Benchmarking China-Asean trade: What is the score?

China, a $10-trillion economy growing at 7 percent annually, is a never-before-seen force reshaping the global economy. The International Monetary Fund (IMF) reports that China surpassed the United States as the world’s largest economy at purchasing power parity in 2014.

By 2022, more than half of China’s urban households should be in the upper middle class (with an annual household income of $20,000 to $40,000 in today’s dollars), according to a Mckinsey report (October 2014). The number translates to an increase of more than 100 million households over the coming decade from 14 percent in 2012. This will mean about 630 million people with massive purchasing power.

In 2000, only 4 percent of the urban households in China were middle class. By 2012, that share soared to over two-thirds. And by 2022, China’s middle class would be would number 630 million – that is, over half of urban Chinese households and 45 percent of the entire population. The rise of the middle class is essentially an urban phenomenon. Average per capita urban income in China is roughly triple that in the countryside – and there are set to be 170 million new urbanites between 2012 and 2022 (Barton et al, Mapping China’s Middle Class, McKinsery, 2013).

Agriculture

China does not feed itself today – not with the kind of quality and value-added products that the middle class wants – but it will be [even] more challenged in the future. Repeated food-safety crises illustrate the challenge. Chinese firms are investing in large-scale agriculture outside of China from Chile to Ukraine. They are also investing in China, especially in value-added products-such as fruit and the production of frozen ready meals (Orr, McKinsey Insights, October 2014).

China and India have almost the same population of about 1.3 billion. China has 9.3 million hectares (ha) of land area, or three times bigger than India’s. But India has 153 million ha of farm lands versus 122 million ha for China. India has 66 million ha of irrigated land versus 63 million ha for China. China’s farmlands are declining with rapid urbanization and infrastructure investments.

Modernization of the supply chains is a key enabler of increasing productivity in many sectors in China. Until recently, most goods were carried by individual truck owner-operators.

Alibaba Group, an e-commerce company that provides consumer-to-consumer, business-to-consumer and business-to-business sales services, is committed to spending billions on its own logistics.

Even in agriculture, massive investment is under way in cold storage and cold carriage to reduce waste and provide higher-quality food products to China’s middle class (Orr, McKinsey Insights, October 2014).

What is the score?

What are the trends in China-Association of Southeast Asian Nations agri-food trade? How are the Asean countries faring? What about the Philippines’ track record?

China imported $25 billion dollars of agri-food products in 2013 from Asean, up from $3.9B in 2003. In contrast, it exported $12.1B to Asean in 2013 from $2.1 B in 2003. Imports rose over 6.3-fold; exports 5.8-times. In 2013, China’s trade deficit deteriorated from   $1.9B in 2003 to $12.1B in 2013.

Who are the leaders and laggards in China-Asean trade?

In 2013, the leading Asean suppliers to China by value were Thailand ($10.4 B), Malaysia ($6.4 B), Indonesia ($5.1 B), and Vietnam ($2.5 B). The Philippines was at the cellar with $539 million.

In terms of China exports during the same year, Malaysia absorbed $3.1 B, Thailand $2.8 B, Vietnam $2.5 B, and Indonesia $1.9 B. The Philippines bought $1.6 B.

With respect to surplus/deficit, China had large and rising trade deficits with Indonesia, Thailand and Malaysia. It posted increasing surpluses with the Philippines.

What is the story at country levels?

Indonesia. China’s exports rose 3.7 times but its imports increased faster by 7.4 times. China’s trade deficit worsened from $0.2 B to $3.1 B. The key exports were fruits, vegetables and finished rubber products. Its key imports were vegetable oils (palm oil) and primary rubber products in 2013.

Malaysia. China’s exports rose 4.5 times, but its imports expanded 4.4 times.   Nevertheless, its trade deficit expanded from $0.8 B to $3.4 B. The major exports were temperate fruits, vegetables, preparations of meat, fish and crustaceans, and finished rubber products. Meanwhile, China’s main imports were palm oil and rubber products.

Philippines. China’s exports increased five times while its imports increased 3.8-fold. China’s trade surplus rose from $0.2 B to $1.1 B. China’s exports were crustaceans, vegetables (garlic and others), sugar confectionery, and finished rubber products. China’s key imports were fruits (bananas).

The Philippines is the only Asean country with a sustained trade deficit. Moreover, its major export rests solely on bananas.

Thailand. China’s exports rose 15 times from a low base while its imports grew eight-fold. Despite this, its trade deficit expanded from $1.1 B to $7.5B. China’s main exports were fish, fruits, vegetables, meat preparations, vegetable preparations and finished rubber products. Its main imports were fruits, vegetables, milling products (tapioca) and rubber products.

Vietnam. China’s exports rose eight times while imports rose seven times. China-Vietnam trade is practically balanced. Its main exports were temperate fruits, vegetables, finished rubber products. Its main imports were fruits, vegetables, cereals and primary rubber products.

Conclusions

China is a fast-growing market. It will continue to buy tropical fruits, vegetables, cereals, vegetable oils, and primary rubber. On the other hand, it has strong positions in fish, temperate fruits and vegetables, preparations of meat, sugar confectionery, preparations of vegetables and fruit and finished rubber products.

Where is the Philippines in the picture? It must soul-search for its place. Banana is the only export of significance. It has an underdeveloped base in cassava, seafood, palm oil, and natural rubber. It has the least diversified exports among Asean peers, and a worsening trade deficit.

Where do we go from here? We must build a competitive farming and agri-industry sectors.

(The author is the Chair of the MAP Agribusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at <[email protected]> and < [email protected]>. For previous articles, please visit <map.org.ph>)