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DE RUEHBJ #3598/01 2610632
ZNR UUUUU ZZH
P 170632Z SEP 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 9968
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 2289

UNCLAS SECTION 01 OF 03 BEIJING 003598 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USDA/ERS 
STATE PASS USDA/FAS/ITP CHINA DESK 
STATE PASS USTR FOR STRATFORD/SCHWAB 
TREASURY FOR OASIA 
GENEVA PASS TO USTR 
 
E.O. 12958:  N/A 
TAGS: ECON WTRO EAGR ETRD EINV CH
SUBJECT: China's Food Security Concerns: Perception 
and Reality 
 
Refs: A) Beijing 03519, 
B) USDA/FAS GAIN Report Number: CH8062; 
C) USDA/FAS GAIN Report Number: CH8063; 
D) FBIS Number:Cpp20080725338011; 
E) USDA/FAS GAIN Report Number CH8077 
   and 2007 China Statistical Yearbook; 
F) USDA/FAS Beijing Mark Petry Email 
 
(U) This cable contains business sensitive information. 
Please protect accordingly. 
 
¶1. (SBU) Summary:  Although China is largely self- 
sufficient in grain production, rising global and 
domestic food prices have reinforced longstanding 
Chinese concerns about food security.  This has 
sparked a debate in China over whether China's current 
policies need to be adjusted to ensure China can 
continue to meet its goal of food self-sufficiency. 
In addition, Chinese government officials and press 
have become increasingly vocal in recent months about 
a perceived threat that foreign companies and trade 
could pose to China's food self-sufficiency.  China's 
focus on the issue has also been sharpened as rising 
incomes have led to growing Chinese food consumption, 
while development and pollution have whittled away at 
China's arable land.  End Summary. 
 
¶2.  (SBU) The official Chinese press has recently 
carried numerous articles penned by prominent policy 
makers and economists hailing the importance of food 
security (Ref A).  Likewise, rural economy experts at 
the Chinese Academy of Social Sciences (CASS), Chinese 
Communist Party Central Policy Research Office 
(CPC/CPRO), State Council Development Research Center 
(DRC), Renmin University, and Henan Agriculture 
University all emphasized the importance of food 
security in recent meetings with Econoffs.  Although 
food security is not a new topic, and indeed has long 
been an important theme in China's rural and 
agricultural policies, the tempo of the discussion 
seems to have increased. 
 
-------------------------------------- 
Overkill?: China's Food Security Focus 
-------------------------------------- 
 
¶3. (SBU) The Chinese government has traditionally 
believed that domestic production--vice trade and 
diversified sourcing--is the best means to guarantee 
the country's food supply.  The government most- 
recently reiterated this goal at an early July 2008 
State Council meeting on China's grain security plan 
chaired by Premier Wen Jiabao (Ref B).  The plan again 
stated China's grain self-sufficiency target rate of 
95 percent.  In July Wen also announced an additional 
$3 billion in state support for the development of 
agricultural biotechnology over the next 15 years, 
signaling China's intent to use biotechnology as a key 
means to address food security (Ref C).  Rural and 
agriculture issues are also on the agenda to be 
discussed at the upcoming Third Plenary Session of the 
17th CPC Central Committee in October (Ref D). 
 
¶4. (SBU) China exceeds the 95 percent self-sufficiency 
target rate in rice, wheat and corn, and in recent 
years has produced and exported a significant surplus 
of most agricultural products, especially processed 
products.  However, China has become a large net 
importer of oilseeds and edible oils, and according to 
Chinese government statistics, domestically produced 
soy beans held only 31.2 percent market share in 2007. 
(Note: According to CPC/CPRO official Zheng Xinli 62 
percent of edible oil is imported and 70 percent of 
domestic production comes from foreign-invested 
companies that imported oil crops from their home 
countries. End Note.) 
 
¶5. (SBU) Adding to the perception of decreased self- 
sufficiency, in the first half of 2008 China became a 
net food importer in cash terms, as soaring prices for 
primary and intermediate commodities ate into its 
surplus in value-added, processed agricultural exports. 
(Note: While we do not yet have numbers for 2008 
 
BEIJING 00003598  002 OF 003 
 
 
agriculture production, the USD 7 billion food deficit 
for the first half of 2008 is only about three percent 
of China's 2006 total half-year farming and animal 
husbandry production.  Since agricultural production 
has increased, the share should be even smaller now. 
Ref E.  In Ref A Ren Yifang, Secretary General f the 
China Society for WTO Studies, cited a USD 10 billion 
deficit in agriculture trade wit the United States. 
According to USDA statstics the 2007 U.S.-China trade 
deficit in th broader agricultural products category 
was atually USD 5.4 billion. Ref F. End Note.) 
 
 
--------------- -------------------------------------- 
Policymakers Balance Rural Development, Food Security 
--------------------------- -------------------------- 
 
¶6. (SBU) Many rural economists are concerned that the 
goals of increased rural incomes and grain self- 
sufficiency are incompatible.  Henan Agricultural 
University economist Zhang Dongping asserted that 
there is often an inverse relationship between 
economic development and grain production. 
Transitioning labor from farming to non-farm 
activities is needed to increase agricultural 
productivity and raise living standards, according to 
Zhang, but local leaders also face a dilemma because 
raising rural incomes often means de-emphasizing grain 
production.  While Henan and some other traditional 
grain producing centers are trying hard to balance 
industrialization with the central government's goal 
of maintaining grain production, he thought a number 
of breadbasket provinces such as Shandong, Zhejiang, 
Jiangsu and Hunan are shirking their role in helping 
China maintain grain self-sufficiency.  (Note: 
According to Chinese government statistics, Henan's 
overall grain production by volume increased 17.8 
percent between 2000 and 2006.  Over the same period 
production fell 14.5 percent in Jiangsu, 5.2 percent 
in Shandong, 0.7 percent in Hunan, and 36.5 percent in 
Zhejiang.  End Note.) 
 
¶7. (SBU) Gross rural incomes increased 10.3 percent in 
the first half of 2008, and Embassy contacts at CASS 
and Henan University agree higher income and benefits 
for farmers combined with direct subsidies for grain 
production have thus far helped maintain production 
despite the loss of arable land (e.g. through 
urbanization and desertification) and water shortages. 
However, agriculture inputs prices rose at the same or 
a higher rate as production, meaning that net farm 
income actually may not have improved significantly. 
Also, the Ministry of Agriculture recently announced 
that the per capita urban-rural income gap expanded in 
2007 to RMB 9,464 (USD 1,382), the largest in 30 years. 
In meetings with Econoffs, Chinese scholars such as 
Yang Tuan at CASS and Wen Tiejun at Renmin University 
expressed reservations about the reach and 
effectiveness of recent policy initiatives to improve 
rural livelihoods and reduce poverty through direct 
subsidies, encouraging specialized rural collectives, 
eliminating the agriculture tax, and channeling funds 
to improve the rural safety net.  Wen, Yang and others 
emphasize the central government's over-riding 
concerns about social and political stability when 
dealing with rural issues. 
 
-------------------------------- 
Confidence in the Market Lacking 
-------------------------------- 
 
¶8. (SBU) Market mechanisms and the private sector 
clearly are playing an increasing role in developing 
China's agriculture sector and meeting its food 
security goals.  Beijing University economists Lu Feng 
and Xie Ya, writing in a December 2007 academic 
working paper, even assert that food has ceased to be 
a sensitive political issue and that the market 
economy is now the predominant tool shaping solutions 
to China's food security challenges. 
 
¶9. (SBU) While most of our interlocutors agree that 
market forces are playing a greater role, the majority 
 
BEIJING 00003598  003 OF 003 
 
 
believe that food policy, especially with regard to 
price stabilization, will continue to be of critical 
importance because food items are the second largest 
part of the Chinese CPI after housing and are the most 
variable.  All expressed concern about allowing the 
market too much of a role in agricultural policy and 
the setting of prices.  A Henan Provincial Development 
and Reform Commission official recently cited the role 
of foreign speculators in driving up grain prices, and 
editorial comments in the PRC press raise concerns 
about the vulnerability of China's agricultural sector 
to foreign competition and the growing role of foreign 
investors in China's grain storage industry. Recent 
articles have criticized growing foreign investment in 
pork production as well, noting the activities of a 
subsidiary of Goldman Sachs in buying up small scale 
producers.  (Note.  According to press reports a 
Goldman Sachs-controlled fund is investing in Henan 
Province-based Shuanghui Group and its subsidiary, 
Henan Shuanghui Investment and Development Co., 
China's largest meat and poultry processor.  But 
Goldman Sachs apparently has not received final 
approval for the deal. End Note.) 
 
¶10. (SBU) A number of Embassy contacts emphasized that 
such fears are not new.  CASS Rural Development 
Institute Director General Zhang Xiaoshan noted that 
similar arguments were made around the time of China's 
WTO accession in 2001.  Cargill's Director of 
Government Affairs in China told Econoffs that these 
concerns also underlie criticism of large 
multinational agricultural commodity firms in China 
and that Cargill is lobbying Chinese policymakers to 
avoid measures to protect domestic producers from the 
perceived threat.  China recently added new 
restrictions on investments in the oil seed crushing 
industry to the latest version of its foreign 
investment guidance catalogue. 
 
------- 
Comment 
------- 
 
¶11. (SBU) Most scholars highlight the deep-seeded 
historical and political concerns associated with food 
security and rural development issues.  These concerns 
include: the national security implications of losing 
grain self-sufficiency; rural instability resulting 
from lost domestic markets; and inflation that could 
eat away at Chinese citizens' savings.  These analysts 
emphasize that failure to tackle these challenges 
could cripple the leadership's ability to govern, and 
note that the leadership's interest in food security 
at times affects its ability to engage constructively 
with international partners. 
 
¶12. (SBU) While compared to Japan or even the United 
States, the volume of Chinese agricultural imports 
remains low, the composition of these imports has 
concerned Chinese policymakers.  Oilseeds and edible 
oils in particular touch many sensitive markets, 
including cooking oil and animal feed.  Edible oil is 
an important inflation bellwether for many Chinese. 
After seeing the impact of, in their view, unfettered 
market access on edible oil and oil seed prices, it is 
not surprising that many Chinese policymakers are not 
anxious to throw open domestic agricultural markets. 
 
¶13. (SBU) Faced with the multiple goals of improving 
farmers' net incomes while also ensuring grain 
security and price stability, Chinese rural 
policymakers need assurances that they can control 
outcomes before they open to imports. 
 
RANDT