By David Wolf
Whenever someone gets enough of an adult beverage into my system and starts talking about the fundamental challenges China faces, the discussion eventually turns to the plight of China's peasantry. All of the development in industry and services will be for naught unless some way can be found to bring prosperity to the 900-million or so peasant farmers that make up China's rural population.
That millions – perhaps hundreds of millions – of those farmers will migrate to China's cities is considered a given among "informed observers" of Chinese population trends – people like the Asian Development Bank, the World Bank, and similar government-organized super-national organizations (GOSNOs for short). The question that nobody can seem to agree on is how many of those farmers will be surplus to needs in Chinese agriculture (and thus will need to be absorbed in the urban workforce), and how quickly they will make that shift from rural subsistence farmer to urban migrant worker.
This question is no trifling matter. Setting aside completely the peasantry, there is a huge mass of urban industrial workers in state-owned enterprises that need to be shifted out of the inefficient state sector and into more efficient, globally competitive companies. Once they've made that shift, an entire system to provide for their social welfare has to be created, because the government and the SOE's have been carrying that up until now. Nobody expects this change to be fast – it will take years.
NOW, add onto this the challenge of absorbing a rural population in cities already crowded with unemployed or underemployed workers.
It's daunting. The clear answer is to drive rural prosperity. Quickly. Keep em down on the farm.
My soapbox, now as before, has always been to create an agricultural economy that is high value-added, labor-intensive, and resource (i.e, land, water, capital) efficient. Provide those high-value crops to the increasingly prosperous urban population in China, and leverage government investments in infrastructure and the growing foreign role in transportation and logistics to create a global export market for those crops.
Now it looks like China is starting to figure it out. In a recent article in the Far Eastern Economic Review, Andrew Browne and Lai Yang have demonstrated that despite policymakers preferences for agricultural self-sufficiency, local workarounds on land use and China's entry into the WTO is allowing local farmers to tap the demand for cash crops, and move up into the nations' middle class. They give stunning numbers. China now produces half of the world's vegetables and melons. China produces four times as many apples as the U.S., and the quality is improving rapidly.
And American producers of apples, broccoli, and similar crops are hurting…while producers of maize, wheat, soybeans, sugar, and cotton will likely celebrate. There's good reason for that: the U.S., with around 5-10% of its population engaged in agriculture, has consolidated farms and it excels at the mass production of grain, beef, and oilseeds. But even with migrant farm labor, American fruit is premium priced in Asia.
In the end, China's policymakers will undoubtedly see the wisdom of horticulture and comparative advantage over seed security. But that brings up another problem.
The steps being taken by the farmers that Andrew and Lai Yang talk about are basic and their scale is comparatively small. What happens when cash-crop combines like the Longda group mentioned in their article become the official model for Chinese farming? Demand grows for key inputs, and you face shortages in water, land, transportation, refrigeration, etc.
Some of the issues:
– Water is in critically short supply in China. Even the most optimistic estimates (government statistics) place China's per capita water reserves at the minimum level required for a healthy economy. Given that reserves are likely much below those numbers, water is clearly a critical limiting factor facing China's agricultural modernization. – Farms are some of the worst creators of water pollution in China. Current farming practices must be changed if this is to stop.
– While logistics are making progress, the situation in China is still horrible. There is no supply chain less tolerant of mistakes than a cash-crop supply chain, and the country is just not there yet. Coastal provinces are addressing these problems, but until cash crops can be brought from the interior as well, the radical inequalities between the west and the east in China – a festering sore point with the non-coastal populace – will grow, defeating much of the purpose of agricultural modernization.
– The supply of land available for agriculture shrinking. Cities are growing to accommodate the influx of displaced rural peasants. City dwellers are demanding a growing amount of space per capita. Suburbs are sprouting. Everywhere you turn in China demand for land for non-agricultural use is growing so quickly that the government has to inflict draconian measures to stop it.
In short, the move to cash crops is a great trend. But the leap to making it sustainable is going to require significant changes to the way crops are grown in China, including:
Techniques for raising crops with a minimum of water need to be adopted, adapted, and developed further. First, crop selection needs to begin emphasizing varieties that can be grown (or are best grown) in arid conditions. Some fascinating work in this area is being done in India at ICRISAT, but China absolutely must add arid and semi-arid crop research to its significant studies in reforestation. Indeed, a powerful case could be made that the focus of reforestation in China should be on sustainable cash crops for semi-arid environments. There are significant opportunities here for businesses in consulting, equipment, fertilizers, etc.
Second, techniques like aeroponics need to be developed further to allow their commercial utilization before it becomes economically essential to do so. More research, but a clear need for the world's leading developers of this technology to be here and be involved.
Wastewater processing for agricultural will eventually become a necessity. Yes, it's ugly, and as a longtime China resident I have a hard time dealing with the possibility that my fruit is being watered by something unmentionable, or indeed downright dangerous. But the realities are that China, like India and many other nations in the world, will have to turn to the use of wastewater in crops for part of the agricultural requirements. China could start by endorsing the Hyderabad Declaration on Wastewater Use in Agriculture and turning to reputable international firms to help. The problem here, of course, is that China has just destroyed any near-term opportunities in this area by publicly infuriating a major foreign investor in wastewater treatment and disallowing a 15% annual rate of return on a treatment project. With all respect to the Chinese government, it is unlikely that any facility solely operated by – or controlled by – a local utility will reliably deliver processed wastewater of the kind of quality that agriculture would demand. China needs foreign firms, their technology and their management in this field like nowhere else.
Logistics needs to be addressed in two ways. First, clearly there needs to be government-private partnership, including foreign firms, in the creation of an effective system for moving fresh fruits, vegetables, and the like from anywhere in China to anywhere on the planet in time to have them arrive fresh at supermarkets worldwide. That's a huge task and will require a lifetime of effort to accomplish.
Second, as in interim measure, processing infrastructure needs to be moved close to the point of harvest in order to be able to process the crops sufficiently to withstand (in some usable form) transportation to distant markets.
Postharvest physiology is another part of the solution, developing ways in the modification of plant breeds to help the crops maintain quality and prevent spoilage.
A premature focus on a potential solution that ignores the obstacles can create much larger problems than it solves in the context of a place like China. Anticipating the challenges – and addressing them – is a process that not only makes the solution viable, it also determines what areas China needs to focus on in developing technology.
Spending the national treasure on duplicating technologies that already exist is at worst an unconscionable waste, and at best an unsure bet on future returns simply for the sake of keeping the money onshore. Import substitution as a policy, however, has been out of favor for decades, particularly among countries with significant advantages to leverage.
Spending the national treasure, on the other hand, in green-field (no pun intended) areas of research and development that can propel the country beyond its greatest challenge is, on the other hand, a wise choice. And if it means that a few foreign companies need to make a healthy profit to get China there a few years sooner, where is the harm?
About the author:
Silicon Hutong is an ongoing series of thoughts and commentaries by David Wolf, President and CEO of Wolf Group Asia'a management advisory firm providing strategic communications counsel to technology, media, entertainment, and telecommunications companies in Greater China and the Asia-Pacific region. David's opinions are his own and do not reflect those of either WGA or it's clients. Past articles can be found at www.chinatechnews.com, the Silicon Hutong Blog can be found here and David himself can be contacted at [email protected].
Silicon Hutong: The Coming China AgTech Boom
Whenever someone gets enough of an adult beverage into my system and starts talking about the fundamental challenges China faces, the discussion eventually turns to the plight of China's peasantry. All of the development in industry and services will be for naught unless some way can be found to bring prosperity to the 900-million or so peasant farmers that make up China's rural population.
That millions – perhaps hundreds of millions – of those farmers will migrate to China's cities is considered a given among "informed observers" of Chinese population trends – people like the Asian Development Bank, the World Bank, and similar government-organized super-national organizations (GOSNOs for short). The question that nobody can seem to agree on is how many of those farmers will be surplus to needs in Chinese agriculture (and thus will need to be absorbed in the urban workforce), and how quickly they will make that shift from rural subsistence farmer to urban migrant worker.
This question is no trifling matter. Setting aside completely the peasantry, there is a huge mass of urban industrial workers in state-owned enterprises that need to be shifted out of the inefficient state sector and into more efficient, globally competitive companies. Once they've made that shift, an entire system to provide for their social welfare has to be created, because the government and the SOE's have been carrying that up until now. Nobody expects this change to be fast – it will take years.
NOW, add onto this the challenge of absorbing a rural population in cities already crowded with unemployed or underemployed workers.
It's daunting. The clear answer is to drive rural prosperity. Quickly. Keep em down on the farm.
My soapbox, now as before, has always been to create an agricultural economy that is high value-added, labor-intensive, and resource (i.e, land, water, capital) efficient. Provide those high-value crops to the increasingly prosperous urban population in China, and leverage government investments in infrastructure and the growing foreign role in transportation and logistics to create a global export market for those crops.
Now it looks like China is starting to figure it out. In a recent article in the Far Eastern Economic Review, Andrew Browne and Lai Yang have demonstrated that despite policymakers preferences for agricultural self-sufficiency, local workarounds on land use and China's entry into the WTO is allowing local farmers to tap the demand for cash crops, and move up into the nations' middle class. They give stunning numbers. China now produces half of the world's vegetables and melons. China produces four times as many apples as the U.S., and the quality is improving rapidly.
And American producers of apples, broccoli, and similar crops are hurting…while producers of maize, wheat, soybeans, sugar, and cotton will likely celebrate. There's good reason for that: the U.S., with around 5-10% of its population engaged in agriculture, has consolidated farms and it excels at the mass production of grain, beef, and oilseeds. But even with migrant farm labor, American fruit is premium priced in Asia.
In the end, China's policymakers will undoubtedly see the wisdom of horticulture and comparative advantage over seed security. But that brings up another problem.
The steps being taken by the farmers that Andrew and Lai Yang talk about are basic and their scale is comparatively small. What happens when cash-crop combines like the Longda group mentioned in their article become the official model for Chinese farming? Demand grows for key inputs, and you face shortages in water, land, transportation, refrigeration, etc.
Some of the issues:
– Water is in critically short supply in China. Even the most optimistic estimates (government statistics) place China's per capita water reserves at the minimum level required for a healthy economy. Given that reserves are likely much below those numbers, water is clearly a critical limiting factor facing China's agricultural modernization. – Farms are some of the worst creators of water pollution in China. Current farming practices must be changed if this is to stop.
– While logistics are making progress, the situation in China is still horrible. There is no supply chain less tolerant of mistakes than a cash-crop supply chain, and the country is just not there yet. Coastal provinces are addressing these problems, but until cash crops can be brought from the interior as well, the radical inequalities between the west and the east in China – a festering sore point with the non-coastal populace – will grow, defeating much of the purpose of agricultural modernization.
– The supply of land available for agriculture shrinking. Cities are growing to accommodate the influx of displaced rural peasants. City dwellers are demanding a growing amount of space per capita. Suburbs are sprouting. Everywhere you turn in China demand for land for non-agricultural use is growing so quickly that the government has to inflict draconian measures to stop it.
In short, the move to cash crops is a great trend. But the leap to making it sustainable is going to require significant changes to the way crops are grown in China, including:
Techniques for raising crops with a minimum of water need to be adopted, adapted, and developed further. First, crop selection needs to begin emphasizing varieties that can be grown (or are best grown) in arid conditions. Some fascinating work in this area is being done in India at ICRISAT, but China absolutely must add arid and semi-arid crop research to its significant studies in reforestation. Indeed, a powerful case could be made that the focus of reforestation in China should be on sustainable cash crops for semi-arid environments. There are significant opportunities here for businesses in consulting, equipment, fertilizers, etc.
Second, techniques like aeroponics need to be developed further to allow their commercial utilization before it becomes economically essential to do so. More research, but a clear need for the world's leading developers of this technology to be here and be involved.
Wastewater processing for agricultural will eventually become a necessity. Yes, it's ugly, and as a longtime China resident I have a hard time dealing with the possibility that my fruit is being watered by something unmentionable, or indeed downright dangerous. But the realities are that China, like India and many other nations in the world, will have to turn to the use of wastewater in crops for part of the agricultural requirements. China could start by endorsing the Hyderabad Declaration on Wastewater Use in Agriculture and turning to reputable international firms to help. The problem here, of course, is that China has just destroyed any near-term opportunities in this area by publicly infuriating a major foreign investor in wastewater treatment and disallowing a 15% annual rate of return on a treatment project. With all respect to the Chinese government, it is unlikely that any facility solely operated by – or controlled by – a local utility will reliably deliver processed wastewater of the kind of quality that agriculture would demand. China needs foreign firms, their technology and their management in this field like nowhere else.
Logistics needs to be addressed in two ways. First, clearly there needs to be government-private partnership, including foreign firms, in the creation of an effective system for moving fresh fruits, vegetables, and the like from anywhere in China to anywhere on the planet in time to have them arrive fresh at supermarkets worldwide. That's a huge task and will require a lifetime of effort to accomplish.
Second, as in interim measure, processing infrastructure needs to be moved close to the point of harvest in order to be able to process the crops sufficiently to withstand (in some usable form) transportation to distant markets.
Postharvest physiology is another part of the solution, developing ways in the modification of plant breeds to help the crops maintain quality and prevent spoilage.
A premature focus on a potential solution that ignores the obstacles can create much larger problems than it solves in the context of a place like China. Anticipating the challenges – and addressing them – is a process that not only makes the solution viable, it also determines what areas China needs to focus on in developing technology.
Spending the national treasure on duplicating technologies that already exist is at worst an unconscionable waste, and at best an unsure bet on future returns simply for the sake of keeping the money onshore. Import substitution as a policy, however, has been out of favor for decades, particularly among countries with significant advantages to leverage.
Spending the national treasure, on the other hand, in green-field (no pun intended) areas of research and development that can propel the country beyond its greatest challenge is, on the other hand, a wise choice. And if it means that a few foreign companies need to make a healthy profit to get China there a few years sooner, where is the harm?
About the author:
Silicon Hutong is an ongoing series of thoughts and commentaries by David Wolf, President and CEO of Wolf Group Asia'a management advisory firm providing strategic communications counsel to technology, media, entertainment, and telecommunications companies in Greater China and the Asia-Pacific region. David's opinions are his own and do not reflect those of either WGA or it's clients. Past articles can be found at www.chinatechnews.com, the Silicon Hutong Blog can be found here and David himself can be contacted at [email protected].
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By Julie Zhu and Selena Li HONG KONG (Reuters) – Tencent Holdings Ltd plans to raise its stake in French video game group Ubisoft Entertainment SA as the Chinese gaming giant pivots to the global gaming market, four sources with direct knowledge of the matter told Reuters. China's largest social network and gaming firm, which bought a 5% stake in Ubisoft in 2018, has reached out to the French firm's founding Guillemot family and expressed interest in increasing its stake in the firm, the sources said. It is not clear how much more Tencent wants to own in Ubisoft, valued at $5.3 billion, but Tencent aims to become the single largest shareholder of the French company with an additional stake purchase, two of the sources said, speaking on condition of anonymity. Tencent is hoping to buy a part of the additional stake in Ubisoft, the maker of the blockbuster "Assassin's Creed" video game franchise, from the Guillemot family, which owns 15% of the firm, three of the sources said. Tencent could offer up to 100 euros ($101.84) per share to acquire the additional stake, two of the sources with knowledge of the internal discussions, said. It paid 66 euros per share for the 5% stake in 2018. Details of the deal are not yet finalised and are subject to change, the sources said. Ubisoft shares surged 21% after the Reuters report at 1008 GMT and were set for their biggest daily rise since 2004. Shares in Guillemot Corp SA, the holding company in which the Guillemot family owns the majority shareholding, were trading up 10.3% at 1240 GMT and were set for their biggest daily jump since January. GRAPHIC: Ubisoft set for biggest daily jump since 2004 (https://graphics.reuters.com/TENCENT-INVESTMENT/dwpkrwdggvm/chart.png) Tencent will also seek to acquire shares from public shareholders of Ubisoft, two of the sources said, in a bid to boost its ownership and become the single-largest shareholder. About 80% of the French firm's shares are owned by public shareholders, according to its latest annual report. All the sources declined to be named as they are not authorised to speak to the media. Tencent and Ubisoft declined to comment. Representatives of the Guillemot family could not be immediately reached for comment. The planned stake purchase, Tencent's latest major foreign deal since a regulatory crackdown in late 2020, will help it offset some of the pressures in the domestic gaming market. China's video games market, the world's largest, has become fiercely competitive. "Tencent is very determined to nail down the deal as Ubisoft is such an important strategic asset for Tencent," one of the people said. At the top end of 100 euros per share, Tencent's offer will be a premium of 127% to the stock's 44 euros average price over the past three months, and is close to its historical price ceiling at 108 euros in 2018. Tencent has submitted to the Guillemot family a term sheet – a non-binding offer describing the basic terms and conditions of an investment – with a price "way above" the company's current price to ward off potential competition, one of the sources said. The aggressive offer comes as global gaming power houses have been rushing to snap up quality independent game makers in recent years, which are in scarcity, two of the sources said. Tencent's senior executives flew to France in May to meet the Guillemot family about the purchase, two of the people said. DOMESTIC PRESSURES China's gaming regulator has not granted any new game licences to Tencent at home since June last year, before it froze gaming approvals for nearly nine months. Since it resumed approvals in April this year, none of the past four batches included the company. In May, Tencent reported that its domestic game revenue dropped 1% in the first quarter while international game revenue rose 4%. Tencent, which has stakes in U.S. video game developers Epic Games and Riot Games, said in June it would release its flagship mobile game "Honor of Kings" globally by the end of the year. In 2016, it bought a majority stake in "Clash of Clans" mobile game maker Supercell for roughly $8.6 billion, one of the world's biggest ever gaming deals. It also owns 9% of UK video gaming firm Frontier Developments and said last year it would buy another British developer Sumo in a $1.3 billion deal. Ubisoft, whose titles also include "Prince of Persia" and "Rainbow Six", in May forecast lower operating profit for 2022-23 after the company reported operating income for 2021-22 that missed estimates. ($1 = 0.9819 euros) (Additional reporting by Pamela Barbaglia in London, Sudip Kar-Gupta and Richard Lough in Paris; editing by Sumeet Chatterjee, Jason Neely and David Evans)
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