Soybean Exports to China

Purpose
Trading has largely improved over the existence of China as restrictions and wars have been very prominent in China’s history. This paper looks at soybeans and how they have been a part of China’s importing history. China has become a vital export market for United States soybeans and without those customers, prices would be much lower than those seen in today’s market.

Table of Contents
Abstract……………………………………………………………………………………4
Situational Analysis……………………………………………………………………….5
Country History……………………………………………………………………………6
Cultural Overview…………………………….……………………………………………7
Political Environment………………………………………………………………………8
Export Marketing Plan……………………….……………………………………………..9
Economic Development…………………………………………………………………….10 Purchasing Power…………………..……………………………………………….10 Wages………………………………….……………………………………………11 Infrastructure………………………………………………………………………..11
Summary……………………………………………………………………………………11
References………………………………….……………………………………………….13
Appendix A………………………………………………………………………………….15
Appendix B………………………………………………………………………………….16

Abstract
The soybean has been traced to the eastern half of North China in the eleventh century B.C. Soybean production was localized in China until after the Chinese-Japanese war of 1894-95, when the Japanese began to import soybean oil cake for use as fertilizer. A worldwide shortage of feed protein in the early 1970's led to the initiation of large-scale soybean production in several South American countries. By 2003, the United States share of the world's soybean production had shrunk to 34 percent (Gibson & Benson, 2005). With the help of the World Trade Organization (WTO), China has been able to implement General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) which is a part of the customs and quarantine system and have been able to lower most-favored-nation (MFN) tariff rates. China is now the largest economy in terms of Purchasing Power Parity which original was the United States from 1872 on. Keywords: China, imports, soybeans, United States, WTO

Soybean Exports to China
The soybean has been traced to the eastern half of North China in the eleventh century B.C. Soybean production was localized in China until after the Chinese-Japanese war of 1894-95, when the Japanese began to import soybean oil cake for use as fertilizer. Soybeans were first introduced to North America from China in 1765, by Samuel Bowen, a former East India Company sailor who had visited China with James Flint. The United States dominated the world’s soybean production from the 1950's to the 1970's, growing more than 75 percent of the world’s soybean crop. During this period, the United States was the major supplier of animal feed protein in the world. A worldwide shortage of feed protein in the early 1970's led to the initiation of large-scale soybean production in several South American countries. By 2003, the United States share of the world's soybean production had shrunk to 34 percent (Gibson & Benson, 2005).
Situational Analysis Soybeans are one of the five main plant foods of China along with rice, wheat, barley and millet. Early uses for soybeans were mainly for their seeds. They were used in preparing a large variety of fresh, fermented and dried food products that were considered to be essential to oriental diets. Soybeans were not used for feed to any great extent. It was not until 1941 that the amount of soybeans grown for grain exceeded that grown for feed (Gibson & Benson, 2005). China has become the largest customer for United States soybeans with purchases totaling nearly $3 billion. The majority of soybean crop is processed into oil and meal. Such products are shortening, margarine, cooking oil and salad dressings. Soy oil is also used in industrial paint, varnishes, caulking compounds, linoleum, printing inks, and other products. Development efforts in recent years have resulted in several soy oil-based lubricant and fuel products that replace non-renewable petroleum products. The high protein meal remaining after extraction can be processed into soybean flour for human food and incorporated into animal feed. Soybean protein helps balance the nutrient deficiencies of grains like corn and wheat. A 60-pound bushel of soybeans yields about 11 pounds of oil and about 48 pounds of meal (Gibson & Benson, 2005).
Country History It is difficult to date when trading began in China. There is some evidence that trade started around 2000-1000BC with Egypt for silk and jade. Trading with the West started around 200BC when the Greeks extended their control eastward. Around 130BC interest in trading with Iran and Russia facilitated the Silk Road. The Silk Road collapsed in 1400 which lead to the establishment of sea routes allowing direct trading between Europe and China (The British Museum, n.d.).
Trade between China and the West flourished so in 1711 the British East India Company established a trading post in Guangzhou. In 1760, the Chinese government introduced regulations to control foreign trade. Guangzhou was the only port open for foreign trade and all ships were required to stop first at Macao, sixty-five miles away. There they would hire a pilot licensed by the Chinese government who would acquire the written permission required for a foreign ship to enter Chinese waters. The ships then sailed to Whampoa, an island thirteen miles from Guangzhou, where the loading and unloading of cargo took place. Trade was conducted with a small group of Chinese merchants established in 1782 to trade with foreign ships on behalf of the Chinese government (The British Museum, n.d.).
As a result of the high demand for tea, silk, and porcelain in Great Britain and the low demand for British commodities in China, Britain was forced to pay for goods directly with silver. In the early 1700s Britain began exporting opium to China from British India as a way of buying Chinese goods. Even with the restrictions put in place to restrict the opium imports, opium trade took off rapidly. Soon China was paying the British for opium which lead to the ban of importing opium again in 1799. This lead to two Opium Wars and a Boxer Rebellion creating “coastal treaty ports, residence rights in China for British subjects, the payment of a $21 million indemnity and the ceding of Hong Kong” (The British Museum, n.d.).
The internal chaos created by the fall of the imperial government in 1912 and subsequent civil war in China disrupted trade between China and other countries. Following the establishment of a communist government in 1948, foreign influences in China were expelled and the country looked to Soviet Russia as its main trading partner. Now, China is a member of the WTO and is part of the rapidly developing economy of the Pacific region (The British Museum, n.d.). The new found flourishes have two factors that have led to a significant trade imbalance and questions as to how to deal with it. The two factors are a population with little disposable income and a government that is protecting the development of its economy (University of Illinois, 2006).
Cultural Overview The rise in the demand for soybeans reflects the innovation of combining 1 part soybean meal with 4 parts grain in feed rations that sharply boost the efficiency with which livestock and poultry converted grain into animal protein. China’s appetite for meat, milk, and eggs has soared, and with it so too has the use of soybean meal. Since nearly half the world’s pigs are in China, the share of soy use is in pig feed and China’s fast-growing poultry industry is also dependent on soybean meal. In addition to pigs, China now uses large quantities of soy in feed for farmed fish (Brown, 2013).
The explosive growth of soybean consumption in China can be found in appendix A. In 1995, China was producing 14 million tons of soybeans and it was consuming 14 million tons. In 2011, it was still producing 14 million tons of soybean but it was consuming 70 million tons, meaning that 56 million tons had to be imported. If China had chosen to produce all of the 70 million tons of soybeans it consumed in 2011, it would have had to shift one-third of its grain land to soybeans. This would force China to import 160 million tons of grain which is more than a third of its total grain consumption. As more and more of China’s 1.35 billion people move up the food chain, its soybean imports will almost certainly continue to climb (Brown, 2013).
Political Environment
China’s neglect of soybean production reflects a political decision made in Beijing in 1995 to focus on being self-sufficient in grain. For the Chinese people, most survivors of the Great Famine of 1959–61, this was vital. They did not want to be dependent on the outside world for their food staples. By strongly supporting grain production with generous subsidies and essentially ignoring soybean production, China increased its grain harvest rapidly while its soybean harvest languished (Brown, 2013).
China became a WTO member on December 11, 2001. They have gradually liberalized their foreign trading system and has continued to reduce administrative barriers to trade. A few recent changes are all types of enterprises, including private enterprises, can register for the trading right and individual Chinese are allowed to conduct foreign trade under the amended Foreign Trade Law. The MFN tariff rate was down to 9.4% in 2013 from its original 15.3% in 2001. For agricultural products, the average tariff is 14.8% and non-agricultural products sit at 8.6%. China has also removed quota and licensing control on a majority of their imports and they have adopted a customs and quarantine system as well as implanted a product standard (Hong Kong Trade Development Council, 2015).
China adopted the practice of “quarantine inspection before customs declaration” in customs clearance. Import Goods Clearance Slips and Export Goods Clearance Slips stamped with the special seal of inspection and quarantine authorities are issued to goods subject to entry-exit inspection and quarantine. China practices a system of pre-shipment inspection for wastes imported as raw materials. Wastes to be imported must measure up to China’s environmental protection standards and must be inspected and approved by inspection organizations recognized by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) before shipment. “All goods sold in China must be labeled in Chinese language with true description of their contents, grades and specifications as to quantities where applicable, production date and expiration date (in particular for food related items and pre-packaged foods), explanatory warnings as to potential hazard associated with the products etc” (Hong Kong Trade Development Council, 2015).
Export Marketing Plan China is a big market for the United States exports of soybeans. The United States plans to harvest 3.84 billion bushels of soybeans, 525.8 million coming from Iowa alone. China pledged to purchase 13.18 million metric tons of United States soybeans equivalent to 484 million bushels. This represents about $5.3 billion USD just from one transaction. China has been known to buy 900 million bushels a year (Eller, 2015). As mentioned before, China has gone from consuming 14 million tons to 70 million tons from 1965 to 2011 while their production rate remains steady at 14 million tons.
With the recent flooding in China, soybean exports to that country are expected to go higher. As a result, the United States can expect Chinese imports to go much higher for soybeans. China has a developing economy with 1.4 billion people. They can’t grow more soybeans than they are growing now or they would have to give up farm land for another crop as mentioned in the cultural overview section. China is going to have to increase their meat production through imported soybeans and corn. With all of these factors, the potential to increase exports to China is looking very good. China takes over half of the United States’ exports. Basically, about one of out every four row of beans that United States farmer’s plant go to China. China is a vital export market for United States soybeans and without those customers, prices would be much lower than those seen in today’s market. The higher the demand of soybeans, the higher the market price. The bottom line is that it would be very difficult to replace China as a customer (Hedrick & Teague, 2014).
Economic Development China is an important importer of the United States’ soybean crop. Without China, the market prices would not be near as high as they are today. The United States exports 61 percent of the soybean product to China. The estimated worth of that is $13.3 billion USD out of a total of $21.9 billion USD for they total production of soybeans (Simoes, 2013).
Purchasing Power For the first time since 1872, the United States is not the world’s largest economy when measured by PPP; that title now goes to China and is a significant milestone in China’s evolution into a global economic power. PPP, unlike the conventional GDP, accounts for national differences in the cost of living. A certain amount of money will go farther (buy more) in China than it would in the United States. PPP is not as useful when measuring goods and services like nominal GDP. When looking at nominal GDP, the United States was $16.72 trillion where China only had $9.33 trillion in 2013. Skeptics are weary to say that PPP or GDP can accurately describe China’s economy as statistics could be largely inaccurate as political and logistical considerations preclude accurate data collection (Schiavenza, 2014).
Wages
China has always had a very low compensation rate compared to that of the United States. In 2008, despite the financial crisis, China was able to increase employment to 99 million people. As seen in appendix B, wages have almost tripled in 2009 since 2002. However, hourly compensation as of 2009 has remained far below that of many of China’s neighbors like Japan ($30.03), the Republic of Korea ($15.06), and Singapore ($17.54), but have remained similar to the rates of the Philippines ($1.70). There is also a big difference in the amount of employers that China compensates. China has 99 million where the United States has 14.2 million, Japan has 10.8 million and Germany has 7.8 million. The 85 million difference could be why the compensation prices are so low (Banister, 2013).
Infrastructure
The United States assists China in their livestock industry with technology and demonstrations to show they can grow more meat on their given land mass area by using soybeans. That increases the market and also shows them the higher quality of the United States beans. We show them that they can get more meat from dollars spent by using United States soybeans instead of the competition (Hedrick & Teague, 2014).
Summary
Trading has largely improved over the existence of China. Restrictions and wars have been very prominent in China’s history. With the help of the WTO most restrictions are lifted and China is working on lowering their tariffs. China is a vital export market for United States soybeans and without those customers, prices would be much lower than those seen in today’s market. The bottom line is that it would be very difficult to replace China as a customer.

References
Banister, Judith. (2013). China’s manufacturing employement and hourly labor compensation, 2002-2009. Bureau of Labor Statistics: International Labor Comparisons. Retrieved from http://www.bls.gov/fls/china_method.pdf
Brown, Lester. (2013). How China’s rising soybean consumption is reshaping western agriculture. Treehugger. Retrieved from http://www.treehugger.com/sustainable-agriculture/chinas-rising-soybean-consumption-reshaping-western-agriculture.html
Eller, Donnelle. (2015). China to buy $5.3B in U.S. soybeans. The Des Moines Register. Retrieved from http://www.desmoinesregister.com/story/money/2015/09/24/china-buy-53b-us-soybeans/72735864/
Gibson, Lance & Benson, Garren. (2005) Origin, History, and Uses of Soybean. Iowa State University: Department of Agronomy. Retrieved from http://agron-www.agron.iastate.edu/Courses/agron212/Readings/Soy_history.htm
Hedrick, Kayla & Teague, Andy. (2014). Even more U.S. soybean exports to China possible. United Soybean Board. Retrieved from http://unitedsoybean.org/article/u-s-soybean-exports-to-china-increasing/
Hong Kong Trade Development Council. (2015). Trade regulations of China. HKTDC Research. Retrieved from http://hong-kong-economy-research.hktdc.com/business-news/article/Small-Business-Resources/Trade-Regulations-of-China/sbr/en/1/1X000000/1X006MY8.htm
Schiavenza, Matt. (2014). China economy surpasses U.S. in purchasing power, but Americans don’t need to worry. International Business Times. Retrieved from http://www.ibtimes.com/china-economy-surpasses-us-purchasing-power-americans-dont-need-worry-1701804
Simoes, Alexander. (2013). Where does the United States export soya beans to? The Observatory of Economic Complexity. Retrieved from http://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/usa/show/120100/2013/
The British Museum. (n.d.), Chinese Trade. The British Museum. Retrieved from http://www.britishmuseum.org/pdf/Chinese_trade.pdf
University of Illinois at Urbana – Champaign. (2006). Early American Trade with China. The Board of Trustees of the University of Illinois. Retrieved from http://teachingresources.atlas.illinois.edu/chinatrade/index.html

Appendix A
Soybean Production, Consumption and Imports in China, 1964-2011 (Brown, 2013)

Appendix B
Average Hourly Compensation Cost of Manufacturing Employees in China, U.S. Dollars, 2002-2009 (Banister, 2013)