Dim Sums: Agricultural Markets in China

The biofuels industry is on a quixotic quest for a free lunch--to find raw materials that don't cost anything--switchgrass, jatropha, used vegetable oil, wind, etc. Most of these are years or decades away from practical use. But let’s consider cassava, also known as tapioca, a “nongrain” feedstock that has already been brought into production. In December 2007 China opened its first biofuel factory that uses a nongrain feedstock—cassava, also known as tapioca. Cassava is basically a weed that will grow anywhere. You just stick a piece of it in the ground and come back 8 months later to pull up its starchy root. It grows mostly in Guangxi Province and other parts of Southeast Asia where there is lots of rain, sunshine, and marginal soils. The idea is that biofuel can be produced from cassava without diverting grain away from food or feed users—that is, basically a “free” good. (If you skipped the first chapter of your economics textbook, the basic fact of scarcity is that ...

A very well-done article by David M. Dickson in the Washington Times, " China's Economic Bargaining Chip ," explains the economic co-dependency of the United States and Chinese economy. As I've attempted to explain elsewhere on this blog, the U.S. economy is addicted to consuming more than it produces and consequently to debt while the Chinese economy is compulsively producing more than it consumes. China sends the cash from its trade surplus back to the U.S. to invest in Treasury Bills--i.e. it is financing much of the growth in U.S. government debt. It turns out that China's financial wizards have lost a lot of dough investing in U.S. companies like Blacksone, Fannie Mae, and Freddie Mac just before their stock dropped like a rock. There was some discussion about this on my recent trip to China. Another interesting tidbit--the article notes that some Chinese citizens have noticed that China has been ploughing cash back into the U.S. economy, facilitating low int...

China has come a long way from the days of Marxism-Leninism. The Farmers Daily newspaper (the title used to be translated Peasants Daily in the old days) brings up the economic concept of “opportunity cost” in a July 16 article discussing declining profits from selling wheat, showing that Adam Smith may be more influential than Mao Zedong in today's Chinese economy. The journalist notes that fertilizer and diesel prices have raised wheat production costs about 80 yuan per mu (that turns out to be about $80 per acre at the present exchange rate). The government raised the minimum price for the recently-harvested wheat by about 0.05 yuan per jin. With a yield of 800 jin per mu, that works out to an increase of 40 yuan in revenue per mu, so profits are slimmed down, and farmers are wondering whether market conditions might push prices higher in coming months, making it advantageous to sell later. (By the way, wheat and rice are the only major crops that have minimum prices--most pri...

As I arrived in the city of Guangzhou for the first time in 8 years I was taken aback by the number of Africans on the street. Dozens of young African men were going about their business in the area around my hotel. They were clearly not students, diplomats, tourists or 5-star executives—the kind of foreigners one expects to see in China. I was also intrigued by the number of restaurants with Arabic signs around town. I went back to my hotel room and consulted Google to find out what these Africans were doing in Guangzhou. An English translation of an article from Guangzhou’s Southern Metropolitan Daily provided the answers. Over the past decade thousands of African and Middle Eastern merchants have been coming to China—mainly Guangzhou—to buy blue jeans and other budget-priced merchandise to ship back to their home countries, including Nigeria, Mali, Congo, Angola, Yemen, and Lebanon. By some counts there are at least 20,000 and perhaps 100,000 Africans in Guangzhou and the number ar...

According to a corn industry report from yumi.com.cn, the head of China’s grain bureau said that the government will not issue corn export quotas until they see how the fall harvest goes in September. He said, “If this year’s harvest is not bad we could export some corn, but we have to make sure we first meet the needs of domestic feed mills and starch manufacturers.” The report notes that imports and exports have a big influence on Chinese domestic grain prices. There is a big gap between China’s corn price and international price (China's price is lower) now so big imports are not going to happen. The report suggests that exporting corn could make domestic prices take off and strain the domestic supply-demand balance. The government has canceled the export tax rebate for corn since last December 20 and this year has added export taxes on corn and corn products of 5-10% and taken “reasonable control” of corn export quotas. At the same time the government strengthened its planning ...