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.
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.
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
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.
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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