy, institutions and industries. These will accelerate the agricultural policy adjustments and reform in the future development.
Appendices
Share of China's Agricultural Trade in Total Trade
Sources: Data from 1992 to 2004 are from the United Nations Statistics Division, Commodity Trade Statistics Database, and COMTRADE. Data for 2005 are from China Customs Statistical Monthly Report.
China’s revealed comparative advantage indices of agricultural products by factor intensity of production
Sources: Chen chunlai’s calculation. Data from 1992 to 2004 are from the United Nations Statistics Division, Commodity Trade Statistics Database, and COMTRADE. Data for 2005 are from China Customs
Bibliographies:
[1] Chen Chun lai, “China’s agricultural trade after WTO accession” Crawford school of economics and government, the Australian National University, 13 July, 2006.
[2] Deng, Yong and Moore, Thomas. “China Views Globalization:Towardsa New Great Power Politics?” The Washington Quarterly, Summer 2004.
[3] Ke, Bingsheng, Wan, Guanghua and Wu, Laping, “China’s agriculturlafter WTO accession, Policy adjustment, trade development and market integration” Research centre for rural economy, Ministry of Agriculture, China 02/09/2003.
[4] Morrison, Wayne. “China’s Economic Conditions”. Congressional Research Service:Foreign Affairs, Defence, and Trade Division, January 12, 2006.
[5] Ravenhill, John, Global Political Economy. United States:Oxford University Press, 2005.
[Key words] Trade liberalization Trade pattern Comparative advantage
Introduction
The paper below presents a thorough analysis of Chinese agricultural economic development. The paper provides a historical context for the analysis by focusing on China’s agricultural economic structure fifty years ago. This development is to highlight the transition of the agricultural economy from a socialist regime to a market-oriented economy with a political structure that still supports state-ownership. The analysis mainly presents impacts and perspectives of WTO accession on China’s agricultural trade patterns, characteristics, and the policy adjustments for Chinese government. The analysis also presents the perspectives on liberalization of Chinese agriculture industry with respect to the accession into the WTO.
Background on Chinese agricultural economy
Before 1957, China embarked on an economic model that was based on the economic and political principles of socialism, most notably state ownership of the factors of production and industrial development driven by the agricultural sector and increased industrialization that was aided by the Soviet Union, (Morrison 9).Under this plan, China faced increased growth and even had an expansion in national income in 1957.
However, after 1957 there was a growing divide between the industrial and agricultural sector in China, economic and political power was dispersed at the local government level rather than the centralized political decision-making model that was being practiced before.The new plan between 1958 and 1960 was labelled the Great Leap Forward and the underlying principle was to transform the agricultural sector into an expansive industrialized economy with investments in capital goods and services that would transform the primary production sector, (Wong and Wong 22).The idea was to gain economic control by using land or agriculture as the control mechanism for production and consumption, which would translate to economic independence – this was typical of many socialist economic policies. The plan had a fleeting success and was later the pivotal point of an economic crisis as the agricultural sector faced a slumped, the social conditions in China deteriorated, and the economic crisis was exacerbated by the withdrawal of the Soviet Union’s support in the 1960s. The economy went through a depression during this period with widespread famine and troughs in the business cycle, (Laurenson 2).
Between 1961 and 1966, the government focused on expanding the agricultural sector and using this sector to increase and grow the economy.The key aspects of the revitalization of the agricultural sector was decreased taxes in the sector, lowering the cost of inputs which increased supplies, and making agriculture more competitive relative to other sectors. The sector boomed during this period, which led to growth in China that surpassed past periods, (Morrison 8). Political upheavals in the mid 1960s characterized as the Cultural Revolution which was the basis of a proliferation of China’s political policies that entailed the internal party struggles to uphold the social regimes and policies of the party, (Morrison 4).
Noted political figures in the 1970s include the Gang of Four that were against the government socialist policy and economic reform, the political uncertainty and turmoil resulted in an economic downturn during the period examined.After the fall of this group, economic policy that focused on the modernization and increased investment in the industrial and agricultural sector resulted in a recovery for China in the late 1970s, (Morrison 5).
Economic reform in the 1980s included socialism with some elements of capitalism that minimized the control of the government and focused on some market activities.This market-mechanism framework also created tension within the political arena that questioned the role of communism in a market driven economy.
The reform process was the beginning of using economic policies within popular within the market economy to gain stability in China.At the center of economic policy in the 1980s was to expand exports so that China could enter the international trade regime and market, (Morrison 7).This resulted in high growth rates, reduction in poverty, and less income inequality in China. By the mid 1980s, international trading activities was a major component of Gross Domestic Product with China loosening barriers to trade and encouraging foreign investment in the region, (Morrison 8).
WTO accession and policy adjustments
China joined the WTO on November 11, 2001; it became the 143rd member of the WTO. The WTO’s main mandate is to oversee the rules of trade between countries and to promote free trade.It has the sole power to oversee all negotiations and disputes that either directly or indirectly affect the auspices of free trade. The WTO is considered the ‘guard dog’ of liberalization and usually resolves trade disputes through negotiation.
China has made many efforts to encompass aspects of liberalization so as to encourage WTO accession. China’s acceptance into the WTO is dependent on adhering to rules that promote free trade in the region. This liberalization mandate is important to since the China wants to be integrated within the international economy. Almost 80% of Chinese population work in the rural area, so the agricultural sector becomes the very important aspect in the whole economy after WTO accession.
According to Chen, Entry into the WTO has brought unprecedented opportunities and challenges, propelling agricultural development in China into a new phase. The resultant changes affect the pattern and characteristics of China’s agricultural trade. The shifts in the patterns of trade in agricultural industries will require Chinese agricultural policy to undergo further adjustment and reform to honor its commitments on WTO.
After entry into the WTO, the trade pattern of Chinese agriculture has been changed dramatically compare with the previous years. From 2001 to 2005, the share of the agricultural trade in the total trade decreased compare with 1990s. From Chen’s statistical investigation, after accession into WTO, the importance of agricultural trade in China’s total trade has been declining. The share of agricultural trade in China’s total trade declined from 5.8% in 2001 to 4% in 2005. The share of agricultural export in China’s total export declined even more rapidly from 7% in 2001 to 3.5% in 2005. The share of agricultural import in China’s total import declined marginally from 4.8% in 2001 to 4.5% in 2005. (Chen 3). Chen also investigates the trade patterns of agricultural export and import after WTO accession.From 2002 to 2005, the annual growth rate of agricultural import was 31.5%, while that of agricultural export was 11.6%.As a result, in 2004 and 2005, agricultural import exceeded agricultural export and China has had two consecutive years of agricultural trade deficit since the 1990s. (Chen 5)
The above analysis is based on the relative value and percentage measures about the agricultural share in the whole international trade. In the absolute value, Chinese agriculture trade increased dramatically after WTO accession.In terms of the absolute value, China’s agricultural trade has increased dramatically during 2002-05. After the entry into the WTO, the value of China’s agricultural trade increased dramatically up to US$50.44 billion in 2005, an increase of 90% than that of 2001. (Chen 7)？
According to the theory of comparative advantage in international trade, China used to have more comparative advantage in labour intensive agricultural products due to the abundant and cheaper rural population. After accession into the WTO, these characteristics of agricultural sector have been changed. These changes affect the trade pattern of Chinese agricultural sector. Chen points out that after China’s entry into the WTO, the comparative advantage of China’s agricultural sector has been declining in general, and the comparative advantage of China’s farming sector has been declining in particular. The comparative advantage of horticultural product and animal products declined rapidly after the entry into the WTO. (Chen 8).
Behind these facts about China’s agricultural trade pattern and development after WTO accession, one might think about the reasons that have caused these changes. These results are mainly due to the economic reform and infrastructure adjustments in China after WTO accession. Chen points out that the growth of manufacturing and services sectors have been much faster than the growth of agricultural sector. Consequently, the share of agricultural sector in China’s economy has been declining. China’s remarkable industrial growth played a large part in driving up agricultural imports. In particular, growing textile production is generating demand for cotton and wool that is beyond China’s production capacity. After the establishment of the WTO and the implementation of the Uruguay Round Agreement on Agriculture (URAA), with tariff and non-tariff barriers greatly reduced, liberalization of trade in agriculture has sufficiently advanced. (Chen 11-12)
With the impacts of WTO accession on agriculture pattern and in view of its commitments to WTO, the Chinese government has adjusted its agricultural policies. Facing WTO regulations and the competition of the international market for agricultural products, China has to accelerate the structural adjustments in agriculture sector. In order to increase the competitiveness of agricultural products in the world market, China has made some great efforts in its agricultural infrastructures. Bingseng Ke argued that China committed to eliminate direct export subsidy on any products and formalize the tax system in agriculture industry. The regional planning for the Ministry of Agriculture carried out different products based on comparative advantages, which helped improve product quality and enhance competitiveness of China’s agricultural sector. China also revised the market access conditions for agricultural services, which ensured the consistency with WTO requirement.
Liberalization of agriculture industry in China
China’s current policy has been the transformation of the economy from a centrally planned structure to a more market oriented economy. This reform/transformation has lifted China’s population from poverty to one of prosperity and increased growth, (Morrison 9).Economic growth has been driven via international trade.
The calculated or discussed gains from the liberation of the agriculture industry in China has had mixed reviews; however Yuan shows that the Chinese agriculture industry was already near a state of prefect competition before foreign products entered the financial market, (Yuan 519).Yuan argues that the idea of evaluating the liberalization of the agriculture industry in China cannot be focused on competition from foreign products since it has been empirically proven that the agriculture sector in China is very competitive.The authors use a ？rigid statistical technique to analyze the degree of competition in the Chinese agriculture industry before its affiliation with the WTO and found that before the 2001 affiliation the agriculture sector had a very high degree of competition, and was even perfectly competitive among small-scale banks, (Yuan 533). Hence the promotion of competition via the policies outlined would not have been successful since the industry was already competitive by international standards.
The liberalization of the agriculture industry has been somewhat stalled due to “state-owned enterprises, perceived excessive competition in China’s economy, mergers and acquisitions by foreign companies, the treatment of administrative monopolies, and the enforcement of antitrust law, (Owen et al 1).Due to China’s unique economic structure, the success of the liberalization policies has been dampened in wake of the fact that institutional and structural frameworks have not been extensive, and a generic liberalization policy reform will not transform the agriculture industry, since China requires policies and procedures that are specific to their agriculture sector.
Yao also measured the success of the liberalization process; he used a stochastic frontier production function and found that the Chinese agriculture sector could gain from liberalization. Similarly, harder budgets will minimize inefficiency in the agriculture industry, (Yao 629).Liberalization has faced limited success in the Chinese agriculture industry, since local sector agriculture has been transitioning promptly.Yao posits that with the structural framework and institutional challenges then the liberalization of the agriculture industry in China may take a long time to be at an efficient level, (Yao et al 641). In order to properly assess the how liberalization is affecting the Chinese economy and agricultural sector, it is essential that there be monitoring and control of key domestic factors and regulations. They are critical to the overall sustainability of the agricultural industry in China
Conclusion
China is a very clear model to explore some of the noted economic paradigms surrounding economic trade and globalization. The entry into the WTO has boosted China’s agricultural trade, especially in agricultural imports. WTO accession also has important impacts on Chinese agricultural trade pattern and characteristics. China has made some adjustments and reforms on agricultural polices to honor its commitments to WTO. There still some great challenges for Chinese agricultural policy, institutions and industries. These will accelerate the agricultural policy adjustments and reform in the future development.
Appendices
Share of China's Agricultural Trade in Total Trade
Sources: Data from 1992 to 2004 are from the United Nations Statistics Division, Commodity Trade Statistics Database, and COMTRADE. Data for 2005 are from China Customs Statistical Monthly Report.
China’s revealed comparative advantage indices of agricultural products by factor intensity of production
Sources: Chen chunlai’s calculation. Data from 1992 to 2004 are from the United Nations Statistics Division, Commodity Trade Statistics Database, and COMTRADE. Data for 2005 are from China Customs
Bibliographies:
[1] Chen Chun lai, “China’s agricultural trade after WTO accession” Crawford school of economics and government, the Australian National University, 13 July, 2006.
[2] Deng, Yong and Moore, Thomas. “China Views Globalization:Towardsa New Great Power Politics?” The Washington Quarterly, Summer 2004.
[3] Ke, Bingsheng, Wan, Guanghua and Wu, Laping, “China’s agriculturlafter WTO accession, Policy adjustment, trade development and market integration” Research centre for rural economy, Ministry of Agriculture, China 02/09/2003.
[4] Morrison, Wayne. “China’s Economic Conditions”. Congressional Research Service:Foreign Affairs, Defence, and Trade Division, January 12, 2006.
[5] Ravenhill, John, Global Political Economy. United States:Oxford University Press, 2005.