China's Seed Nationalism

China is scouring the countryside to find native seed, animal and fish genetic resources in a national germplasm census according to Economy Daily, a communist party news outlet. The purpose is to protect "family property" and gain self-reliance in crop and animal breeding. "Excellent" plant and animal resources will be protected on company-run farms if they are in danger of extinction or turned over to Chinese seed and breeding companies to exploit their commercial potential to propel Chinese seed companies as global competitors. 

Improvement of China's seed industry is one of the national priorities set at last December's planning meeting for economic work this year. The germplasm census launched in March 2021 was one of the activities ordered by this year's "Document Number One" issued by China's central communist party leadership. The germplasm census is expected to be completed in 3 years. The activity is canvassing all Chinese counties to draw up a list of plant, livestock-poultry, and aquatic animal germplasm. Today, an expert committee was charged with identifying 10 major plant resources, 10 major livestock/poultry resources, and 10 major aquatic animal resources. 

An agriculture ministry official said, "Some of these resources are old, some are rare and endangered, and some carry farming civilization and traditional culture; [the activity] fills gaps in the census of livestock and poultry genetic resources on the Qinghai-Tibet Plateau."

As an example, the official cited abundant sheep resources of the Tibetan plateau, including animals adapted to high altitude, rough fodder, disease resistance and strong physique. Others include several species of fish in the Yangtze River, a duck from Zhongshan, and a Shanghai water buffalo breed. 

A National Crop Germplasm Bank was established at the Institute of Crop Science of the Chinese Academy of Agricultural Sciences. Data will be archived, digitized, and accessible via intelligent computing, according to Economy Daily. Plans include nine regional gene banks in key provinces and a national livestock and poultry germplasm resource bank.

Foreign research institutes and multinational companies should not expect to gain easy access to these resources. Economy Daily calls germplasm "family property." Economy Daily emphasizes that "control of germplasm resources and self-reliance are urgent tasks of great significance in the fight for a good turnaround in the seed industry and to promote the revitalization of the seed industry. 

The next step will be for agriculture ministry authorities to conduct performance testing of the germplasm resources to evaluate their commercial potential for breeding new varieties. 

It was probably not coincidental that the Economy Daily article came several days after last week's Ministry of Agriculture and Rural Affairs meeting to emphasize progress on supporting China's seed industry to create a strong backbone industry chaired by Minister Tang Renjian. The meeting considered how to implement Xi Jinping's important directive to "concentrate resources, science and technology, personnel, and capital in key seed companies...to accelerate a new pattern for their development." The meeting emphasized that companies are the main innovators and are expected to supply "their own seeds" to the market, become internationally-competitive dragon heads, and a few should emerge as "aircraft carriers" in the global seed industry. The meeting called for supporting R&D and strengthening seed/breed resources for corn, soybean, swine, and dairy cattle breeding where Chinese companies are behind foreign counterparts. 

Central and local authorities should encourage and guide research institutes, banks, and production bases to link up with seed companies to help them develop through the "two hands" of market and government and protect intellectual property rights by cracking down on fake seeds. Officials were ordered to craft policies to support specific companies. Companies were ordered to seize opportunities, pool resources, and work toward national objectives of self-reliance in seed resources, upgrading science and technology, and raising China's core competitiveness in the seed industry.

108 companies have 25% of China's sows

Just 108 companies now control a fourth of China's swine production capacity, according to a list prepared for a recent swine industry forum. Unpredictable gyrations in China's hog market continue with the influx of big pig farmers, contrary to the expectations of agricultural officials. 

Pigs have historically been scattered across millions of backyard pens, sheds, and living rooms in Chinese villages. At the peak of backyard pig-farming, China's 1997 agricultural census counted over 130 million rural households raising pigs--usually one or two at a time--and those small family holdings accounted for 95 percent of the swine inventory. 

In recent years a handful of companies have been on a hog-farm construction binge. Their expansion accelerated during a 2014-17 environmental regulatory push that shut down hundreds of thousands of small farms. Then the African swine fever epidemic wiped out millions more of small farms, biosecurity requirements and a new round of subsidies favored big companies, and "pig concept" stocks became fashionable, attracting billions of dollars of capital investment. 

A list of 108 companies with at least 10,000 sows was compiled for the 7th China swine industry summit based on company financial reports, industry news, and unpublished sources. The combined sow inventory of the 108 companies as of October-November 2021 was 11.79 million head. That's about a fourth of the 44.79-million-head national sow inventory reported by the China National Bureau of Statistics' as of the end of September. 

List prepared for 7th China High-level
swine industry forum.

Muyuan Foods Group was the clear number-one company, with 2.7 million sows. Three other companies--Wens Foodstuff, New Hope-Liuhe, and Zhengbang Technology--were listed with 1 million or more sows. These top four companies had a combined 5.9 million sows. Another 15 companies had 100,000-400,000 sows each (3.2 million sows combined), 22 companies had 50,000-90,000 sows (1.4 million combined), and 67 companies had 10,000-40,000 sows (1.2 million combined).

Muyuan pulled ahead of the competition during the African swine fever crisis. A ranking from 2016 showed Wens produced more than 5 times as many hogs as Muyuan and Zhengbang, and a 2019 ranking still showed Wens in the top spot. Muyuan now has 2.7 million sows, more than double Wens' 1.2 million. 

For years Chinese agricultural officials have blamed small farmers for constant booms and busts in the hog industry--"blindly" expanding when prices are high and then killing off sows when prices drop. However, the influx of gigantic farms has perpetuated industry gyrations. 

Chinese rural news outlet Nongcai Baodian reported that China's swine industry still has excess capacity, despite farms having culled many low-productivity sows and cleared out overweight hogs after prices plummeted 50 percent in the first half of 2021. A medium-sized pig farmer in Henan Province attributed low prices in early October to "too many pigs on the market." He estimated that less than 10 percent of hogs had been produced by companies before ASF, but their share is now 20-30 percent. Hog traders told the reporter that big companies piled in when hog prices were high, with one scaled-up farm replacing dozens or even a thousand small-scale farms. The report ascertained that companies are  optimistic about next year's market. While they had culled many of their low-productivity sows, they replaced them with a roughly equal number of new gilts.

The description accompanying the swine industry forum list said that hog farming companies have culled large numbers of sows and abandoned construction projects since hog prices began dropping early in 2021. The report estimates that 150 companies had 10,000 sows at the beginning of the year, but the number dropped to 108 due to culling of unprofitable sows. The report estimates that the top 108 farms are operating at just two-thirds of their capacity--a third of barns and stalls are empty due to the crash in prices this year.

The report estimated that the current population of sows could produce 235.8 million finished hogs if each produced 20 marketed hogs per year. Hogs raised from a sow bred now would be ready for market in September 2022. 

Earlier this month Muyuan held a Q&A to reassure investors--about 15 investment funds, securities firms, and insurance companies. Cost-cutting, retirement of sows, capital expenditure plans and financial stability were the main topics. Muyuan assured investors that cash flow is normal, but also explained that the company had suspended all construction projects that were less than half-finished and is evaluating others on a case-by-case basis. The company is rushing to complete construction of slaughterhouses before the spring festival holiday. The new facilities would bring its slaughter capacity to 20 million head annually. The company hopes to reverse its losses on its slaughter business in 2022. Muyuan reported a ratio of pigs per sow of 24, suggesting its sow inventory can produce 64.8 million finished hogs. The company has 135,000 employees, enough to fully staff the new slaughterhouses, the company said. 

Pork Conglomerate Corporate Welfare

The tentacles of subsidies and government aid are entwined with the world's largest hog farmer. China's Muyuan Food Group--an ostensibly private company--has sold more than 31 million swine through October this year. If Muyuan hits the top range of its targeted output of 35-to-45 million head this year--it will come close to matching the entire production of Brazil or Russia. 

Last week local communist party authorities in Nanyang City of Henan Province--Muyuan's hometown--issued a document calling for 15 policy measures to support Muyuan with the goal of propelling the company into the Fortune-500 list of the top companies in the world. The policies feature measures that are invisible to outsiders. They include central government transfer payments for hog-producing counties and manure utilization demonstration projects, easing up on land-use planning and environmental assessments, local government loan guarantees, aid for constructing breeding centers, industrial parks, logistics hubs, slaughterhouses and subsidiary companies operating in ancillary industries like feed-milling and equipment manufacturing. 

First, the document orders local county and district authorities to continue implementing policies launched in 2019 to restore hog production capacity from losses during the industry's African swine fever crisis. This includes behind-the-scenes coordination that orders land-use planners, environmental departments, financial regulators, banks, insurance companies, vaccine manufacturers, and transportation officials to incorporate Muyuan's giant hog farms and ancillary operations in their plans and give them favorable treatment. 

The document orders local leaders to expedite and streamline license applications for building farms and slaughter facilities, business licenses for breeding farms and feed mills, inspection and quarantine permits. Officials are instructed to coordinate with environmental departments--presumably to prevent any delays or hold-ups. 

Local officials are instructed to make land available for Muyuan to finish building its planned layout of breeding and commercial farms, slaughterhouses, feed mills, and industrial parks. Leaders must facilitate the transfer of farmers' land and village collective land and solve conflicts over land use. Grass roots leaders and common people are to undergo "thought work" to smooth out the land transfer process.

County and township meat and animal inspectors are expected to design their work with Muyuan's needs in mind, ensuring that animals are slaughtered in a timely way and qualified for slaughter.

Authorities are ordered to provide guidance to Muyuan in implementing measures apparently meant to certify disease-free zones: "Non-regulated animal disease zones" and "African swine fever-free zones."

An emphasis on breeding and promoting local specialty breeds reflects a priority set 11 months ago that called breeding stock the "silicon chips" of hog production. Local officials are ordered to provide unspecified support in constructing Muyuan's chain of breeding farms -- grandparent farms -- multiplier farms -- commercial finishing farms to meet the demand for breeding animals. Muyuan's plan includes protecting a local breed of "Nanyang black pig" and incorporating its genetics in specialty commercial breeds.

China has big ambitions to be a first-mover in application of information technology and artificial intelligence in farming. Officials are ordered to spend money on to help Muyuan incorporate information technology, R&D on intelligent equipment, big data, cloud computing, Internet of things platforms, explore 5G-plus, real-time weather monitoring, and digitization of production and management systems. 

Four counties in Nanyang's region are pilot areas for manure utilization. The pilots will engage a Muyuan subsidiary company as a "third party" in manure treatment--with policy support funds. The projects are expected to demonstrate treatment and use of animal waste, using it to replace chemical fertilizer and to improve land quality in a green "circular" model.

Human resource development includes training motivated, educated rural people in technical and business skills to meet Muyuan's needs for high quality farmers and employees. 

Equipment needed for swine farms and associated activities will be included in the local list of items eligible for the farm machinery and equipment subsidy. 

Nanyang will guide Muyuan in supporting construction of high-efficiency water-conserving irrigation projects and high-standard fields to preserve national food security. Presumably, this is a quid-pro-quo for turning huge swathes of farmland over to Muyuan for its hog farms and...industrial parks--another featured rural development strategy this year.

Local officials will "guide" Muyuan to build industrial parks focused on meat, agricultural and livestock equipment manufacturing, a "food city", an agro-ecological demonstration park, and e-commerce off-line exhibition center, and a smart logistics park.

A Nanyang City meat industry upgrade plan aims to create the largest hog-producing, meat processing, cold-storage, and farming-livestock equipment manufacturing centers in the country, plus add an international livestock technology exchange center in Nanyang. 

This year Henan Province issued a document endorsing government credit guarantees for farm loans. Officials intend to propel hog industry development via behind-the-scenes coordination of banking and insurance regulators, the Agricultural Bank, Postal Savings Bank, and by creating a government guarantee company to leverage bank loans and investment.

Last, but not least, is control of information. The government will closely monitor everything Muyuan does and will issue propaganda through news media to "rationally guide market expectations." Officials will guide Muyuan Group to follow national hog industry policy, adjust the hog population structure, and continually raise and improve hog production capacity. 

The local support announcement comes after a patch of losses for Muyuan and other big pig companies in China due to excess capacity and plunging prices in 2021. One commentary described a "crazy" month of October in which hog prices plunged to 10.5 yuan per kg, then rebounded to 15.8 yuan by the end of the month. Muyuan's share price lost half its value during the crash in hog prices from March to August. A 35-percent rebound in September-November paralleled the rebound in hog prices.

data from finance.Yahoo.com

Muyuan dumped over 5.25 million hogs into the market during October--up from 3.1 million head sold in September. The average sale price was 11.88 yuan/kg (about $.86 /lb), well below Muyuan's breakeven price of 15 yuan/kg ($1.06 /lb.) By comparison, the average U.S. hog price is currently $.75 per lb. The breakeven price for China's most successful hog conglomerate is 40 percent above the U.S. price.

The commentator estimated that Muyuan might have lost over 2 billion yuan (around $312 million) during the month of October by selling 5.25 million head below the breakeven price. Eight of the other nine big pig-farming companies also upped their sales in October. 

The commentator wondered what was behind the odd business decisions and price fluctuations. He speculated that the companies are making a "last stand" at the end of the year to optimize the numbers for their annual reports for skeptical investors to prevent share prices from tanking.

Blizzards Could Affect China's Corn Marketing

Record snowfall across northern China this week is the latest in a string of unusual weather events in 2021. A report in China Grain Net raises concerns that the heavy snow could impact this year's corn marketing.

With northeastern China already under a cold wave, snow began falling November 5 and continued for days. The storm was expected to let up by November 12, with temperatures rising above freezing in parts of Liaoning Province. The snowfall has broken records kept since 1951.

The snow comes at the end of the corn harvest and in the early part of the marketing season for the corn crop in northeastern provinces--China's main corn surplus region. Snow and ice have closed down many roads, disrupting transportation of corn from the northeastern provinces to other parts of the country. The prospect of tighter supplies nudged prices upward. The May futures contract for corn on China's Dalian exchange rose 0.7% to RMB2734 per metric ton. 

The snow also threatens to degrade the quality of the corn crop. Melting snow could raise the moisture of corn piled in farmers' courtyards, promoting growth of mold. 

A notice issued by Jilin Province's grain bureau instructs corn trading companies to go door to door buying corn, offer corn-drying services, and store grain on farmers' behalf to hasten sale of the corn crop and preserve its quality.

China's National Weather Center predicts more severe cold weather for January and February with high precipitation in northern provinces and low precipitation in the south. Widespread cold and snowfall in northeastern provinces could add more disruptions to grain marketing. Farmers have been advised to take into account possible weather disruptions when deciding when to sell grain. 

China Food Prices Down; Energy Prices Soar

China had 1.5-percent growth in consumer prices over the past 12 months according to its October 2021 Consumer Price Index (CPI) report. The U.S. CPI showed 6.2-percent growth over the same period. 

The food component of China's CPI was down 2.4 percent over 12 months while its nonfood component was up 2.4 percent. By comparison, the food component of the U.S. CPI was up 5.3%. 

Source: China National Bureau of Statistics.

The decline in the food component of China's CPI is entirely due to the popping of China's pork price bubble. Pork prices in October were down 44 percent from a year ago. Most Chinese food prices rose by 2 percent or less over the past 12 months. Consumer prices for grain products were up just 0.9 percent. A handful of food items rose more than 5 percent: vegetables by 15.9 percent; eggs by 12.6 percent; fish by 8.3 percent; and edible oil by 6.4 percent. 

Energy commodities propelled the rise in consumer prices. The fuel component of China's CPI was up 31 percent from last year. The energy component of the U.S. CPI was up by a nearly identical amount: 30 percent.

China's inflationary momentum is concentrated in producer prices for energy and industrial commodities. China's October Producer Price Index (PPI) was up 13.5 percent. Ex-factory prices for coal were up 103.7 percent from a year ago and petroleum and gas were up 59 percent. Producer purchase prices for fuel were up 40.7 percent, ferrous metals were up 22.6 percent, and nonferrous metals were up 25.8 percent, and chemicals were up 24.9 percent.

Producer purchase prices for products of agricultural processing were up 2.6 percent from last year, and prices for processed food were up 2.7 percent. Producer purchase prices for textiles were up 8.5 percent, but purchase prices for clothing were up just 0.8 percent. 

China's pork prices have come down from the stratosphere. Purchase prices for hogs began their slide early in 2021. Hog prices bottomed out at 10.5 yuan per kg. in early October, then rebounded to 15.8 yuan later in the month. Hog prices are about half the prices reported a year earlier in October 2020 and about the same as in early 2019. Pork prices have followed the same path. 

Source: China National Bureau of Statistics industrial purchase prices.

China's corn prices surged in 2020 and early 2021, but the upward momentum dissipated over the course of this year. The surge of corn imports since last year probably cooled off the upward momentum in corn prices, and falling hog prices may have pulled corn downward. Feed use of wheat bolstered wheat prices slightly as corn prices rose above wheat prices early this year. In October, the corn price was once again slightly below the wheat price. In contrast, China's rice prices have been weak since the fall harvest began, and a number of provinces have begun purchasing both indica and japonica rice at minimum prices. 

Source: China National Bureau of Statistics industrial purchase prices.

What worries Chinese officials is the potential for rising fertilizer and fuel prices to pinch farmers' profit margins as they plant crops to be planted in 2022. 

Source: China National Bureau of Statistics industrial purchase prices.

Agriculture in China's Free Trade Agreement Strategy

A global network of high-standard free trade areas is one of the components of China's 14th five-year plan. A recent Farmers Daily article by a staff member at the agriculture ministry's trade promotion center explained the strategic role of agriculture in China's pursuit of regional free trade agreements (FTAs). The article appears to be part of a flurry of articles aimed at boosting China's ambitions to join the RCEP agreement set to take effect next year. 

The author explained that FTAs and the multilateral trading system are two wheels of the globalized economy. In 2002, China began negotiating its first FTA with ASEAN, the southeast Asian trading bloc--immediately after joining the WTO. By the end of 2020 China had 19 FTAs with 26 countries and regions. Agriculture plays an important role in China's FTA strategy, the author claimed. 

Agriculture has generally played a relatively minor role in China's FTAs. A perusal of China's FTA partners listed on a special FTA section of the Ministry of Commerce website includes many countries like Mauritius, Maldives, Georgia, Bangladesh, Switzerland, South Korea, and Iceland that are not major agricultural exporters. Similarly, other FTAs being negotiated include countries like Sri Lanka, Israel, Norway, Moldova, and Panama that are not known as food exporters. The Phase One agreement with the United States is not mentioned, nor is the U.S. mentioned even as a prospective FTA partner. Canada is the only major ag exporter listed as an FTA under study, but farm exporters Brazil, Ukraine, Argentina, and Russia are not on the list.

The author explained that China has used several different strategies for farm commodities in FTA negotiations in view of agriculture's role in national food security and boosting incomes of rural people. 

Two big agricultural exporters that do have FTAs with China are Australia and New Zealand. The author explained that China carefully guards agricultural interests when making deals with agricultural exporters who view access to China's market as a major objective. The author said that 20 rounds of negotiation with Australia were drawn out over 10 years with dozens of technical consultations. China struggled to exclude sensitive commodities like grains, cotton, oilseeds, and sugar from tariff cuts. Tariff cuts for wool, beef mutton and dairy were stretched over a longer phase-in period and protective measures were added. For less sensitive products like fish, shellfish and fruit, China granted Australian proposals to speed up tariff cuts. 

While not mentioned in the article, dairy products, fruit, and fish from New Zealand, Chile and Peru have gained greater access to China's market with tariffs cut to zero over about seven years by FTAs.

In contrast, China's opportunities to export agricultural products was a chief benefit of the FTA with South Korea. The author said China's industry was vulnerable to competition from South Korean manufacturers of items like automobiles and petroleum. He said China stuck to its strategy of balancing overall interests in trade negotiations by balancing benefits from agricultural exports to South Korea while using leverage to reduce South Korean demands for opening industrial markets. 

In China's ASEAN FTA, agriculture played a role as demonstration role as a sector targeted for fast-track tariff reduction through an "early harvest" agreement that cut tariffs on agricultural products faster than tariffs on industrial and consumer goods. Vegetables, fruit, and aquaproducts saw rapid growth in the early years of trade with ASEAN. China's imports of fruit are probably the biggest component of this trade. China's rice imports from Southeast Asia were slower to take off, but they also boomed in the last ten years. China cut its out-of-quota tariff on rice from 65% to 50% for ASEAN exporters. China's tariffs for broken rice are now just 5% for ASEAN countries and the MFN tariff is 10% for other countries. 

It's no surprise that China carefully manages its FTAs to protect agricultural interests. This is not unfettered free trade. FTAs must consolidate China's food security, ensure core points and interests in agriculture, and satisfy both parties' basic interests, the author said. 

Bail Out the Bankrupt; Keep the Masses Fed and Warm

After hearing a report on an inspection of 16 provinces, China's Premier Li Keqiang ordered officials to help major companies escape financial ruin, plug holes in local government finances, and keep the masses fed and warm. Behind the scenes, officials are worried that Olympic ice skaters will have enough vegetables to eat. 

Premier Li's top priority at the November 2 meeting was to help major market players alleviate "new" financial difficulties and fine-tune an economy facing "new downward pressure." Specific problems he cited include unpaid debts to small and medium enterprises, financial problems for some local governments, and rising costs due to soaring commodity prices. 

The second priority is to address "pain points" for the common people, including unpaid wages for teachers, unpaid medical expenses, reconstruction of aging residential communities, and other "unsolved problems" related to maintaining the basic standard of living. This includes stabilizing food supplies and prices and keeping people warm through the winter. 

Third, Premier Li took aim at waste of government funds, calling for an end to "face" projects. Instead  "valuable public funds" should support market players and maintain peoples' basic living standard. The meeting called upon officials to refrain from formalism and bureaucracy, and to resolutely oppose inaction, reckless action, "mean government" and "lazy government". 

On cue, other Chinese Government organizations have released documents this week calling for vigilance in stabilizing supplies of basic necessities. 

A November 1 notice on ensuring supply of vegetables and other daily necessities over the winter issued by the commerce ministry encouraged families to stock up on basic staples in case of emergency. The notice was interpreted by many Chinese citizens as a signal that the country was about to invade Taiwan, and it become the most-discussed topic on social media. 

A rebuttal posted by China Grain Net berated netizens for "over-interpreting" the commerce ministry's notice as an invasion warning. The article explained that such notices are commonly issued, and this one was prompted by flooding and other weather events, rising vegetable prices, the pandemic, and the possibility of more weather events driven by a prospective La Nina. The advice to stock up on necessities was given in case citizens encounter covid lockdowns, the article explained. 

An October 29 notice on winter vegetable production and marketing issued by the Ministry of Agriculture and Rural Affairs explained that vegetable prices had been rising due to extreme weather since September, virus prevention, rising production costs, and power cuts. The Ministry ordered officials to ensure vegetable supplies to cities, especially during the winter holidays and the Beijing winter Olympics. 

Winter and spring agricultural supply was the theme of a November 4 Ministry of Agriculture and Rural Affairs news conference. Market Information Director Tang Ke explained that China had experienced nearly unprecedented flooding this fall, and 2 million mu of vegetable fields are still waterlogged or flooded. Lack of sunshine has slowed growth, especially effecting leafy vegetables like spinach and lettuce. Tang cited rising fertilizer and pesticide prices for raising vegetable production costs, disruption of transportation by rising fuel costs, power cuts that wiped out seedlings in greenhouses, and disruptions from the spread of the virus in some areas. 

The deputy director of the Ministry's crop production office assured the public that increases in grain production in northeastern provinces and elsewhere offset losses to flooding in Henan, Shanxi, and Shaanxi Provinces. The Ministry expects a record grain output this year, and the crop office director claimed that supply is greater than consumption. She acknowledged that rain had slowed the planting of winter wheat, but claimed planting had been expedited after weather improved in mid-October. Now the risk is that the late planting will affect the crop's progress. 

The head of the Ag Ministry's veterinary bureau said pork is also in surplus, with the 30 million head slaughtered at above-scale facilities in October up 110 percent from a year earlier and the 46-million-head sow herd 6 percent above its equilibrium size. His good news is that a bump in hog prices in October restored profitability for hog farmers. He encouraged everyone to eat more pork to improve their nutrition (perhaps he didn't read the State Council's dietary guidelines that encouraged people to eat less pork and more whole grains, leafy vegetables and soybeans).

On November 3, the director of the Administration of Grain and Commodity Reserves assured the public that wheat and rice reserves are adequate. He said grain reserves are at a historic high. Rice and wheat make up 70 percent of government grain reserves, and there is 1.5 years' supply of wheat in reserves. 

Chinese Land Sales Income to be Redirected to Countryside

Chinese real estate creates riches out of thin air by seizing rural land on the urban fringe, re-classifying it as "state-owned," selling it, building on it, and reselling it, padding its value each time. This process has created countless millionaires and bolstered municipal finances. Now Chinese officials have belatedly decreed that a larger share of those riches should be returned to the countryside to support agriculture and rural infrastructure. 

A document issued in September 2020 decreed that the 50 percent of income from sales of requisitioned land should be earmarked for agricultural and rural use by the end of the 14th five-year plan in 2025. 

At a press conference on the document last year a rural policy team headed by former rural development czar Han Jun (now governor of Jilin Province) estimated that the average share had been 34 percent during 2013-18. Han's task force estimated that increasing the share by 1 percentage point would generate 60-70 billion yuan (roughly $10 billion) for rural revitalization every year. 

Source: Jiemian.com.

The 2019 "Number one document" on rural policy first called for raising the proportion of land sales used for rural development. The 2021 document included one sentence in a paragraph on financing rural development that called for an evaluation system for devoting income from land sales to agricultural and rural spending, but no specifics or numbers.

Last month a videoconference was held in Beijing to discuss how to reach the 50% objective set by the 2020 document. The brief report on the meeting did not reveal any specifics. 

Redirecting land sales income to the countryside turns out to be a lot more challenging than it sounds. 

First of all, the 50% objective is nowhere near half of the gross value of land sales--it's 50% of what's left after paying for the land and paying for demolition. 

Yicai, a Chinese business news outlet, said last week that gross income from sales of requisitioned land soared from 50 billion yuan in 1998--when China's housing was first marketized--to 8.4 trillion yuan in 2020, about 8.3% of China's GDP. The value of annual land sales happens to be a little more than "primary industry" GDP of 7.7 trillion yuan--a rough measure of agricultural net output. Yicai commented that local governments hit by impacts of the pandemic last year were under pressure to fill gaps between shrinking income and ballooning expenditure with funds from land sales.

 Yicai noted that there are considerable costs deducted from land sales. A securities research institute in Guangdong found that 52% of land sales income is used for compensation and demolition. They did not elaborate on who was compensated, but probably just a fraction went to villagers who collectively "owned" the land. Another 23% was used for "land consolidation", 12% for urban construction, and just 1% for rural infrastructure, leaving little for discretionary spending, the institute found. 

The rural revitalization task force reported last year that cumulative gross income from land sales was 28 trillion yuan between 2013 and 2018, but only 5.4 trillion yuan was left after deducting costs of compensation and demolition. The team estimated that 1.85 trillion yuan was used for rural spending--about a third of net land sales but only 6.6% of gross sales.

Moreover, Han Jun reported that some localities inflate costs and under-report their gross land sales income. His team designed a "digital accrual" scheme to outflank them. 

The Guangdong securities institute found that a few coastal provinces take in the largest amount of funds from land sales. Jiangsu and Zhejiang Provinces were the top two, reaping over 800 billion yuan each in 2019. Shandong and Guangdong Provinces took in 500-600 billion yuan each, and the next 10 provinces earned 150-300 billion yuan. Many of these provinces financed all of their local expenditures with land sales income. 

In contrast, provinces in China's western and northeastern regions earned relatively little from land sales. These provinces are accordingly in weaker financial condition and rely on transfers from the central government and tax refunds. 

Redistributing the land sales pot of gold involves a tug of war between multiple government ministries and different levels of government whose interests are not always aligned. Last month's videoconference included the Minister of Agriculture and Rural Affairs, a Vice Minister of Finance, deputy director of the national rural revitalization administration, and officials from the National Development and Reform Commission, State Tax Administration, and Jilin, Inner Mongolia, Anhui, and Guizhou Provinces participated.

A report on land management from Jiangsu Province's standing committee last week reveals the challenges of juggling priorities in land allocation. The report cited a contradiction between "twin bottlenecks" of economic development and protecting land resources, plus a jumble of industrial, agricultural, housing, energy-conservation, and environmental protection zoning plans and priorities. Cities and industrial parks need land to fulfill plans for housing developments, ecological protection, "industry chains" and "industry clusters", while officials are under orders to delineate "permanent basic farmland," prevent loss of farmland and to prevent farmland from being used for non-grain crops. The Jiangsu report calls for addressing lingering "historical" problems, including construction of villas and hotels inside greenhouses to comply with farmland development restrictions, disputes over land with Taiwan-invested companies, and registration of land belonging to religious organizations.