According to China Grain Net, the limits are motivated by several concerns. Authorities have been alarmed by a rapid expansion of foreign-owned processing capacity in recent years. This led to excess capacity in some sectors. "Disorderly" competition in some industries led to fluctuations in prices of grains and oilseeds. China Grain Net says the limits on foreign investment are intended to increase the government's ability to control markets and maintain "grain security."
Last year, the China Grain Net put out reports complaining that foreign companies had entered the wheat and rice milling industries and outbid state-owned companies for grains, driving prices up.
The China Grain Net article explaining the foreign investment reports on massive capacity expansion in grain and oilseed processing industries to explain why the government feels they need to limit foreign investment. The article emphasizes the large percentage increase in multinational company capacity. In the rice-milling industry the article reports that capacity shot up by 50 million metric tons (MMT) in 2010. The article emphasizes that foreign capacity rose 57% that year. But it fails to mention that the increase in foreign company capacity accounted for only 1.3 mmt of the 50 mmt increase in rice-milling capacity. The expansion of domestic capacity far exceeds the expansion of foreign capacity in all industries except corn processing where the government has been trying to clamp down on capacity for the last four years.
The article reports that capacity utilization is low in all grain and oilseed processing industries. But the data clearly point to over-expansion by domestic companies as the source of the excess capacity problem.
|China grain and oilseed processing capacity, 2010|
|Corn industrial products||70.0||58.0||12||21|
|Oilseed processing||137.0||115.0||22||19||Oilseeds, 55%-60%|
|Multinational||37.0||30.0||7||23||Oils refining 45%-50%|
Dim sums blog, data from China Grain
MMT=million metric tons.