China's "Go Global" (literally, "Going Out" or "Zou Chu Qu") strategy of foreign investment to raise crops overseas has gotten a lot of bad publicity. There was an outcry in the Philippines over a Chinese project a couple of years ago, and last month the Kazakhstan President provoked an uproar in his country when he floated a plan to rent 1 million hectares to China.
No one knows too much about this strategy. An article by several Chinese authors in International Cooperation last year described the strategy and offered a frank critique. The program offers a window into China's intertwining of government and business in which companies are enlisted to work toward achieving the government's objectives. This strategy seems to be a very expensive way to get more food.
The strategy has been around since the government picked some companies to become international players in the early 1990s. The 2007 No. 1 Document of the Communist Party called for rapid implementation of "Go Global." The strategy seems to encompass a confusing mix of objectives that include promoting agricultural exports, foreign cooperation, external assistance, and direct investment in agriculture overseas. It includes inward foreign investment, technology, and contracting out Chinese laborers to do projects overseas.
The “Go Global” strategy is a government-industry partnership with "enterprises under the leadership of government policy for the goal of profits and cooperation on the basis of mutual benefit." The projects seem to be run by provincial governments and companies affiliated with them. The companies are mostly state-owned agricultural companies with roots in the centrally planned economy. Many are State-owned farms (Nong Ken) and government-affiliated seed companies. One company is named after the famed rice breeder Yuan Longping, but its description sounds like a consortium of provincial seed companies.
The strategy is described as meeting the needs of companies (for profits) while achieving sustainability of China's agriculture. China has advantages in funding, crop breeds, and technology but it lacks land. Meanwhile, countries in Asia and Africa have plentiful but underdeveloped resources. The article explains, "We have 30 years of experience in reform and opening in agriculture. Having basically solved our food and clothing problem, the next step is to solve the sustainable development problem in agriculture."
The projects include renting land for growing crops, purchasing fishing licenses, setting up production and processing bases, carrying out agricultural resource development, and processing and trade of agricultural products. About 1,500 fishing boats were engaged in foreign fish production in 32 countries. Some companies set up production bases for grain, soybean, natural rubber, oil palm, sisal, and cassava in Russia, Southeast Asia, Central Asia and Latin America. Investments include animal and plant protection, infrastructure agriculture, machinery, rural energy, and bioenergy.
Heilongjiang’s State-owned farms started renting land to plant grain in Siberia in 2004 and area reached 634,000 mu in 2007 (over 100,000 acres). They also invested in a grain pretreatment center and liquid fertilizer processing. A Guangdong state farm started building a 500,000 mt Southeast Asian natural rubber production base in 2002, enlarged five rubber processing factories, steadily built up a rubber project in Malaysia, and now has a production capacity of 206,000 mt. There is a large rice project in Cuba. A large soybean-production project utilizing barren land in Kazakhstan is rumored to begin this year.
Lack of funds, small scale, low competitiveness are general problems for “Going Global” enterprises. At the end of 2007, China's foreign investment in agriculture was $1.2 billion, only 1% of the total. Guangxi has over 20 enterprises with foreign investment, but not many are strong companies. The largest investment is just 20 million yuan. Most "go global" agricultural enterprises from Chongqing are relatively weak, their investment is small, financial difficulties are big, and ability to bear risk is low. Of five companies that invested in Laos, four withdrew. The one Chongqing company left in Laos has invested in a grain mill, but progress has been slow.
The article expresses frustration in aligning government and company objectives. Governments have aid and technical exchange objectives that don't always mesh with companies' profit-making objectives. In some projects, enterprises were at first eager to join the project but pulled out, leaving the government in charge, after seeing that the operation was not going well. Projects have a long timetable and many risk factors that can cause them to flounder before they bear fruit.
Companies are frustrated by slow approvals from Chinese officials, lack of policy and market information about the countries they are investing in. Companies lack foreign language capability, understanding of international regulations and management, local labor force quality, and local customs. Chinese companies investing overseas suffer from dual taxation. They face tariffs and obstacles to exporting seeds and some countries prohibited export of grains and biofuels when commodity prices spiked. Companies find they have a hard time competing without subsidies and favorable policies they enjoy in the Chinese market.
The article complains about too many weak companies starting up rice seed production bases in Southeast Asia. Some of these companies--including some with little experience in agriculture--used a low-price, low-quality strategy with no after-sales service. Their poor performance damaged the reputation of Chinese seed companies overseas.
Several strategies are outlined. The first is “Government sets the stage, enterprises sing” where the government lays groundwork as a platform for enterprises. The China-Philippines technical cooperation project was designed for participation by enterprises that would lay the foundation for market operations, creating conditions for sustainable development. The project’s designated unit-–Yuan Longping High-tech Co.--utilized investment from both governments, which reduced the costs in the initial phase. Some 40 Chinese rice breeds were chosen, including 6 for testing and evaluation all over the Philippines and only cost the company $500,000 in the initial stage. Presently the company has invested $1 million and constructed Longping High-tech Philippines Research Center.
Another model is "Enterprise Goes First, Government Follows," in which certain support is given to agricultural projects with good performance. In this model the government supports enterprises that already started agricultural training, seed demonstration and extension projects.
The article recommends establishing a subsidy system for "going global" firms. They should get various subsidies, including interest subsidies and emergency assistance. They should get priority and assistance in raising capital through stock market listings. "Going global" enterprises should get preference when applying for national high-tech industry dissemination projects, agricultural processing projects and technology creation interest subsidies. An insurance system to protect companies from risks of failed projects is recommended. Companies operating overseas should benefit from domestic agricultural subsidies and get subsidies for machinery.