Wednesday, February 25, 2009

The New Peasant Model Worker

China's officials are worried that tens of millions of migrant workers who lost their jobs in the economic slowdown are a potential cause of unrest. Since the economy started going south last fall, the government has been publicizing its efforts to encourage migrants to start their own businesses when they go back to their villages.

An article from the Chongqing Evening News celebrates a "million dollar girl" who went back to the country side to start a hog farm after her business went bust in the financial crisis. The journalist/cheerleader tells us, "The financial crisis is nothing to be afraid of; only be afraid of a 'dead heart.'"

The article seems to be a propaganda piece that hearkens back to the socialist "model worker" stories like the apochryphal Lei Feng. The story has a good dose of melodrama (vital to a Chinese story), is calculated to inspire, and assures folks down on their luck that the government is here to help them.

The petite 28-year-old Miss Jiang became a millionaire entrepreneur in the space of 2 years, but she lost it all overnight when the global economy soured last year.

After she graduated from a technical school in 2004, her dad gave her 30,000 yuan of his savings to invest in a clothing shop in the Yongchuan district of Chongqing, but business was not so good at first.

In 2006, her classmate told her about a relative who was a senior manager at a clothing factory in Guangdong who needed a subcontractor to do embroidery and sewing. Miss Jiang recognized a business opportunity--there were many older and middle-aged women in her area who could do needlework but couldn't move to other places to work in factories. She figured she could learn how to do the work and then teach the older ladies.

After half a year learning the necessary skills in a Guangdong factory, she came back to Yongchuan and started up an embroidery factory with several friends. With her high standards, the factory's orders grew, and soon she had over 50 employees. She went to a trade show in Fujian Province and picked up customers from Singapore, Malaysia, and Korea. She moved the factory to Sichuan Province, expanded to 500 employees and reached 5 million yuan in sales.

Miss Jiang had seemingly realized her dream--a millionaire at 26. But then the financial crisis struck. By the end of 2007 orders started shrinking. Orders from her biggest customer--a textile mill in Singapore--fell 90% and she learned they were bankrupt in March. She didn't get paid for some shipments. She lost her 1.5 million yuan credit line and all her foreign orders were canceled. Two months later, the company was bankrupt.

Miss Jiang only had 20,000 yuan left after paying of workers and debts. In despair, having seen her dream blow away, she went back to her home town and was ready to jump off a cliff when her parents stopped her (nice melodramatic touch here).

She was distraught, but her father reassured her, "Life is full of rough patches. The government is giving a lot of support to farmers now. You'll surely find a new door to walk through." He pointed out that the government is giving support to hog farmers by giving them free technical advice and compensating them when their sows die. Why not try hog farming?

Miss Jiang used her house and car as collateral for a bank loan for over 800,000 yuan and borrowed another 600,000 yuan from relatives to start a pig farm in her home village of Sunjiakou.

It took a lot of work visiting the commerce and tax bureau, the feed dealer, going carrying roof tiles, and keeping the books at night. After a month, she had a suntan and her weight was down to 40 kg. She got the pig farm up and running with her dad's help last June. To save money, she's both the boss and the employee. Before the Spring festival in January she sold 700 pigs, recovering costs of over 700,000 yuan.

Her partner and neighbor, Ms. Liu, said of Miss Jiang, "[She] went from upscale factory manager to wading in pig manure, but she didn't flinch. She jumped right up again after her fall."

Miss Jiang says there is no need to fear the financial crisis, only fear a lack of resolve. She says with confidence, "I was still young; I wiped away my tears and started over." Her farm now has 100 sows and over 200 piglets, and more piglets are expected next month. This year she expects to sell 1300 pigs, and profits are just around the corner.

Whether the story is true or not, it provides an interesting window on Chinese entrepreneurship and how the government uses old propaganda techniques to instill almost Reagan-like entrepreneurial optimism while simultaneously reminding peasants that government is their friend and enabler.

Monday, February 23, 2009

Soybean Support Problems

The weekly report on the soybean market from eastern Heilongjiang reveals that trade in domestic soybeans is slowing even more. The fall in international soybean prices and soft domestic demand pushed domestic prices down by about 0.02 yuan/500g to about 1.62-1.64 yuan/500g (3240-3280 yuan/mt) for farm sale prices. The sale price for processors or traders is 1.65-1.67 yuan/500g. The support price for government reserve purchases is 1.85-1.87 yuan. As market prices fall, the gap between the actual market price and the support price widens, and it becomes less attractive to buy at the support price.

So, it's not surprising that farmers are having trouble selling their beans. The report says that not many beans are being bought at the support price. Many of the designated purchasers don't have enough storage capacity--that may be true since usually no one holds large soybean reserves. It is said that some of the reserve beans will be shipped south where there is some excess storage capacity. It is also reported that farmers are not able to dry their soybeans to meet the standards. There is a history of this--in past instances where China tried to support prices grain stations often found excuses to reject farmers' grain on "quality" issues or paid them with IOUs.

Another article says that some farmers are waiting to sell their beans in the hope they can get the government price. Others need to sell to generate cash for fertilizer and seed for spring planting. The decline in futures prices and domestic soymeal prices induced some buyers to cancel their purchase contracts for imported soybeans. Over the weekend some crushers in production regions cut their procurement price offers by .04-.10 yuan/kg. Not much trade in beans. Purchases for government reserves have become the main marketing channel for domestic Chinese soybeans.

Local meteorological bureaus in Heilongjiang are starting to warn about possible drought conditions in the province as spring draws near(er). Thirty counties in the western and south-central parts of Heilongjiang have dry soil conditions.

The market is anticipating an increase in soybean planting this spring based on the policy support for soybean prices. However, the report says there is an oversupply of soybeans, with 2.9 mmt expected to arrive at Chinese ports in February and 3.15 mmt in March. Is the support price sending producers the "right" signals?

Monday, February 16, 2009

5 Gifts for Farmers

It looks like China's officials are worried about keeping the farmers happy and making sure they plant their crops this spring.

In Zhejiang Province, farmers are receiving "Five Gifts" from the government: policies, contracts (to purchase grain I guess), technology, farm inputs, and credit. Zhejiang plans to increase rural policy support this year, especially for grain production. The province pledged to increase rural subsidies by 40% in 2009.

One farmer named Zhan reports that on February 9 the vice-governor "gave" him 400 kg of rice seed and a 150,000 yuan line of credit at the local bank. Farmer Zhan expresses appreciation for this love straight from the heart of the communist party and pledges to plant more grain and do a good job at it.

The article describing the "five gift" program says it is calculated to encourage farmers to plant grain in the key period leading up to the time when they will plant their early-harvested rice crop. It notes the pressures from the financial crisis that have made it hard for farmers to find jobs, falling commodity prices, and slow-down in agricultural exports. The program is being trumpeted all over broadcast media, television, newspapers and news sites like the one where this article was found.

Shandong Ag Bank Opens Spigot

In January, the Agricultural Bank of China (ABC) finally became a share-holding company, the last of China's big-4 state-owned banks to do so. It took years to resolve internal problems in ABC to get it ready for the listing. Historically, ABC was made responsible for rural lending when market reforms were implemented in the 1980s. Bank reforms in the 1990s spun off ABC's policy functions (i.e. grain and cotton procurement financing) into a newly-created Agricultural Development Bank of China and ABC was freed up to become a commercial bank. In recent years it has pursued the more promising urban market and most of their business is now urban. You can see ABC branches and ATMs all over Chinese cities.

ABC has a pitiful track record in lending. About a quarter of the loans on its books were nonperforming as of last year (and that's with a generous classification.) Over $100 billion of bad loans were taken off its books and dumped into China's version of a "bad bank" to get ABC ready for its listing. The Central Huijin Investment Co. fund pumped $19 billion cash into ABC--this is cash from China's mountain of foreign exchange reserves earned by China's exports to Wal-Mart et al. (OK, so $100 billion is now pocket change since we're throwing around trillion-dollar bailouts, but we're talking about a country--China--where most people earn about $5 a day.)

ABC was not able to shirk off all its rural lending responsibilities. Apparently, it is still expected to make loans to support government-directed agricultural development plans. Some reports said this was one of the hang-ups in getting ABC's reform plans in place--they weren't allowed to abandon rural business.

Shandong Province's ABC branch has announced a plan to increase loans to county (i.e. rural) economies by 21 billion yuan (over $3 billion). The plan includes funding for rural infrastructure, public welfare and social services. A priority is to increase loans to "dragon head" enterprises that are "pillars" and "backbones" of the rural economy to advance "agricultural industrialization." It plans to increase "micro-loans" to rural households by 4.8 billion yuan.

We're very conscious of the dysfunctional financial system in the U.S. now and we're even getting lectures from Premier Wen Jiabao on this. But China's financial system is no better. Banks still lend according to official directives.

What happens is this: provinces and counties around China decide they want to build up an industrialized corn sector (as an example). They each tell the banks to lend to some starch processing company which gears up production, buying up millions of tons of corn to turn into starch, sugars, citric acid, lysine and feed products. After a while, the companies discover the market is saturated, so they start exporting in a big way, much to the consternation of factories in North America and Europe. Chinese products come in at half the price of U.S. or French products, and antidumping suits are brought. Lawyers are hired, tariffs are raised for a while, and the Chinese companies figure out how to keep selling. Industries are wiped out and corn is wasted by pumping out loss-making products. Chinese companies are still losing money and some close and default on the loans.

These days it's fashionable to think that it's OK for the government to tell banks how to run their business, but history shows that this mode of operation leaves even bigger messes to clean up. China's experience from the 1950s through the mid-1990s is exhibit A. China's banks' problems are hard to discern when lending grows 15-20% a year, but they may spin out of control eventually. Press cntl-alt-del before it's too late.

Tuesday, February 10, 2009

No Corn Exports Without Subsidy

China's support of corn prices in the northeastern provinces is distorting the market. As noted in a post a couple days ago, there is now an unusual situation where prices are higher in the northeast than in provinces further to the south, like Hebei and Shandong.

An article from the China Corn Market Net discusses the odd price structure and south-to-north corn movements. Jilin Grain Group has stopped buying corn in Jilin where the price is fixed at 1500 yuan/mt. Instead it has been going south to Henan, Hebei, and Shandong Provinces to buy corn and ship it back north.

The price at the Dalian port in north China is 1460 yuan/mt ($213)
Wholesale price in Jilin (northeast) 1340 yuan
Farmers' sale price in Jilin 1440 yuan
Reserve purchase price in Jilin 1500 yuan
In Hebei the purchase price is 1300-1350 yuan with better quality and lower moisture.

The movement of corn from Hebei to Jilin is bizarre because normally corn moves south to corn-deficit regions like Jiangsu, Fujian, and Guangdong.

The article says demand for corn has collapsed due to plunging feed demand caused by the melamine incident and the effects of the global economic slowdown, leaving reserve purchases as the main source of demand. Processors and distillers of corn in Jilin Province are losing 200-350 yuan per ton.

Some people in the industry have revived discussion of the possibility of China exporting corn from the northeast and importing in the south. It's 1000 nautical miles from Dalian to Guangzhou, but only 279 nautical miles to South Korea. It is more economical for buyers in the south to purchase imported corn than northeastern corn. One trader says it will be difficult in the long run for northeastern corn to meet the growth in demand in the south. He also suggests that China could export corn to some African countries to even out balance of payments.

The article suggests exports are needed to relieve excess supply of corn. Cancellation of the temporary export will not make Chinese corn competitive. According to the article, Jilin Grain Group has exported 33 mmt of corn since 1999 and they're looking for financial support like a VAT rebate. The trader says South Korea recently bought U.S. corn at $190/mt. With a Jilin price of 1500 yuan, he reckons the export cost of corn would be 1710 F.A.S. and an exporter would lose 580 yuan per ton by matching the U.S. price to S. Korea. The trader calculates that a 13% VAT rebate would save an exporter 172 yuan, still not near competitive. He says more subsidies are needed to revive Chinese corn exports.

China is constrained on this, as it promised to give up export subsidies as a WTO member. Some kind of hidden subsidy might be arranged. Maybe they could claim they're exporting old stale corn they bought at low prices in earlier years.

MOA on Blue Ear Problem

Yesterday, this blog posted an article on the outbreak of "blue ear" disease in Hongdong County of Shanxi Province, wondering why no information was being disseminated by the Ministry of Agriculture. Sometime later that day, MOA posted an article from the Ministry Press Office on its web site announcing the outbreak and assuring us that the Minister and Vice Minister were paying close attention. The Ministry's article says the outbreak is highly pathogenic blue ear disease. This means they are taking it seriously.

They have sent a work team to Shanxi. The area has been sealed off and disinfected. They are investigating the spread of the disease in villages, farms, and slaughterhouses, and they claim to have vaccinated 81,000 pigs. They claim no sick or diseased pork has reached the market, but another article says that one sick pig did get sold.

Still no information posted on other agriculture information sites. China's animal disease control center's web site thought it was more important that people know about a bird flu death in Egypt and a foot-and-mouth outbreak in Southern Iraq.

Monday, February 9, 2009

Big Plans for Heilongjiang Hogs

Heilongjiang Province has lots of fertile land and is a big grain producer, but it's far from markets along the east coast. The province has lots of grain that goes into warehouses and rots. So Heilongjiang officials are always trying to hatch some plan to use up all the grain they produce.

Their latest plan is to become a huge hog production base. They have a new plan to increase hog slaughter to 50 million head by 2012. That's around 9 percent of current national output. They have identified surburban areas of Harbin, Daqing, Mudanjiang, Jiamusi, and 28 other cities and counties for hog development. They will set up regional breeding centers, subsidize loans for dragon head enterprises, set up 7177 large scale hog farms, increase silage output from 9.8 mmt to 19.2 mmt in 5 years, and build facilities to make methane gas from hog waste. The province will carry out disease surveillance, boost credit through loan guarantees, form cooperatives and associations, promote vertical integration, spread technology and improve risk management.

Blue ear disease reappears

News is trickling out that dead pigs in Shanxi Province were infected with "blue ear disease." On Feb. 9, a spokesperson for the provincial government reported that 1,000 pigs in Hongdong County, Wan'an Township, were confirmed to be infected with the "highly contagious blue ear disease" after lab tests. The county has 14,122 pigs and as of Feb. 6, 1056 had died: 871 feeder pigs, 157 pigs in grow-out, and 28 sows.

"Blue ear" disease, also known as porcine reproductive respiratory syndrome, causes sows to abort, still births, breathing difficulties in piglets, and difficulty nursing. China had a major outbreak in 2007 when it spread to 28 provinces and contributed to huge disruptions in pork supplies and record-high prices.

Another article claims the disease is caused by a bacterium called eperythrozoonosis that attaches itself to red blood cells and sometimes destroys them. This article claims it is common in pigs and blames the outbreak on the temperature changes in Hongdong County last month.

The Shanxi provincial party secretary and governor paid a lot of attention after learning of the outbreak, sending vaccine and veterinary personnel. They are conducting an investigation of pigs, meat, markets and forbidding dead pigs to be sold into the market. According to the Feb. 9 article, no market or restaurant has detected the disease in meat. However, a Feb. 10 article reports at least one dead pig was sold into the market. The pigs were buried or burned, but the article notes that 97 feeder pigs were fed to dogs.

The outbreak occurred in Wan'an Township near a small city called Linfen. It appears to be a fairly remote area about 100 miles south of Taiyuan, the provincial capital. However, it is right next to the main north-south highway that passes through Shanxi Province, so there is potential for disease to spread.

The new "blue ear" outbreak has been picked up by the overseas press, but curiously it doesn't seem to be getting publicized by China's agricultural informaton system. The articles cited above are on various news sites, but there is no news about the outbreak on the National Ministry of Agriculture news site, the animal husbandry bureau site, the Shanxi Provincial animal husbandry information web site, or the Hongdong County information site. Wouldn't you want your officials and farmers to be aware of the outbreak so they can be on the lookout for the disease to prevent it from spreading?

Saturday, February 7, 2009

Xinjiang Corps to Cut Cotton Output

The Xinjiang Production Corps, a giant quasi-military farm and industrial operation in China's far northwest, is China's biggest producer of cotton. In the 1990s, production was expanded rapidly in this arid region. But now it appears that this level of production is unsustainable, and the Corps is planning to cut back cotton acreage and expand production of grain, livestock, and fruit.

The government may be growing impatient with the subsidies needed to support production and transport it to eastern China where most of the factories are. Xinjiang has been hit hard by the current economic crisis. A reporter learned from Xinjiang departments that the production corps' sales of cotton this year were only a fourth of sales last year at this time, if sales to government reserves are excluded.

According to a Feb. 1 article from China Cotton Association, in 2008, the corps' cotton production was 1.3 mmt, one-sixth of the national output. Cotton accounts for 60% of income for the corps' employees and over half of the corps' profits.

However, profits are declining as costs rise. In the long-term soil fertility will decline due to the monoculture. Plastic mulch is causing pollution. The large scale farming is leading to water shortages in this arid region. Conflicts over water are causing structural change in production. The current economic crisis has revealed the poor operation of many Corps farms, economic costs, and rising bank loans.

The Corps party committee held a conference to discuss re-aligning production to "reduce cotton, increase grain, livestock, and fruit." In 3 years, the Corps' cotton area is targeted to be reduced from 8.5 million mu to 6.5 million mu.

At the meeting, the "comrades" agreed that reducing cotton doesn't mean the Corps has to give up its cotton industry. Less cotton will be planted on risky and low-yielding fields. The Corps will concentrated on maintaining production on the nationally-designated high-quality cotton areas.

A worker from Division 131 says, "Before, we planted cotton as soon as winter was over and harvested it before winter set in again, with high risk and cost. Last year, I planted soybeans which have lower cost and require less labor. I earned 300 yuan more per mu than I would have gotten from cotton."

Last year, the Corps decreased cotton area by 800,000 mu, but production was still 1.3 mmt. Yield was up 4.2%. This year, an official of the Corps' agricultural bureau says that Divisions' targets entail a reduction of 1 million mu.

Anhui, Hubei Farmers Abandon Cotton

The global economic crisis is having its most serious impact on the textile-cotton supply chain in China. Declining sales at the Wal-Mart and Bed, Bath, and Beyond down the street are being felt by cotton farmers in China. Down on the farm it looks like the combination of poor returns from cotton and support prices for grain will lead to plunging cotton area in China this year.

One China cotton exchange writer reports on a spring festival visit to his home village in one of the major cotton producing areas of Anhui Province. Farmers told him that returns from cotton plunged due to a double-whammy of declining prices and yields over the last two years. Moreover, fertilizer prices rose, further reducing net profits.

Farmers he talked to said the price they receive for seed cotton fell from 3.6 yuan per jin (1 jin = 500g) in 2006 to 3.05 yuan in 2007 and just 2 yuan this year. The provincial authorities claim the cotton price was raised to 2.45 yuan, but the farmers say most of them actually get only 2 yuan. Apparently, the 2.45 yuan price comes from state-owned purchasing stations and mills, but the farmers say that it has been common practice recently for these guys to contract out their purchasing functions to private middlemen. The government has little control over the cotton price.

Farmers also said that yields declined 100 kg/mu each of the last two years. Yields in this area peaked at 600 jin/mu (15 mu = 1 hectare = 2.47 acres) in 2006, and fell to 500 jin in 2007 and about 400 jin for most farmers this year.

The cost of fertilizer went up over 200 yuan per mu. Pesticide also went up, while cotton seed got cheaper. Based on the decline in yields and prices, gross income from cotton fell by 725 yuan per mu. Adding the rising cost of fertilizer cuts the profits by 925 yuan.

Rice is now more profitable than cotton (and you can grow multiple crops of rice on a single plot in this area). Rice brought a net return of about 1200 yuan/mu compared to 800 yuan/mu for cotton.

The government set a support price for early indica and japonica rice in this area. Moreover, farmers get a subsidy for grain (although the author notes that farmers in this area get the subsidy whether they plant rice or not.) A lot of the farmers are reportedly planning to switch some of their fields from cotton to rice this year.

Another article from the No.1 textile net reports on a visit to Hubei Province. A farmer named Liu standing on the doorstep of his house points to a field with many stalks still bearing their cotton and says it's not worth harvesting cotton because he would lose money on it. He's decided this year the white (cotton) field will become a water field (rice paddy). Farmer Liu plants 30 mu of rice and 8 mu of cotton. He plans to switch half of his cotton land to rice paddy.

The "white to water field" seems to be a general trend. A January survey of 16 provinces by the China Academy of Agricultural Sciences estimates that cotton planting will decrease by as much as 20.9% this year. At the same time, various planting intention surveys indicate that grain area will go up in 2009. In Hubei, for example, farmers' planned cotton acreage is projected to fall 13% in 2009 while grain area is projected to go up 3.2%. Rice area in Hubei is projected to go up 4.1%. Grain production set a record in 2008 and area looks set to rise even further, partly at the expense of cotton.

Thursday, February 5, 2009

Avian Flu: Silence

Is avian influenza spreading in China? Cases in Hong Kong and Shenzhen led some to assert that the disease is spreading in China.

I checked China's Animal Husbandry and Veterinary net web site--surely this is the place to find out--but the latest article is from two weeks ago (Jan. 19), about a network of labs set up in universities to check on avian flu.

The article says the avian influenza situation is grim in neighboring countries. As for China, it says in recent years AI has been endemic only in some northern provinces, but AI was detected in an area of Jiangsu Province on December 15, suggesting that it may have spread over a broader area. In January, the article reports, two people in Beijing and Shanxi contracted AI.

The victim in Jiangsu was a farmer in Hai'an county. The H5N1 strain was detected in samples, but it was determined to be different from the virus found in southern China (Hong Kong and Shenzhen). Experts concluded it probably was spread by migratory fowl. Still, 377,000 chickens were culled in Jiangsu.

A 19-year-old woman died in Beijing on January 7 from AI. She was a native of Fujian Province in the South living in migrant worker housing on the outskirts of Beijing. She bought 9 ducks at a market in a small city in neighboring Hebei province Dec 19. They were slaughtered and she took them home, gutted them, and gave away three. In all, 13 people ate the ducks, but no one else got sick. Health workers found 116 people came in contact with the woman. One nurse had a fever, but she recovered. The Ministry of Agriculture dispatched personnel to inspect the surrounding rural areas in Beijing, Tianjin, and Hebei, and found no bird flu.

A Feb. 3 news report in Guangming Daily says the Shanxi victim was a 3 year-old girl who came down with a fever while in Hunan on January 7 and was hospitalized after returning to Shanxi on the 11th. She was transferred to a provincial childrens' hospital with a serious case of pneumonia that a health department worker recognized as avian flu. She was treated and released from the hospital on Feb. 3. The health department assured everyone they need not fear avian flu--it can be treated if diagnosed early.

The article worried about the risk of spreading AI as lots of birds were traded during the Chinese New Year holiday last month.

The Ministry of Agriculture issued a series of notices aimed at controlling AI spread during the holiday. It aims for a poultry vaccination rate of 100% (actual rate is over 90%). Other stepinclude increasing monitoring by daily testing samples of poultry, increase vaccine production, do surveys to watch for the disease and keep a careful watch on border areas.

Wednesday, February 4, 2009

Policy Reverses Corn Flow

Normally, the lowest prices for Chinese corn are in the northeastern provinces. This region has huge supplies and it is far from the big markets in coastal areas. As you go south, the corn price tends to go higher. Corn typically flows out of the northeast to southern regions where there is excess demand.

This year, the government announced a support price for purchasing 30 mmt of corn in the northeast, about half of the harvest in that region. The price structure is now distorted, with northeastern prices higher than in provinces to the south.

A farmer in Zhengding County of Hebei Province complains, "This year the corn price is low, and I can't sell at a price that will bring a profit." The price in Hebei averaged about 1.6 yuan/kg last October, and it fell to 1.33 yuan/kg in January, as new corn came on the market. Farmers' profits have been cut by half. In some areas of the province, the price is just 1.2 yuan/kg.

By comparison, the price in the northeast is about 1.5 yuan. Grain Bureau monitoring data reported the Hebei price on Jan. 5 at 1.24-1.36 yuan, compared with 1.44-1.52 yuan in Liaoning and 1.42-1.50 yuan in Jilin.

The hardest-hit areas of Hebei, like the Baoding region, have the lowest corn prices, which are attracting traders from the Northeast and Southern provinces to buy cheap corn. One grain trader who came from Jilin said he can make money by purchasing grain and shipping it back to high-price Jilin. This is a reversal of the usual flow of corn.

In effect, the government is buying up 30 mmt of northeastern grain to store in warehouses, and corn from Hebei is coming north to meet commercial needs.

China's Economic Frankenstein

China's economic planners are trying to create an economic Frankenstein by combining half-understood classical economic concepts with central planning. Will they succeed in creating the perfect economy? Or will their monster run out of control and destroy itself and its creator?

This week, China's State Council released another in a 5-year succession of "No. 1 Documents" to show its resolve to address lagging rural incomes. This year's document emphasizes a regional layout plan to concentrate different types of agricultural production in the regions best suited for them. There are 16 major commodities and 58 regions. For example, areas in Inner Mongolia and Heilongjiang have been designated as dairy regions; areas in Henan have been designated for beef. The southern coastal area of Guangdong has been designated as the region to produce aquaculture products for export.

The plan is an example of China's hybrid approach to economic development that combines economic concepts with government planning. The Layout plan is supposedly based on the principle of comparative advantage. Government planners decide which regions have a comparative advantage in rice, hogs, beef, etc. and set out to develop the best-suited industries in each region.

Comparative advantage, as explained by classical economists David Ricardo and Adam Smith, is the principle that regions can gain by specializing in the activity they produce at least cost and trading with each other. The comparative advantage principle is advanced to argue that free trade can make everyone better off. China is using comparative advantage to guide government planning.

China is a country run by engineers who think they can plan the economy and make it run like a machine. The problem is, planners are not omniscient and often make mistakes. Chinese planners have built up industries with remarkable speed. They have in many cases gone too fast, with dire consequences. Arguably, the "export-oriented" aquaculture industry was built too fast. Crowded, dirty fish ponds were treated with antibiotics, supply chains weren't ready to handle a big volumes, and U.S. farmers and fishermen were undercut by cheap products. A flood of citric acid and other corn-based products coming from big factories linked to corn industry development plans have flooded markets in North America and Europe, driving down prices. Northeast China is swimming in surplus corn while Chinese buyers snap up soybeans overseas at a blistering pace.

Central planning failed everywhere it was tried during the "scientific" hubris of the 20th century. The Chinese planners haven't learned that yet and it may take some time, as long as they have the option of exporting their excess capacity.