Monday, October 14, 2019

China's Farm Investment Fizzles

Investment in China's farming and agricultural processing sectors is down this year, according to figures released by China's National Bureau of Statistics, a development at odds with policies focused on pumping up investment in the sector.

Fixed asset investment in farming, forestry and fishing during January-August 2019 was down 3 percent from the year-earlier period. Investment in primary processing of agricultural products (grain milling, oilseed processing, livestock slaughter, etc.) was down 9.4 percent from a year earlier, investment in food manufacturing was down 2.2 percent, and investment in textile manufacturing was down 5 percent. The data do not include rural households, but this has little impact since other data show that rural households don't make many agricultural investments.

China fixed asset investment, January-August, 2019: year-year change
Sector Percent change
Farming, forestry, fishing -3.0
Primary processing of ag products -9.4
Food manufacturing -2.2
Textile manufacturing -5.0
Source: China National Bureau of Statistics web site. 

Overall fixed asset investment increased 5.5 percent during January-August 2019. The Bureau says this was 0.2 percentage points faster than in 2018. These rates are much slower than 20-to-30 percent annual growth in fixed asset investment during China's peak growth years up to 2012.

Investment in manufacturing during January-August was up 2.6 percent from a year earlier, slower than 9.5 percent growth in 2018. Investment in services was the most robust, up 7.3 percent this year.

The slowing of agricultural investment in 2019 was remarkably abrupt. In 2018, fixed asset investment in agriculture had grown 12 percent--faster than overall growth--but this year it has fallen 3 percent. Agriculture's share of Chinese investment has historically been low, but its share had risen above 4 percent during 2016 and 2017. Agriculture's share of investment has now fallen to 3.5 percent in 2018 and 2.7 percent in January-August 2019.

Monthly figures on growth in fixed asset investment in "primary industry" indicate a sudden slowing of investment in 2019. "Primary" industry (agricultural) investment grew about 12 percent year-on-year through the end of 2018. Growth then slowed to 3.7 percent in February, 3 percent in March and posted slight declines in April to July. The 3.4-percent decline in August is the largest decline reported this year, so far.

Chart shows year-on-year growth in fixed asset investment in primary industry, by month.
Data from China National Bureau of Statistics.

The plateau in agricultural investment is at odds with the "rural revitalization" and other Chinese policies that call for boosting credit to new-type farmers, subsidizing upgrades of "medium and low standard fields", upgrading equipment, and building agricultural industrial parks. The decline in agricultural processing and textile investment is also at odds with policies to increase links between farmers and value-added processors and to build a new textile industry in Xinjiang Autonomous Region which now produces 80 percent of the country's cotton.

The fizzling of agricultural investment is, however, consistent with reports of new-type farmers abandoning their leased land after finding farming tougher going than they had expected.

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