Agricultural Policy Monitoring and Evaluation 2018

Chapter 7. China

Support to agriculture

After two decades of gradual growth, the level of support to agricultural producers in the People’s Republic of China (hereafter “China”) has stabilised in recent years with the share of support in gross farm receipts (%PSE) fluctuating in a range of 14-16% in 2015-17. This partly reflects recent policy reforms undertaken with respect to the market intervention systems for soybeans, rapeseed, cotton, and maize, as well as to the minimum support price system for wheat and rice. Another factor is the nominal depreciation of the CNY vis-à-vis USD since 2013 after a long period of gradual appreciation.

The Total Support Estimate (TSE) was 2.3% of GDP in 2015-17, thus about two times higher than the OECD average. Market Price Support (MPS) remains the dominant part of total support, but payments based on area planted have been consistently increasing since 2014. Within the General Services Support Estimate (GSSE), three categories attract the largest financial support: public stockholding, development and maintenance of infrastructure, and agricultural knowledge and innovation system.

Main policy changes

A major institutional reform was announced in early 2018, including a restructuring of both current Ministries of Agriculture and of Environmental Protection. In addition, a draft of the revised Rural Land Contracting Law issued in November 2017 plans to extend existing rural land contracts by 30 years upon expiration.

In 2017 and early 2018, China continued policy reforms to diminish the negative consequences of high domestic prices compared to those on international markets. In this sense, the minimum support prices were lowered for both 2017/18 wheat and rice crops. Following the completion of the three-year soybeans target price trial in 2017, this was replaced by “market-oriented soybeans price plus a direct subsidy to soybean farmers” based on area planted.

In order to address environmental concerns in congested areas and waterways across the South, East and Centre regions of China, additional “environmental control zones” – where livestock farming activities are prohibited – were delineated by provincial governments in 2017.

Assessment and recommendations

• Recent reforms to replace intervention prices for key crops by direct payments based on area planted are a step in the right direction of rebalancing the portfolio of agricultural support and reflect China’s policy orientation towards long-term productivity growth and sustainability. The most recent reform of the maize purchasing and storage system has had a direct impact on diminishing both feed costs for livestock producers and storage costs. Such reforms could be extended to gradually include rice and wheat. In the future, the link between direct payments and production decisions should also be loosened by providing them on a historical area basis, for instance, and ‘greened’ by making them conditional on environmentally friendly production practices.

• Public expenditure on general services has been increasing, but at a slower pace than support to individual producers. The cost of public stockholding still has the largest expenditure share in general services support, accounting for more than one-third in recent years. Further efforts are thus needed to restructure agricultural support from direct payments to farms towards public investment in R&D and infrastructure, thus ensuring that support through direct payments only has a transitory role in backing farmers’ adjustment to a new market environment.

• Recent reforms in land transfer rules have contributed to the emergence of “new-style” farms, including co-operative farms and farms run by agribusiness companies. The sector remains however dominated by small farms, thus further reducing the cost of transferring operational rights through transparent exchange platforms at the local level is key. For the reforms in land regulations to continue delivering expected outcomes, these need to be complemented by further investments in elements of the broader enabling environment for agriculture and rural development, such as education and training and financial services.

• Land and water are very scarce in China and environmental pressures linked to farming are looming large. To establish a solid framework for agri-environmental policies, China should further clarify reference levels for environmental quality as well as define environmental targets well adapted to local ecological conditions. In addition, the announced water price reform could be accelerated to cover water provision costs, in order to enhance the efficiency of water use.

• Several broad work plans have recently been put forward across institutions in view of strengthening policies addressing agricultural GHG emissions and supporting the sector’s adaptation to climate change. In this sense, the restructured Ministry of Ecological Environment could help mainstream adaptation policy objectives across current and planned programmes – including on better targeting extension services for farmers – as well as to provide a platform for institutional coordination.

Figure 7.1. China: Development of support to agriculture

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers (%PSE) has steadily increased since 1995-97. In 2015-17 support represented around 15.5% of gross farm receipts, slightly below the OECD average. The share of potentially most distorting support has increased over time due to government-led temporary purchase and storage policy for various key crops together with border protection (Figure 7.1). The level of support declined in 2017, mostly due to a fall of domestic prices vis-à-vis those on international markets; this fall is driven by reforms of the Chinese market intervention system and by the continued depreciation of the CNY vis-à-vis USD. Prices received by farmers were on average 13% higher than world prices in 2015-17 (Figure 7.2). MPS remains the dominant part of total support and is the main component of Single Commodity Transfers (SCT), but the role of payments based on output has been consistently growing since 2014, particularly for cotton, soybeans and maize. With the exception of eggs, producers are benefiting from high transfers accounting for between 12% and 52% of commodity receipts (Figure 7.3). Overall, SCT represent 76% of the total PSE. At 4.3% in 2015-17, expenditure for general services (GSSE) relative to agriculture value added was close to the OECD average. Total support to agriculture as a share of GDP has also increased over time and at 2.3% in 2015-17 is one of the highest among the countries covered.

Figure 7.2. China: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 7.3. China: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 7.1. China: Estimates of support to agriculture

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Contextual information

China has the world’s largest population (1.4 billion) and the second largest land area (9.4 million km²). It became the largest economy in the world since 2009, measured by the size of GDP, adjusted by PPP. However, China is a resource scarce country: while feeding almost 20% of the world’s population, it has only 7% of the world’s potable water and 10% of the world’s agricultural land. Arable land per capita is only 0.08 ha which is less than one-third of the OECD average. Similarly, freshwater resources per capita (at 2 061 m³) are less than one-tenth of the OECD average, resulting in severe competition between agriculture and other users of water resources.

China ranks first in worldwide farm production, producing in value terms almost one-third more than all OECD member countries combined. Agriculture still accounts for 28% of employment, but its 9% share in GDP indicates that labour productivity is significantly lower than the rest of the economy. Even if rural incomes are growing at high rates, they remain at around one-third of those in urban areas.

Crop production represents 65% of total agricultural output and its composition has changed significantly over the last decades, driven by the shift towards higher value-added agricultural products such as fruit and vegetables. It is mainly based on small and marginal family farms of less than one hectare on average, but large-scale production has been developing rapidly, in particular in north-eastern provinces. Livestock production originates mostly from larger-scale commercial units.

Table 7.2. China: Contextual indicators

	China		International comparison
	1995	2016*	1995	2016*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	2 252	19 710	8.2%	23.2%
Population (million)	1 211	1 382	42.3%	40.4%
Land area (thousand km2)	9 425	9 425	12.7%	12.5%
Agricultural area (AA) (thousand ha)	523 714	515 358	19.4%	19.2%
			All countries analysed1
Population density (inhabitants/km2)	132	149	38	45
GDP per capita (USD in PPPs)	1 860	14 338	9 650	24 866
Trade as % of GDP	19	16	10.2	14.3
Agriculture in the economy			All countries analysed1
Agriculture in GDP (%)	19.8	8.9	3.0	3.1
Agriculture share in employment (%)	52.2	27.8	-	-
Agro-food exports (% of total exports)	7.7	2.5	7.7	7.3
Agro-food imports (% of total imports)	8.7	6.6	7.8	6.7
Characteristics of the agricultural sector			All countries analysed1
Crop in total agricultural production (%)	64	65	-	-
Livestock in total agricultural production (%)	36	35	-	-
Share of arable land in AA (%)	23	21	30	30

Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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With real GDP growth averaging 6.8% in 2015-17, China entered into a lower, but likely more sustainable growth trajectory. Its overall macroeconomic environment remains stable, with an inflation rate of 1.7% and unemployment of 4.6% over the same period (Figure 7.4).

China has consistently been a net agro-food importer since 2003, but agro-food exports have picked up since 2011. China’s agro-food imports are dominated by primary and processed products for further processing by domestic industry; these represented 67% of total agro-food imports in 2016. In turn, processed and primary products for consumption are key export categories, accounting for 72% of total agro-food exports (Figure 7.5).

Figure 7.4. China: Main economic indicators, 1995 to 2017

Source: OECD statistical databases.

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Figure 7.5. China: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Agricultural output growth in China averaged 3.3% in 2005-14, about one-third above the world average (Figure 7.6). This has been driven by an important increase in total factor productivity at 3.5% per year, more than twice the global average. TFP trends can be largely attributed to farm consolidation and increased mechanisation of production.

However, the rapid and sustained growth in agricultural output has been exerting mounting pressures on natural resources, including land and water. Agriculture remains the key user of water, accounting for 62% of total water consumption, well above the OECD average (Table 7.3). Water stress is twice as high as the OECD average.

Figure 7.6. China: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

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Table 7.3. China: Productivity and environmental indicators

	China		International comparison
	1991-2000	2005-2014	1991-2000	2005-2014
			World
TFP annual growth rate (%)	4.25%	3.48%	1.60%	1.63%
			OECD average
Environmental indicators	1995	2016*	1995	2016*
Nitrogen balance, kg/ha	..	..	33	30
Phosphorus balance, kg/ha	..	..	3.7	2.4
Agriculture share of total energy use (%)	4.4	2.2	1.8	1.9
Agriculture share of GHG emissions (%)	15	..	8.5	8.5
Share of irrigated land in AA (%)	9.4	12.8	-	-
Share of agriculture in water abstractions (%)	70	62	45	43
Water stress indicator	19.4	21.3	10	10

Note: * or latest available year. EU treated as one.

Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Description of policy developments

Main policy instruments

The 2018 “Policy Document No. 1” consolidates several recent policy announcements aiming to address the “revitalisation of rural areas” – with the development of a competitive and sustainable agricultural sector playing a major role – while reiterating the importance of China’s self-reliance in staple grains (namely wheat and rice). Self-sufficiency for key grains has been an important driver behind China’s agricultural policies over the past two decades. However, the scope of grains covered has evolved since the mid-1990s.

Market price support is the main channel for providing support to Chinese farmers. It is provided through tariffs, tariff rate quotas (TRQ) and state trading, combined with minimum guaranteed prices for rice and wheat.

The minimum prices for wheat and rice are set every year by the National Development and Reform Commission (NDRC) in consultation with the Ministry of Agriculture (MOA) and other government institutions. Their application is limited geographically to major wheat and rice producing provinces. They differ for each type of grain, are announced before sowing season, and only apply for a fixed period limited to several months after the harvest. The central government obliges the state-owned China Grain Reserves Corporation (Sinograin) and other state-owned companies to undertake intervention purchases in case market price dips below the minimum price.

The government-led temporary purchase and storage policy at pre-determined prices – mostly intended to stabilise market prices and to ensure adequate supplies – was discontinued in 2014-15 for cotton, soybeans, and rapeseeds, and in 2016 for maize. It was replaced in 2014-15 by compensation payments covering the difference between pre-determined target prices and actual market prices, and with direct payments based on area planted for soybeans and maize since 2016-17.

Budgetary transfers to producers have increased consistently since the end of the 1990s. Most of them are provided through four key programmes: the “agricultural support and protection subsidy” - combining direct payments for grain producers, subsidy on agricultural inputs, and improved seed variety subsidy, all paid on per unit of land basis – as well as subsidies for purchases of agricultural machinery, land consolidation, and farmland irrigation construction. Subsidised agricultural insurance schemes have also grown in importance in recent years. The geographic coverage of payments destined to return farmland to forests and to exclude degraded grassland from grazing has been gradually extended, reflecting increasing environmental concerns.

Public stockholding of grains and programmes supporting the development of agricultural infrastructure – including irrigation and drainage facilities – represent the most important categories of general services. They are followed by programmes supporting agricultural knowledge and innovation.

In the Adjusted Scenario of the Outline of the National Overall Planning on Land Use 2006-20, issued in 2016, a “red line” on arable land was set at no less than 124.3 million hectares. The conversion of farmland for non-agricultural use is strictly controlled. With about 40% of land suffering from various forms of degradation, the Outline calls for the prevention of land degradation and for the treatment of affected land.

China ratified the Paris Agreement on Climate Change on 3 September 2016. Its Nationally-Determined Contribution (NDC) includes a commitment to peak CO2 emissions by 2030 at the latest, lower the carbon intensity of GDP by 60–65% below 2005 levels by 2030, increase the share of non-fossil energy carriers of the total primary energy supply to around 20% by that time, and increase its forest stock volume by 4.5 billion m³, compared to 2005 levels. While the NDC explicitly mentions agriculture, land-use change and forestry, among other sectors, no specific net-emission target has yet been set for the agricultural sector. The only specific quantitative target set for agriculture relates to achieving zero growth in fertiliser and pesticide utilisation by 2020. Other broad objectives concern controlling methane emissions from rice fields and nitrous oxide emissions from farmland, promoting comprehensive utilisation of straw or reutilisation of agricultural waste (UNFCCC, 2015; Climate Action Tracker, 2017).

The State Council released its 13^th Five-Year Work Plan to Control GHG Emissions in October 2016, looking to strengthen policies controlling for GHG emissions beyond CO2, such as methane and hydrofluorocarbons (HFCs). The plan includes mentions of reducing methane emissions in the agricultural sector and in municipal waste and sewage treatment (NDRC, 2017a).

Domestic policy developments in 2017-18

The 2018 Policy Document No. 1 calls for the continuation of supply-side structural reforms and on focusing domestic support for improving productivity and product quality, while deepening rural land reform, expanding access to rural financial products, and addressing environmental concerns. The timetable set for achieving the “revitalisation of rural areas” foresees eliminating rural poverty and substantially improving productivity and agricultural supply by 2020, providing equal access to basic public services in rural areas by 2035, and achieving a “full modernisation” of the agricultural sector by 2050. Local governments are specifically mandated to draw tailored implementation plans covering 2018-22 (State Council, 2018).

The 13^th National People’s Congress (NPC) pushed forward in March 2018 a major institutional restructuring, including in the areas of agriculture and environment.1 A new Ministry of Agriculture and Rural Affairs will combine the oversight of agriculture with rural development issues, taking on most of the responsibilities of the current MOA, which is to be dismantled. Additionally, it will be responsible for various issues formerly held by the NDRC, the Ministry of Finance, the Ministry of Land and Resources, and the Ministry of Water Resources. In addition, a new Ministry of Ecological Environment would replace the previous Ministry of Environmental Protection while also assuming responsibilities previously assigned to the NDRC, the Ministry of Water Resources, the MOA, and the Ministry of Land and Resources (Xinhuanet, 2018a).

As outlined in the 13^th Five-Year Plan for Agriculture 2016-20 and reinforced by NDRC, the “improvement” of the minimum support price system for wheat and rice continues to be a priority, while “effectively protecting the interests of farmers”. In October 2017, the NDRC announced that the minimum price for wheat would be lowered from CNY 2 360 (USD 355) to CNY 2 300 (USD 340) per tonne. This is the first revision for wheat since the minimum support price system was introduced in 2004 (NRDC, 2017a, 2018; SAG, 2017; GAIN-CH18003, 2018).

Following the 17 February 2017 reductions announced by NDRC in the minimum purchase prices for rice from the 2017/18 crop, on 9 February 2018 minimum purchase prices were further cut by 7-13%: from CNY 2 600 (USD 391) to CNY 2 400 (USD 381) per tonne for early season indica rice; from CNY 2 720 (USD 409) to CNY 2 520 (USD 399) per tonne for mid-to-late season rice; and from CNY 3 000 (USD 452) to CNY 2 600 (USD 412) per tonne for japonica rice (NDRC, 2017b; AMIS Market Monitor, 2018).

The end of the minimum price support policy for maize in 2016 was followed by the implementation of direct payments to farmers in the major maize producing Northeast provinces (Heilongjiang, Jilin, Liaoning) and Inner Mongolia. Funds were disbursed in two batches to each of the four provinces where the programme operates, with the amount of subsidy per mu (1 mu = 1/15 ha) being calculated by each local government. The provinces then allocated funds to municipalities and counties based on the data submitted by farmers on areas planted. Preliminary information suggests that payments ranged in 2017 from CNY 134/mu (USD 317/ha) in Heilongjiang, CNY 150/mu (USD 355/ha) in Liaoning, CNY 160/mu (USD 379/ha) in Jilin to CNY 202/mu (USD 478/ha) in Inner Mongolia. In Heilongjiang, the payments for maize were reduced from CNY 154/mu (USD 365/ha) in 2016/17, as payments for soybean were increased to encourage crop conversion (CNNCLM, 2017; Reuters, 2017).

The government has also facilitated the liquidation of maize temporary reserve stocks through various processor support programmes. In early 2017, Northeast provinces provided between CNY 100-300 (USD 15-45) per tonne to processors for purchasing maize from reserve stocks before April 30 and process it by 30 June 2017 for starch, ethanol, and other maize milling by-products. On 9 January 2018, Sinograin started auctioning its inventories (GAIN-CH18003, 2018).

With the same objective of reducing excessive maize stocks, the NDRC, the National Energy Administration, the Ministry of Finance (MOF) and 12 other ministries made a joint announcement on 13 September 2017 on the “Implementation Plan for the Expansion of Ethanol Production and Promotion for Transportation Fuel”. According to the plan, China targets a national blending mandate of 10% ethanol (E10) in transportation fuel by 2020; by 2025, the plan calls for an ambitious shift from conventional renewable fuel production to commercial-scale cellulosic fuel production. China’s major cities and provinces have started moving towards compliance with the mandate. For instance, China’s State Development & Investment Corporation (SDIC) has initiated the construction of seven ethanol plants that would start operating in 2018, with two in Liaoning province expected to consume between 14 million and 18 million tonnes of maize per year (State Council, 2017b; CH-GAIN17050, 2017).

While preliminary data suggest that costs of public stockholding of grains continued to decline in 2017, they still remain large and accounted for about 14% of total budgetary support for agriculture. The reduction in costs appears to be strongly linked to the decrease in maize stocks, as according to USDA estimates these are projected to drop by around 20% in 2016-18 (GAIN-CH18003, 2018).

The State Council issued a circular in September 2017 calling for a faster development of the grain industry, as part of the ongoing supply-side structural reform. The circular encourages grain companies to integrate supply and distribution channels throughout production, purchases, storage, and sales by 2020 (State Council, 2017). Northeast China provinces are expected to complete 22 additional maize processing facilities by that date, supporting these objectives (GAIN-CH18003, 2018).

In October 2017, the MOF and the State Administration of Grain announced a new programme focused on supporting the production of “high quality grains”, for which CNY 5 billion (USD 756 million) will be allocated across different components facilitating the development of post-harvest handling, distribution, and marketing networks (GAIN-CH18003, 2018).

In March 2017, the government announced that with the completion of the three-year soybeans target price trial, this would be replaced by “market-oriented soybeans price plus a direct subsidy to soybean farmers” starting with the 2017/18 crop. According to 2017 preliminary information, the payments are paid by area cultivated and ranged between CNY 166/mu (USD 376/ha) in Jilin, CNY 173/mu (USD 394/ha) in Heilongjiang, and CNY 207/mu (USD 470/ha) in Liaoning. In addition, pilot cropland rotation programmes are continued in Liaoning, Jilin, Heilongjiang and Inner Mongolia, with direct payments of CNY 150/mu (USD 346/ha) being provided to farmers for planting soybeans instead of grains. 670 000 ha are estimated to be covered by the programme in the four provinces (GAIN-CH17055, 2018; GAIN-CH18003, 2018).

As the initial three-year pilot programme for the cotton target price system was finalised in Xinjiang, on 17 March 2017 the NDRC confirmed it would “deepen” the reform by: maintaining the target price at CNY 18 600 (USD 2 799) per tonne until 2020; setting it once every three marketing years instead of annually; and setting an upper limit on the amount of subsidy a single recipient may receive (NDRC, 2017c). At the same time, the 85% limit of the average certified national cotton production from 2012-14 to be applied as volumes eligible for compensatory payments in Xinjiang appears to remain theoretical at this moment, since actual volumes produced in the province are much lower.

Another key goal of the 13^th Five-Year Plan 2016-20 relates to addressing environmental concerns in congested areas and waterways across the South, East and Centre of China by relocating pig farms to the Northeast or West. In this sense, more than 20 provincial governments set up Development Control Areas (DCAs) in 2016-17 within their respective provinces, delineating the “environmental control zones” (or “forbidden zones”) where pig farming operations are prohibited. Preliminary information suggests that by July 2017, such operations conducted in DCAs across 10 provinces led to an overall 20 million heads of pig inventory reduction (GAIN-CH17005, 2017).

The relocation of pig farms to the Northeast is also supported by the MOA guidelines for “Accelerating the Development of Modern Animal Husbandry in the Main Grain Producing Areas of North-eastern China” issued in August 2017. The establishment of livestock farming in Northeast provinces has provided access to maize from reserve stocks and thus reduced feed costs (GAIN-CH17050, 2017).

The designation of “forbidden zones” is also impacting cattle and poultry farms, although to a lesser extent than pig farms. In all three sectors however, the enforcement of the environmental regulations and farm relocation are pushing towards a consolidation of small- and medium-farms into larger operations which have increased access to capital to invest in environmental control systems and compliance with new regulations (GAIN-CH17005, 2017; GAIN-CH17053, 2017; GAIN-CH17040, 2017).

The Environmental Protection Tax (EPT) Law took effect on 1 January 2018. The Law had been promulgated by the NPC in December 2016, replacing the previous Pollutant Discharge Fees (PDF). The EPT Law provides guidelines for levying taxes on entities that emit air and water pollutants, solid wastes, as well as noise pollution. Local governments decide the tax rates to be levied, within a range defined by the central government. The tax will apply to farms with more than 50 cows, 500 pigs or 5 000 birds, but it exempts small-scale farms and leaves margins for farmers to reduce their tax bill where pollutant concentration is kept below 50% of emission standards set by local governments (China Business Review, 2017).

The central government foresees to further relax land transfer rules to promote more efficient, larger-scale farms. In November 2017, a draft of the revised Rural Land Contracting Law was submitted to the Standing Committee of the NPC, planning to extend existing rural land contracts by 30 years upon expiration. The draft revision further separates the use right into “contract right” and “management right”, allowing farmers to retain contract right over their allowed land, and only transfer the management right if they choose to lease the land to others, mortgage it to banks or invest it in a co-operative in exchange for shares (MOA, 2017a; China Daily, 2017).

The State Council released on 10 April 2017 the “Guidance on Establishing Functional Regions for Grains and Protected Areas for Major Crops”, which designates 60 million ha of cultivated land as “functional regions” devoted to three grains (wheat, rice and maize) and 15.9 million ha as “protected regions” for five other key crops (soybeans, cotton, rapeseed, sugar, and natural rubber). Both “functional” and “protected” regions will be targeted for strict controls of land use, investments in infrastructure, subsidy programmes, and new types of farm operations. Provinces are expected to delineate the plots of land to be included in the “functional” and “protected” regions by 2020 (State Council, 2017c; MOA, 2017b).

Reflecting increasing environmental concerns, the General Office of the Communist Party of China Central Committee and the General Office of the State Council released on 30 September 2017 joint guidelines on “Green Development in Agriculture”, setting goals for resource conservation and environmental protection. The document reinforces the target of zero growth in the amount of chemical fertilisers and pesticides used in major crops by 2020, while excessive exploitation of groundwater is to be prevented and the efficiency of irrigation to be improved (MOA, 2017c).

With the objective of reducing GHG emissions from agriculture, the MOA continued advancing in 2016-17 plans for rural biogas transformation by releasing the “Circular on Announcing the Plan of Investment within the Central Budget for Large-scale Biogas Projects”. Several action plans have been initiated concerning adaptation, with clearer policy measures foreseen to unfold in 2018. For instance, the Ministry of Water Resources (MWR), in conjunction with NDRC and other relevant ministries, completed an assessment of water management systems and issued the “National Action Plan for Water Conservation”, covering water-saving in agricultural production. At the same time, the MOA supported pilot programmes for large-scale water-saving irrigation, dry farming techniques and integrated demonstration of conservation tillage (NDRC, 2017b).

In December 2017, China launched a national emission trading scheme (ETS) to meet its commitments as part of the Paris Agreement on Climate Change. The national cap-and-trade scheme will see high emitting companies buy and sell emissions credits below a defined, gradually declining limit. The initial phase exclusively applies to power generation, with around 1 700 companies included and covering a total of over 3 billion metric tonnes of carbon emissions (accounting for 37% of China’s total emissions). The programme is expected to be extended soon afterwards to other industries, including agricultural processors. However, there is no official timeline for the inclusion of other industries yet. At the local and provincial levels, depending on the air quality rating of the surrounding region, some industrial facilities, including feed millers, ethanol plants, and other processors, have already been compelled to lower capacity or shut down (Forbes, 2017; GAIN-CH18003, 2018).

Trade policy developments in 2017-18

On 12 December 2017, the State Council Duty Committee (SCDC) released the 2018 Tariff Adjustment Plan, listing changes in import tariff rates for selected commodities to be applied as of 1 January 2018. The 2018 Tariff Adjustment Plan also incorporates tariff revisions introduced in November 2017, which had already entered into force on 1 December 2017. Out of 187 tariff revisions, 33 refer to agro-food products. These include, among others, reductions for different tariff lines of processed cheese; infant formula and “special” infant milk powders; tree nuts; dried cranberries; or avocadoes.2 In addition, the 12 December 2017 notification also introduced changes to the out-of-quota import duties for broken rice, indica-varieties and other broken rice, which will be lowered from 65% to 10%, starting with 1 July 2018. Other TRQ in-quota and out-of-quota duties remain unchanged in 2018 (MOF, 2017a, 2017b; GAIN-CH 17064, 2017).

The MOF introduced on 1 December 2017 Value-Added Tax (VAT) reductions from 13% to 11% for imported grains and fodders which have been minimally processed as principal products. Imports of animal feeds, chemical fertilisers, pesticides, agricultural machinery, and agricultural plastic sheeting are also subject to an 11% VAT. Moreover, in June 2017, the NDRC and China’s Ministry of Commerce (MOFCOM) released the 2017 Foreign Investment Industrial Guidance Catalogue, which removed restrictions on foreign investment in the processing of oilseeds, sugar, rice, flour, and deep processing of maize (SAT, 2017; GAIN-CH18003, 2018).

In its final ruling of 11 January 2017, the MOFCOM confirmed that anti-dumping duties on imported distillers grains (DDGS) from the United States will range between 42.2% and 53.7% and countervailing duties between 11.2% and 12%. These rates will be in force for five years. A 13% VAT on DDGS imports continued to be initially applied on top of the countervailing and anti-dumping duties, but on 14 November 2017 China confirmed its removal effective from 20 December 2017 (MOFCOM, 2017a; GAIN-CH18003, 2018).

The MOFCOM introduced a safeguard measure on sugar imports in May 2017. For sugar imports within-quota, the tariff remains unchanged at 15%. For out-of-quota imports, the tariff was raised from 50% to 95%, effective from 22 May 2017 to 21 May 2018; this will then be 90% from 22 May 2018 to 21 May 2019, and then further lowered to 85% from 22 May 2019 to 21 May 2020. The tariff applies to raw sugar and sugar products under seven HS tariff lines. In addition to the higher out-of-quota tariff, importers are required to obtain an “automatic import registration certificate” from MOFCOM. The safeguard measure impacts major supplying countries (such as Brazil, Thailand, Australia and South Korea), while sugar imports from developing countries are exempted from this measure as long as the market share of any of these suppliers remains below 3% (MOFCOM, 2017b; GAIN-CH176029, 2017).

In May 2017, China lifted the import ban on United States beef, allowing access for chilled, frozen, bone-in, and boneless beef products, plus a broad scope of offal products. United States beef had been banned from the Chinese market since the discovery in December 2003 of Bovine spongiform encephalopathy (BSE) cases. All beef products exported from the United States to China must be produced at facilities participating in the Agricultural Marketing Service Export Verification Program for Bovine to China (GAIN-CH17053).

Moreover, in July 2017, China and the United States signed the agreement that allows United States rice exports to China. In this sense, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is to undertake an audit of U.S. export facilities, before exporting companies can register with it (GAIN-CH17050, 2017). In June 2017, China’s Certification and Accreditation Administration (CNCA) and the US Food and Drug Administration (FDA) also signed a Memorandum of Understanding, under which CNCA recognized the Agricultural Marketing Service of the US Department of Agriculture (USDA), and other entities, as approved third-party certification bodies for dairy and infant formula products (FDA, 2017).

The MOFCOM initiated an anti-dumping and countervailing investigation against sorghum imported from the United States (MOFCOM announcements No.12 and No.13 of 4 February 2018). The investigation on injury to the domestic industry will be carried out for the period from 1 January 2013 until 31 October 2017 and should be completed by 4 February 2019 (MOFCOM, 2018a, 2018b). In February 2018, the MOFCOM also reopened an anti-dumping investigation against potato starch imported from the European Union (EU), which was requested by the China Starch Industry Association and is expected to last until February 2019. During the investigation, the current anti-dumping duties will continue to be levied; these range from 12.6 to 56.7%, according to a 2013 MOFCOM ruling. In September 2017, the MOFCOM extended for five years the anti-subsidy duties on potato starch from the EU, which range from 7.5 to 12.4% (Xinhuanet, 2018b; MOFCOM, 2018c).

In January 2018, the State Council announced that foreign-owned investment entities will be able to directly market wheat, rice and maize in Free Trade Zones (FTZs) of grain-producing provinces including Guangdong, Fujian, Liaoning, Zhejiang, Henan, Hubei, Sichuan, and Shaanxi, as well as trading centres such as Shanghai, Tianjin Municipality, and Chongqing (GAIN-CH17050, 2018).

In September 2016, the United States initiated WTO dispute proceedings with China regarding its domestic support measures for agricultural producers of, among other crops, wheat, indica rice, japonica rice, and maize. The WTO Dispute Settlement Board (DSB) established a panel on 25 January 2017, which was composed on 24 June 2017. China confirmed to the DSB that it had accepted the requests of Australia, Canada, the European Union and Thailand to join the consultations. The panel has informed the DSB that it expects to issue a final report in the third quarter of 2018 (WTO, 2017). On 15 December 2016, the United States also requested consultations with China concerning the administration of its TRQs, including those for wheat, short- and medium- grain rice, long grain rice, and maize. In December 2016, Australia, the European Union, Canada and Thailand requested to join the consultations. The DSB established a panel on 22 September 2017, which was composed on 12 February 2018 (WTO, 2018).

Regional integration under the One Belt One Road (OBOR) initiative remained a priority for China in 2017. The “Vision and Action on Jointly Promoting Agricultural Co-operation on the Belt and Road”, issued by MOA in 2017, establishes agricultural trade and investment as key pillars of the OBOR (MOA, 2017d).

The China-Georgia Free Trade Agreement (FTA), signed on 13 May 2016, entered into force on 1 January 2018. The FTA eliminates tariffs on 93.9% of Chinese imports from Georgia, of which 90.9% will have zero tariffs applied immediately and the remaining 3% will gradually see tariffs lowered to zero within five years. This tariff schedule includes agro-food products such as wine, nuts, honey, beer, non-alcoholic beverages, jams, juices, vegetables, fruits, chocolate products, and tea exported from Georgia. Within the framework of the agreement, Georgia will also eliminate tariffs on 96.5% of China’s products immediately (MOFCOM, 2018c).

China and the Maldives signed a FTA on 7 November 2017, which will enter into force once domestic procedures for ratification are finalised; 96% of goods on both sides will benefit of zero tariffs. For instance, most of China’s industrial products and agricultural products such as flowers, plants and vegetables exported to Maldives will benefit from zero duties. China will eliminate tariffs on Maldives’ seafood exports (MOFCOM, 2017d).

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Notes

← 1.  The timeline for this institutional restructuring has not yet been officially confirmed.

← 2.  On 2 April 2018, additional tariffs of 15% or 25% were confirmed for 128 US products, including 105 agro-food products (covering, among others, fresh and dried fruit, tree nuts, pig meat and pig meat products), in response to the recent US 232 Trade Action on steel and aluminium (MOF, 2018).