/Australias opportunity to aid Chinas growth

Australias opportunity to aid Chinas growth

“That said, we believe this can be resolved by the government’s ongoing land reform efforts that started in 2014, as well as wider adoption of smart farming equipment such as drones, automated irrigation systems, and precision seeding equipment.”

China’s economic growth in the decade ahead should open up opportunities for Australian business. David Rowe

Australia is a leader in agricultural production because of the combination of four decades of lowering tariffs and the leadership shown by the CSIRO in sharing technology with farmers keen to adopt the latest production techniques.

Boost crop yields

You only need spend a short time talking to CSIRO chief executive Larry Marshall to learn of the world-leading use of technology by Australian farmers. CSIRO has been implementing sustainable farming practices for more than 50 years and these have helped boost crop yields.

China is not only inefficient in its farm production because of too many small-scale farms and too little use of technology, it  is too reliant on pesticides in farm production, a factor that has built distrust among consumers.

The Morgan Stanley report quotes data from the Food and Agricultural Organisation of the United Nations from 2016 showing China used about 13 kilograms of pesticides per hectare in agricultural production compared to 1.1 kg of pesticides per hectare in Australia.

The report notes Australia has the second highest agricultural productivity in the world after Canada, with China lagging far behind in 12th place. China’s productivity in agriculture is one 25th the level of Australia’s, according to data from the World Bank.

This suggests Australian rural businesses should be involved in any government-planned program for closer engagement with China in the reform of its agricultural sector.

“In our view, the key to unleashing more rural manpower for urbanisation while preserving China’s food security is enhancing productivity,” the report says.

Rising food demand

“While China’s agriculture productivity has increased at an 8.1 per compound annual growth rate (CAGR) over the past decade, from just 1.6 per cent in 1969-78, on the back of reforms, its level remains lower than that in most key economies.

“Over the past few years, the country’s trade deficit in agricultural products has been widening as a result of rising domestic food demand and a shrinking area of arable land.

“With the UN estimating that China’s population will continue to increase until 2030, this means a steady increase in food demand and continued downward pressure on the agricultural trade balance, suggesting the urgency of boosting agricultural productivity.”

The UN estimates China’s population will grow from 1.43 billion in 2019 to 1.46 billion in 2030. Australia’s population is forecast to grow from 25.2 million in 2019 to 28.2 million in 2030. In other words, China will add more than the entire population of Australia over the next 10 years.

But it is not the size of the population that tested the minds of the Morgan Stanley economists and analysts, it was the age-old concern that China “will grow old before it gets rich”.

“While it is true that demographics will be a significant drag on economic growth in the years ahead, we argue that it will not stop the process of urbanisation,” the report says.

“On the contrary, we see urbanisation as a solution to China’s demographic pressures that will lift the economy to high-income status.”

A survey by China’s National Bureau of Statistics shows that there are about 400 million rural people aged five to 50 and this cohort comprises 70 per cent of the rural population. They will become or remain working age over the next decade highlighting the room for urbanisation.

Growth of supercities

The report says international experience suggests that the share of agriculture in GDP tends to decline with higher GDP per capita as a consequence of industrialisation and developments in service sectors.

Morgan Stanley forecasts China’s per capita income will increase to
$US17,800 by 2030 (compared to $US9450 in 2018) and the share of agriculture in GDP will fall to 2 per cent from 7 per cent today.

A doubling in China’s agricultural productivity is one of the three elements needed to encourage the growth of supercities and several clusters of smart cities, with each cluster having an average population of about 120 million people, according to the report.

It says China will develop a series of city clusters, which will be knitted together by the country’s advanced rail system. The country already has more high-speed rail than any other country with about 30,000km of tracks. It also has the fastest trains (350km/h).

The report predicts China’s high-speed rail network will increase to 65,000km of track by 2030, including 17,000km of inner-city commuter lines. It forecasts one-hour travel times between the cities in each of the five clusters.

The five clusters are Yangtze River Delta, Jing-Jin-Ji Area, Greater Bay Area, Mid-Yangtze River Area, and Chengdu-Chongqing Area. These will likely account for 75 per cent of GDP growth and half of the urban population increase in 2019-30, the report said.

Investment of this scale in high-speed rail presents another opportunity for Australia.

The third element in the creation of liveable supercities is the adoption of smart technologies including 5G, cloud, big data, the Internet of Things (IoT), and artificial intelligence (AI) to help reduce traffic, crime and pollution, and improve the quality of city life.

“We expect the number of mega cities with populations similar to or larger than New York City (8 million) will reach 23 by 2030 compared to only nine today,” the report said.

Apart from the agricultural section of the report, Australia is mentioned many times as part of efforts by the authors to provide some context around China’s progress toward reaching high-income status.

The country is classified as  “middle-income”,  though in many critical areas of economic development it ranks well ahead of rich countries like Australia.

The report notes that online shopping in China accounts for 18 per cent of annual sales compared to about 10 per cent in Australia, and China has the highest penetration of mobile payments in the world at 86 per cent of all consumer goods sold compared to a world average of 34 per cent.

It is no surprise to read in the report that China is ahead of many developed economies in technology adoption given it faces fewer hurdles in the collection of consumer data, most notably through the use of facial recognition software.

The report says it is already common to pay at grocery stores in Hangzhou or check in at the new Beijing airport using only facial recognition.

China’s central planning, long term policy thinking and strategic investments in critical technologies such as AI and machine learning will combine to make it the country to watch over the next decade.

But there are risks involved. Morgan Stanley admits its forecasts could prove wrong because of a possible social backlash against big data, debt problems from infrastructure investments, the failure of land reform or a decoupling of technology linkages between China and the United States.