China liberalizing grain market
(Xinhua)
Updated: 2004-06-08 09:59

Long plagued by the great losses of State-owned grain enterprises, China began this month to liberalize its strictly-controlled and inefficient grain system to break SOEs' long-held monopoly over the grain market.

On June 3, the State Council, China's cabinet, released new Regulations on Grain Circulation Management, ordaining to let the market decide the grain prices and encourage fair competition between SOEs and private grain companies.

Analysts inside the central government's think-tank said the new move by the State Council marked an "irreversible" market reform of the country's grain industry.

They said the reform would lay to rest the government's monopoly over grain industry via SOEs as it is real core-touching with changes in grain production, pricing, sales and distribution.

"Policy-makers strongly believe it is time to carry out the market-oriented reform in the grain system," said Dr. Huang Hanquan with the Macro-economy Research Institute under the State Commission of Development and Reform.

"The role of the market and fair competition should become the rules of the game," Huang said, adding that the latest reform will enable the Chinese government to establish an open grain trading environment, ensure its food security and even raise the income of its farmers.

China has taken a series of reforms beginning this year to clear away barriers that block the free circulation of grain.

The grain buying and selling market is now fully opened for competition, making it necessary for State-owned grain enterprises to compete with private companies in a fair play.

Private grain companies now can buy grain directly from farmers and resell or process them, which was unimaginable years ago when the central government held a complete monopoly over the grain market.

According to sources close to China's top policy-makers, the reform of grain enterprises' ownership and management mechanism is also on the government's agenda, which will give all capital, private or public, the access to shareholding, requisition and merger of those SOEs.

To enhance corporate governance of its large number of State- owned grain enterprises, the Chinese government is considering disposing of its non-performing assets and debts left over for generations while planning to streamline their redundant staff, according to the sources.

Chinese leaders have repeatedly emphasized the principles not to force the peasants to grow certain kinds of crops in their speeches and instructions on the grain production.

Earlier this month, Premier Wen Jiabao listed liberalization of grain trading, pricing and offering subsidies to grain growers as among China's priority tasks for reforming its grain distributing system.

"It is high time for China to liberalize grain trading in major grain-producing areas now," Wen said when addressing a two-day national meeting on grain market reform.

The State Development and Reform Commission and other relevant departments under the Chinese cabinet are accelerating their process to improve the State- and provincial-level grain reserve system to shun sharp price fluctuations with an early-warning and immediate market monitoring system.

To allay farmers' fears over the possible risks brought by the market reform, China has provided some 10 billion yuan (US$1.24 billion) to subsidize grain growers in leading grain- producing areas.

A minimum purchasing prices system for major cereal varieties was also set up in the sowing seasons to boost the market expectations.

"The setting of the minimum purchasing prices is aimed to steady the grain market," said Dr. Lan Haitao with the Industry Economy Research under the State Development and Reform Commission

Grain enterprises will be chosen by governments through designation or public bidding to purchase the grain according to such minimum purchasing prices when the market prices are lower than the minimum prices.

Those enterprises will get subsidies from the State to collect and store grain. But their future profits from selling those grain will be shared by the government according to the proportion set by contracts.

Lan said the new reform was different from the practice in late 1990s to buy at protective prices all surplus grain that farmers are willing to sell.

"Such practice could barely guide a sound development of the market," Lan said.

China tried a market-oriented reform of its State-owned grain enterprises from 1992 to 1993 to lift control over grain prices and grain enterprises management, but it only led to the price skyrocketing in 1994 due to inadequate grain storage and lack of macro-control measures.

That reform was soon replaced by the government's monopoly over the industry after some blame of the reform for the nationwide inflation in following years.

In 1998, China launched another reform of its State-owned grain enterprises when farmers had few channels to sell their surplus grain with such SOEs operating at huge losses of 210 billion yuan (US$25.3 billion).

During the reform, the government hoped to make the SOEs become the principal play on the market with exclusive monopolized purchase of grain, but also failed.

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