1. The Chinese Agricultural Sector after Admittance to the WTO Won W. Koo Director and Professor Center for Agricultural Policy and Trade Studies North Dakota State University

2. Objective of this Study To analyze the impact of China’s accession to the World Trade Organization (WTO) on Chinese agricultural production, consumption, and trade. Special attention is given to the Chinese wheat industry under the WTO.

3. Organization Overview of Chinese agricultural and industrial sectors Changes in Chinese agricultural production, consumption, and trade during the past two decades Impact of entering the WTO on the Chinese wheat industry Expected structural changes in Chinese agriculture under the WTO

4. Overview of Chinese Economic Development Close interdependence between the agricultural and industrial sectors Agricultural sector has made a limited contribution to the development of the industrial sector Industrial sector has made a large contribution to the development of the agricultural sector

5. Agricultural growth rate is much slower than industrial growth rate—more resources used in industrial sector Average labor productivity: 7,700 yuan in industrial sector 1,700 yuan in agricultural sector

6. 0 10000 20000 30000 40000 50000 788082848688909294969800 Agricultural Sector Industrial Sector GDP in the Agricultual and Industrial Sectors (1978-2000) 100 million yuan

7. Table 1. Characteristics of Chinese Agricultural and Industrial Sectors unit198019902000 Industrial Sector labor10,000 persons77071365416009 labor (% of total) % 18.1921.3622.50 GDP100 million yuan2192.07717.445487.8 share of total GDP % 48.5241.6150.88 GDP per ind laboryuan/person2844.175652.1228413.89 capital investment100 million yuan401.791618.187467.249

8. Table 1. Characteristics of Chinese Agricultural and Industrial Sectors (continued) unit198019902000 Agricultural Sector labor10,000 persons291223842835575 labor (% of total) % 68.7560.1350.00 GDP100 million yuan1359.45017.014212.0 share of total GDP % 30.0927.0515.90 GDP per ag laboryuan/person466.791305.563994.94 arable land1,000 hectares993059567095400 arable land per capita hectare/person0.1010.0840.075

9. Table 1. Characteristics of Chinese Agricultural and Industrial Sectors (continued) unit198019902000 International Trade exports100 million yuan271.22985.820635.2 imports100 million yuan298.82574.318639.0 FDI (actually used)100 million US$2.6034.87407.15

10. Table 1. Characteristics of Chinese Agricultural and Industrial Sectors (continued) unit198019902000 National Economy labor10,000 persons423616390971150 population10,000 persons98705114333126583 GDP100 million yuan4517.818547.989403.6 per capita GDPyuan46016347078 GDP growth rate (last year = 100) %7.804.208.30

11. Changes in Chinese Agriculture China is the largest grain-producing and -consuming country in the world Total arable land = 130 million hectares (about 13% of total land) Per capita arable land = 0.1 hectare Major grains produced: wheat, corn, rice, and soybeans

18. China’s Efforts to Gain Membership in the WTO U.S.-China Bilateral Trade Agreement in November 1999 China becomes a member of the WTO in November 2001

19. Table 2. China’s TRQ under the U.S.-China Bilateral Trade Agreement Quota 20002004 Private Share Average Imports (1997-1999) --thousand metric tons--(%)thousand metric tons Wheat7,3009,636102,000 Corn4,5007,20025(40) a 250 Rice2,6605,320--250 Short/medium grain 1,3302,66050– Long grain1,3302,66010– a 40% is private share of the total import quota in 2005. Source: U.S. Trade Representative.

20. Impact of China’s Accession to the WTO on the Chinese Wheat Industry

21. Global Econometric Policy Simulation Model 5 exporting countries 13 major importing countries/regions Wheat classes: durum and common wheat

22. Behavioral Equations in the Countries Area harvested in equations Yield equations Carry-over stock equations Domestic consumption equations

23. Equilibrium Condition Aggregate Excess Demand = Aggregate Excess Supply

24. Base and Alternative Scenarios Base scenario assumes that China will import wheat from major exporting countries based on the U.S.-China Bilateral Agreement Scenario 1 assumes that China’s import tariffs remain at the 2001 level Scenario 2 assumes that China will import the maximum levels of wheat allowed by the TRQ (7.3 million metric tons in 2002 and increasing to 9.5 million metric tons by 2006)

25. Table 3. Demand, Supply, and Income Elasticities for Common Wheat Country/RegionDemandSupplyIncome United States-0.0590.2090.359 Canada-0.1250.1060.390 EU-0.0830.0250.138 Australia-0.3020.0740.471 Argentina-0.1790.1650.433 Algeria-0.1650.0000.686 Brazil-0.1480.3850.297 China-0.0720.0370.232 Egypt-0.0500.2060.433 Japan-0.0050.0000.378

26. Table 3. Demand, Supply, and Income Elasticities for Common Wheat (continued) Country/RegionDemandSupplyIncome S. Korea-0.0900.0000.323 Mexico-0.0340.0590.883 Morocco-0.0730.0350.105 FSU-0.2140.1300.527 Tunisia-0.0350.0000.543 Taiwan-0.1620.0000.645 Venezuela-0.0770.0000.682 ROW-0.1000.0620.458

27. Table 4. China's Wheat Industry under the Base and Alternative Trade Scenarios Base Scenario 1 Scenario 2 20012005 Change (%)2005Change (%) Carry-in50,47522,91922,9700.222,723-0.8 Production94,996115,307116,9731.4110,352-4.3 Imports1,0854,2782,615-38.99,427120.3 Consumption114,085117,909116,982-0.8118,8080.8 Carry-out31,47524,59625,5760.223,694-3.7

28. Table 5. Changes in Wheat Exports in 2005 in the Base and Alternative Scenarios BaseScenario IScenario II Export quantity (1,000 metric tons) United States Exports to China0-9152,218 Exports to ROW0333-514 Net change0-5821,704 Major exporting countries Exports to China0-7481,816 Exports to ROW0342-635 Net change0-4061,181

29. Table 5. Changes in Wheat Exports in 2005 in the Base and Alternative Scenarios (continued) BaseScenario IScenario II Export Values (million U.S. dollars) United States Exports to China0-126323 Exports to ROW046-75 Net change0-80248 Major exporting countries Exports to China0-103264 Exports to ROW047-93 Net change0-56171

30. Expected Changes in Chinese Agriculture Trade liberalization under the WTO will decrease domestic prices of major crops produced in China, leading to reductions in the net farm income

31. Gradual movement of agricultural labor to the industrial sector because of higher labor productivity in the industrial sector than in agriculture Example: Korea’s farm population was over 60% of the total population in 1960 but was less than 10% in 2001

32. Larger farm size, which increases efficiency in farm operation Example: Korea’s farm size increased from 0.7 hectares in 1960 to over 2.5 hectares in 2001 Changes in agricultural production due to external competition and changes in consumption patterns

33. Farming technology encourages move from traditional labor-intensive agriculture to capital-intensive agriculture Example: agricultural sectors in Korea, Japan, and Taiwan