China’s Land Reforms Offer Plenty for American Midwest’s Agricultural Businesses

Posted on by

By Chris Devonshire-Ellis

Oct. 20 – As we reported last week, China’s land reforms are to have a significant impact on the nations development and the lifting of rural peasants out of poverty. However, the implications for agricultural related businesses, especially in the United States, should not go unnoticed.

The Chinese system, introduced by Mao Zedong as part of the restructuring of China following the Communist Party’s take over of the country, was at the time revered as landmark legislation. China’s many revolutions have all been peasant based, and with huge numbers of the common people behind Mao’s reforms, to be given a plot of land to work on after years of suppression by ‘capitalist’ landowners was for many, a blessing. There has been little change in this collective system of farming since the early 1950s, with families having the right to use a small plot of productive land for their own use. With 700 million people now dependent on this system, today’s China however has seen this method of land usage become increasingly awkward.

With small plots, families cannot raise enough capital to improve crops. Much of the land then is used purely as subsistence farming, purely enough to keep people alive. Poverty is rampant. Land usage is also woefully inefficient, and with 1.3 billion people to feed with a total arable land mass of just 5 percent of its territory, that is a potentially risky problem for the government. One bad year, and millions could starve. It has happened before, however now in a nation where the wealthy eastern provinces and cities are driving around in Mercedes Benz, such a disaster in the rural areas could prove calamitous.

The land reform system gives such farmers the rights to use the land for 70 years, and to be able to trade it, giving them effectively a sellable asset. That opens the door for two major events to take place. Firstly, it provides a government backed incentive to move people off the land and get them into urban areas, where education and retraining facilities can be provided to resettle them into industry. China’s population is aging, and the nation wants to be able to better access its most valuable resource—its workers. Ex-peasant farmers getting into factory work will keep the available worker and semi-skilled population in place, in China’s manufacturing boom, and thereby extend it, for some considerable time. Secondly, it allows for both Chinese state-owned Industries—and, interestingly, foreign investors, to be able to buy up local Chinese farmers land use rights, and to install proper land management systems over large areas previously just worked individually as small plots. Land productivity would massively increase as a result – very attractive in several ways, it minimizes risk of any mass crop failures, it eases pressures on domestic production and food consumption, and it further enhances China’s abilities to be a net exporter of produce, with significant regional impacts. One feature of Southeast Asian development has been the increase, as wealth improves, in basic food commodity consumption. Asia, including most of China’s neighbors, requires more food.

The implication for China, and for foreign investors, is potentially huge, and especially the granary of the American Midwest. China now has an immense need for superior land management skills and technologies as huge swathes of its central and western regions become acquirable and commercially viable. Irrigation systems, fertilizers, crop management technologies, seed development, and hardware provision such as tractors, combine harvesters and crop storage and processing facilities all suddenly become a valuable investment requirement.

Land reform in China is one of the most significant developments in China since Deng Xiaoping declared the country “open for business.” For U.S. businesses involved in the sector, it is a once in a lifetime opportunity to take part in the most significant opening up of agricultural land development yet to have been made globally available.

Chris Devonshire-Ellis is the senior partner of Dezan Shira & Associates, and has been lecturing over the past week in Chicago on the implications of Chinese land reform. Dezan Shira & Associates are members of the World Trade Center, Illinois. To contact Chris over matters of China’s land reform and the potential opportunities it offers to the American and European agricultural industry, please email him at chris.devonshire@dezshira.com.

2 Responses

  • John Chapple says:

    Chris, as one of the few peopls who have actually farmed a reasonable tract of land in Shandong (4500 mu) I would suggest that you are underplaying the challenges to the foreign investor. Obtaining access to the land is only the beginning of the story. There are huge social, climatical and logisitical problems to be overcome beofe anyone could turn that land into a successful agribusiness.

  • Chris Devonshire-Ellis says:

    Hi John;

    Yes, I would agree with your sentiments although not the underplaying aspect – I didn’t say how difficult it would be. What I can tell you however is that various other reforms relating to the agricultural sector and FDI into it are being studied and that I think the Chinese are very serious about getting change into the arable land that they do have. It’s woefully under-utilized, and they do recognize the need to get foreign expertise in. That is and will create opportunities. Russia incidentally has been quite successful with its land reform measures although there is still a lot of scope for improvement, the productivity of the land has tripled in the last five years. The Chinese model is based mainly on the Russian reforms enacted by Putin a while back. Meanwhile, agricultural clients of ours – such as heavy duty tractor / combine manufacturers, are exporting product in record quantities to China – so the industry is on the move there.

    Thanks for your comments
    Best wishes
    Chris

Leave a Reply

Asia Briefing Bookstore Catalogue 2013