China: Opportunity or Threat for Agriculture Producers?
In a recent question-and-answer session, a straightforward question concerning China garnered some deep thought. Is China an opportunity or a threat to the U.S. agriculture industry?
Let's look at the opportunity side first. China has had phenomenal economic growth in the last 30 years. In 1990, China represented 2% of the global gross domestic product (GDP). Today, this number is 16.8%! A number of their citizens have increased their household income and are demanding more protein in their diets, which is a positive for the U.S. agriculture export market. With China's agricultural productivity challenged by soil, water and natural resource limitations, there is potential for continued growth in the agricultural exports to China. Next, China's quest for world economic leadership could result in an economy driven more by consumption than production.
Moving to the threat side, China’s authoritarian capitalism economy and the Belt and Road Initiative, which receives very little press here in the U.S., could be major challenges. Currently, they have funded over $1 trillion in infrastructure loans and investments in 68 countries, many of which are U.S. agricultural competitors such as Brazil, Argentina and countries in eastern Europe.
Next, China's aggressive stance in joining trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) provides a strong footing with trade in the Asian region, which is only gaining economic strength. China's control of chip technology and supply chains for other technology and equipment is currently one of the biggest threats, not only to the United States, but to the global economy. Of course, their ability to build their military sector and possibly control major shipping lanes that are keys in the distribution of agriculture products cannot be discounted.
As with any major competitor, there are pluses and minuses to opportunities and threats that ebb and flow with geopolitical economic cycles. In my webinars and seminars, a world of chaos is often presented as a given variable. One piece of advice is do not bet your growth and expansion plans based solely on trade and access to supply chains coming from China. While they do represent market potential, that can quickly change from an opportunity to a threat.
Close attention needs to be paid to the Evergrande group, an embattled Chinese property developer. They are having financial difficulty which could ripple through the Chinese economy, especially since 29% of Chinese economic activity is real estate and 90% of Chinese households own homes.
Also, watch the vote of the RCEP (Regional Comprehensive Economic Partnership). As of now, it is highly unlikely that China will be accepted into the trade agreement because it requires all countries’ approval and some countries, like Australia, that have had recent trade disagreements with China, may vote no.
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