Last year’s Third Plenum of the 18th Communist Party of China’s Central Committee aroused significant media interest, giving commentators an opportunity to take stock of Xi Jinping’s plans for China for the next decade. The published report indicates that a number of policy changes will be implemented in the near future. Five themes affecting agribusiness are key for domestic and international investors.
1. Market pricing
etermination mechanism will be introduced to the agricultural products market, reducing existing government interference intended to maintain stable prices. Some of the existing measures such as the subsidy made available to SOEs (state-owned enterprises) when they purchase primary agricultural products will be adjusted or removed. This will benefit private agribusiness companies, including FIEs (foreign-invested enterprises), placing them in a stronger position to compete with the SOEs.
2. Construction land
Under the current regulatory regime, construction land can only be provided by the State through grant or allocation. In the future, rural collectives will be able to grant land use rights in rural areas in return for compensation based on market rates. This is still subject to debate among the Chinese leadership but it is certainly a major shift. The market for the exchange of ‘land use rights’ (LURs) in construction land will probably be consolidated to create a ‘unified urban and rural construction land market’. If this goes ahead, the overheated property market in urban areas may cool off and the property market in rural areas improve.
3. Land contracting and operating rights
At the moment, land in rural China is owned by village collectives (usually an assembly of individuals living in the same village) and contracted to and used by households through ‘land contracting and operating rights’ (LCORs). Transfer of LCORs used to be heavily restricted. The plan now is for households to lease and mortgage their LCOR to third parties (who may or may not use the land for farming purposes). Investors in the agribusiness sector may decide to take this chance to expand into the countryside rather than stay in the cities.
Specialised farmers, family farms, farmers’ cooperatives and agribusiness enterprises are being encouraged to acquire the LCORs of smallholders in order to industrialise agricultural production and help to develop modern agricultural methods. Investors and agribusiness market players are also being encouraged to invest in key agricultural sectors – among them planting and feeding – in order to bring modern business modes into the industry. Local government may offer preferential treatment to such investors and agribusiness market players. Some large-scale agribusiness market players are likely to emerge in the near future.
5. Farmer protection
Better protections are set to be extended to farmers by guaranteeing equal payment for migrant workers’ work; building up a financial insurance system for farmers; and attracting more capital into villages to facilitate the construction of infrastructure and provision of social services.
The protection to farmers contemplated by the Third Plenum will raise the employment costs of some enterprises but more widespread infrastructure construction and provision of social services may present opportunities to investors in this emerging area.