China presents opportunity, poses threat
By Lance Jungmeyer
(Oct. 3) BEIJING — Napoleon famously called China a “sleeping giant,” wisely adding “… let him sleep! For when he wakes he will move the world.”
To the U.S. produce industry, the sleeping giant has begun to stir. Already the results are heavy. On just a couple of the items that matter to the U.S. — garlic and apple juice concentrate — the industries have fought mostly losing battles, despite winning the empty chalices of anti-dumping duties.
China produced 300 million metric tons of vegetables in 2002, by far the most of any nation, and 43% of world production. India, No. 2, had 70 million metric tons, according to China Briefing, a publication of China Strategic Ltd., a Beijing-based consultancy.
The U.S. produced 57.8 million metric tons that year, according to the U.S. Department of Agriculture.
China produced 70 million metric tons of fruit in 2002, compared to 50 million metric tons in India. U.S. production was 30.4 million metric tons last year, according to USDA. While astute businessmen in consumer goods industries wonder how to make sales to the nation’s 1.3 billion-plus people, most in the U.S. produce industry wonder how — and when — China might fundamentally alter the American marketplace.
Trade between the U.S. and China should change significantly over the next 15 years, said Bill Bryant, chairman of Bryant Christie Inc., Seattle.
“They’re not going to be able to continue to grow a huge amount of everything,” Bryant said.
“There will some areas of specialization, and in those areas they’ll be able to dominate. Some of that will come to the U.S., some will compete in Asian markets, where U.S. products also compete.”
For fresh vegetables, China’s markets include primarily Japan, South Korea, the U.S., Hong Kong and Indonesia.
A growing production subset is onions, shallots, garlic and leeks, which comprised $403 million in 2002. That’s 50% more than the previous year, according to China Briefing.
China exported $555 million in fruits (mostly apples and pears) and nuts in 2002, mostly to Japan, Russia, Malaysia, Hong Kong and Indonesia.
SEEDS OF A REVOLUTION
China began loosening its economic policies after Mao Zedong died in 1976, encouraging private investment by Chinese in agriculture and light industry. By the 1980s, China was wooing foreign investors in a range of industries.
Now, China has become a favorite place for foreigners to put their money, taking in $448 billion in foreign direct investment 2002. Combined with the $433 billion taken in by Hong Kong, greater China is now second only to the U.S. ($1.35 trillion) in terms of attracting foreign investment, according to figures released in August at the United Nations’ Conference on Trade and Development.
The jump is considerable for mainland China, which saw just $25 billion in such investment in 1990.
Even U.S. companies with a hand in China — after years of fruitless, money pit investing — are finding growth to be robust, according to the American Chamber of Commerce China.
Of more than 250 U.S. firms operating in China, 75% reported to be profitable. Revenue had increased substantially for 44% of the firms and profit margins were found to be higher in China for 42% than in other worldwide operations.
So it’s no wonder ever more investment flows China’s way.
With respect to fresh produce, much development has occurred in infrastructure and improved customs facilities, particularly in Shanghai and Qingdao.
Jining City is actively seeking foreign investment. While there is a vegetable canning business, the city would like to export more food to the U.S., including fresh produce, said She Chun Ming, vice director of development for the city.
“What is needed is technology for advanced storage and shipping,” Ming said.
The Jining City area calls itself the future “biotechnology valley” of China and has sponsored a 23-square-mile high technology development zone, where at least five biotech firms have set up shop to produce pharmaceuticals and other raw ingredients. Ming is confident he can lure fresh produce firms, too.
The mayor of Taian City, Zhu Ying Jia, seems intent on modernization of agriculture, despite the prevalence of abundant, cheap hand labor.“When China has modern machinery like the U.S., we will become very competitive, very good suppliers,” he said.
When asked how many years he thought it might take for such technology, however, he responded, “Maybe a very, very long time.”
Determined not to be shut out, Sunkist Growers Inc., Sherman Oaks, Calif., is exploring how it can participate in the market, said Mike Wootton, vice president of corporate affairs.
“The apple industry and vegetable industry have seen what China can do. We don’t see ourselves as immune to that,” Wootton said.
Growers in China — the first commercial producer of citrus, which was taken to Europe by Marco Polo in 1295 — are starting to look at global market trends, replacing mandarins with navels in Sichuan province and other major production areas.
“Their ability to deliver high quality, even in China, is limited,” Wootton said, describing oranges that make long treks to market in overloaded trucks lacking refrigeration. “Eventually, money and technology will improve the situation.”
In time, Wootton sees Sunkist involved in Chinese citrus.
“We would have to take a look at that and see how it would serve our grower members,” he said.
But with all the investment, even some in China itself are wondering if its economy may be burning too hot.
A Chinese state-run think tank suggests there is danger in “unreasonable” investments by local governments, if they continue. Local politicians, seeking to rise through the ranks quickly, often pump up economic growth rates by promoting private investment at great cost to the municipalities.
In many cases, brand new factories lay idle, waiting for a foreign investor to come along with some technology and cash.
And, despite its powerhouse stature so far in production, there are factors working against the future of Chinese agriculture.
A lot of younger rural folk want nothing to do with agriculture and are migrating en masse to the cities. But once new technology takes root, local ag leaders don’t think the labor flight will be a problem.
Also, there is mounting international pressure to let the Chinese yuan float freely among world currencies. It’s now pegged to the dollar, trading at 8.3 to 1 for years. Some say the yuan is undervalued by 40% and kept there by the central government, which wants the nation to remain a competitive exporter.
And China’s government poses some obstacles to trade, even if its moves are for the best over the long haul.
Exhaustive, detailed sampling of export-bound product — as much as 25% of cartons are sampled — is a requisite, said John Wang, president of Toronto-based Canada Garlic, which distributes in Canada for Taian Ziyang Food Co. Ltd., Taian City.
About a month ago, some dirt was found on garlic and exports from an entire growing area were shut down for two weeks.
“The government says ‘If you can’t ship clean product, we’ll ship none until the problem is solved,’” Wang said.
When the first containerload of Chinese apples to Canada arrived in December, it created a stir among Washington state apple growers, who continue to fight such imports to the U.S.
“It gave folks a sense that this issue is moving to the forefront,” said Tracy King, export director for the Washington Apple Commission, Wenatchee.
Since 2001, the apple industry has participated informally in the Tree Fruit Technical Advisory Council, a committee formed to ensure potential imports of deciduous tree fruits from nontraditional sources, such as China, pose no phytosanitary threat.
King, a former U.S. exporter who has visited China’s apple industry, said a pest risk assessment filed a decade ago by China, seeking entry to the U.S. for its apples, won’t remain on the shelf forever.
“In terms of the broader trade relationship with China, geopolitically and beyond, it’s inevitable the issue of apple imports will rise beyond the scientific level, to political. Clearly, China wants to send its apples here.”
But there are two sides to the story, King noted.
“Even though China looms large as a competitor, it’s also our fourth-largest overseas market for Washington apples,” he said. “There are clearly benefits to free trade, and we’ve been reaping the benefits.