Few other countries have been able to match the pace
of China's sustained economic growth. With gross domestic product
(GDP) increasing, on average, more than 8
percent annually since 1978, China has become a major player
in the global economy.
In the long term, however, this extraordinarily high
GDP growth—which is driving China's increasing demand for
agricultural imports—may be dampened by several obstacles:
Undervalued
currency. China's exports rely on what may be an unsustainably
low fixed exchange rate. China has maintained its currency at
a fixed rate of approximately 8.28 yuan per U.S. dollar since
1997, a rate that some economists suggest is undervalued by as
much as 40 percent. There is substantial international political
pressure on China to appreciate its currency. Any significant
appreciation of the yuan would reduce China's export competitiveness
and slow down the growth of China's exports, a major factor in
China's rapid economic growth.
Nonperforming bank loans. China's banking
system has historically made loans under government direction
to unprofitable state-owned industries, with little regard for
repayment or risk. The result is a substantial portfolio of nonperforming
loans estimated at 30 to 100 percent of annual GDP, a larger share
than that of Japan, for example. By using its stock of foreign
reserves, Chinese authorities have managed to maintain liquidity
in the banking system in spite of the nonperforming loans. However,
at some point a continued escalation of nonperforming loans will
restrict further expansion of bank credit, constraining growth
in the business sector.
Inefficient state-owned enterprises (SOEs).
SOEs consume much of China's capital through their historical
links to the state banks and dominance of the stock exchange in
China, but they produce little or no return on their capital.
Many are poorly managed and protected from competition. Private
enterprises are more efficient, but have difficulty raising capital.
Many SOEs have been shut down or merged with stronger enterprises,
but fears of exacerbating already-serious unemployment problems
are a constraint as China shifts resources to the private sector.
Growing income disparities. In 2003,
urban per capita income was more than three times the rural average,
up from twice the rural average during the 1980s. In 2000, China
embarked on a "develop the west" campaign to push both
public and private investment into the country's poorest western
provinces. While this campaign should help reduce income disparities,
it will take resources away from the most productive export manufacturing
sector, reducing overall growth.
Rapid economic growth is a major factor contributing
to China's increasing importance as an agricultural export market.
A significant slowdown in that growth would reduce China's demand
for U.S. agricultural products, including soybeans, cotton, wheat,
and corn. Even so, China will likely continue to be a major destination
for U.S. agricultural exports.
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