Historically, China has been self-sufficient in rice production, with small exports of rice in most years during the past two decades. The situation in wheat is somewhat different. Traditionally, China has been one of the largest importers of wheat. Rising livestock production has severely limited Chinese corn exports in the past five years. China had to import a small amount of corn in 1994/95 and 1995/96 to meet rising domestic consumption.

China’s sudden turnaround from large exporter of corn to importer in 1994/95, along with large wheat imports, led many researchers to believe that China was beginning to enter into a new era of grain trade. Consequently, China became a focus of attention for government policy and academic research, analyzing the balance of Chinese grain production and consumption. During 1995 and 1996, various research organizations including FAPRI, the U.S. Department of Agriculture (USDA), and the International Food Policy Research Institute (IFPRI) projected Chinese grain imports to reach 22 to 25 million metric tons (mmt) by 2005 and 40 to 45 mmt by 2020.

In past three years, China has proven everybody wrong by becoming a net exporter of corn. More importantly, its wheat imports have declined by more than 80 percent. Researchers have realized that Chinese livestock production has been over estimated by 20 to 30 percent because of double counting of animal slaughter and inflated output statistics reported by local officials (USDA’s Agricultural Outlook, November 1998). In addition to livestock production, researchers have also found that Chinese crop planted area is under estimated and yield over estimated. Thus, the reported yield is much higher than the actual yield, making Chinese yield growth potential higher than previously expected. In addition to inconsistency in the reported data, it is also extremely difficult to correctly forecast Chinese grain trade because of government interventions. The government makes all decisions on the quantity of grain exports and imports, which is implemented by COFCO, a state-run organization.

Taking into account the above mentioned factors, FAPRI now projects China to be a small net exporter of rice for the next decade (Figure 2). Even with projected decline in rice area, China will be able meet the domestic demand in the face of declining urban per capita consumption.

In the case of wheat, China is projected to import an average of 1 to 2 mmt of wheat throughout the projection period, which is much smaller than its imports in last two decades (Figure 2). Chinese wheat imports are not projected to reach anywhere close to its traditional level because of flat per capita wheat consumption. Unlike wheat and rice, the projection for corn involves a lot more uncertainties because of government policies and the use of corn as livestock feed.

Government policies dictating self-sufficiency in corn or meat will largely determine China’s position in the world corn market. The current policy is aimed at achieving self sufficiency both in corn and meat. Within crop sector, policy makers are tilting toward achieving self sufficiency in grain rather than oilseeds. In addition to government policies, accuracy in corn consumption projection involves getting a handle on the future of the livestock industry. Structural change in livestock production, technological improvements in feed efficiency, and other factors lead FAPRI to project that China will be a small net exporter of corn for the next few years. It will eventually become a net importer early in the next century. By 2008/09, China is projected to import 3.3 mmt of corn (Figure 2).

Overall, Chinese net imports of grain are projected to be around 8 mmt by 2008/09. This number is significantly smaller than earlier FAPRI projections. However, this number still depends on the future direction of Chinese policy, which has been instrumental in dictating the country’s grain situation for last two decades.

Chinese grain production boomed in the 1980s when the communal system was abandoned and farmers were given somewhat greater discretion under the "household responsibility system." This policy was abandoned in the early 1990s as production exceeded consumption. In 1994, a poor harvest and warnings from outsiders that China would not be able to feed itself led policymakers to implement the "Governor Responsibility System," and the central government declared its intention to reassert control over the majority of commercial grain stocks. Changes in policy and favorable weather has turned China from a large net importer to a small net exporter of grain in the past three years.

These policy changes have led to huge losses for the government at an estimated $1.8 billion a month in 1997. This has forced the government into another round of grain policy reforms in 1998. The new policy, which was announced in last spring, is aimed at eliminating costly subsidies and reducing the losses incurred by the central government in managing the purchase, storage, and transportation of grains (Agricultural Outlook, December 1998). The State Administration for Grain Reserves (SAGR) issued new regulations specifying that grain bureaus must buy all grain farmers want to sell, and grain bureaus may not sell grain at a loss. Also, the government wants farmers with fixed quota prices to sell all of their marketable grains to state-owned grain bureaus.