Foreign companies will play an important role in the development of unique farm products in western China in a bid to shake off poverty and reduce the gap between the western and eastern regions of the country, experts say.

Senior officials with the China Banking Regulatory Commission revealed that China will largely encourage foreign banks to set up branches or form joint ventures in the western region.

Renminbi business and insurance products will open to foreign banks gradually to better serve the development of the region, especially in respect of local infrastructure and agriculture, said Liu Mingkang, chairman of the commission.

Meanwhile, foreign agricultural firms are encouraged to go west, a message passed from the Western Forum of China held in Nanning, capital of the Guangxi Zhuang Autonomous Region earlier this month.

"Foreign firms will bring abundant capital, advanced technological and management skills to the region, which will add value to the agricultural products,'' said Chi Fulin, director of China's Institute for Reform and Development.

Primary products are losing their competitiveness in the market, and only those with the advantages of unique processing, pleasant packaging and successful brand operation can only survive in the long term, Chi said.

"Land intensive agricultural products in the western China should transfer to more resource intensive ones.''

Chi told China Business Weekly that attracting foreign investment for developing "the unique agriculture'' is a win-win strategy.

He explained that this can help China to speed up the modernization pace of agriculture in the region, which is a major part of China's western development program.

Farmers' income will increase, and, therefore, the gap between east and west can be reduced.

Chi said that exports of agricultural products will be boosted since foreign firms, with better knowledge of the technical standards of foreign trade, will help to establish manufacturing and farming bases in accordance with global criteria.

There are seven provinces, five autonomous regions and a municipality included in the western program to boost development: Sichuan, Guizhou, Yunnan, Shanxi, Shaanxi, Gansu, Qinghai, Ningxia, Guangxi, Tibet, Inner Mongolia, Xinjiang and Chongqing. The development there is slower than the country's eastern region.

Foreign firms can take advantage of the region's unique natural resources, cheap labour and preferential policies, particularly on taxes, land usage and financing.

Furthermore, foreign firms find that dietary changes in China offers a huge domestic produce market for unique farm products.

J. Norwell Coquillard, president of Cargill Investments (China) Ltd, said diets diversify and become more resource intensive. "They (Chinese people) replace root crops with grains, and add more meat, milk, eggs and vegetable oils to their diets. More foods are processed and purchased in supermarkets rather than in 'wet' or farmers' markets,'' Coquillard said.

With China's GDP (gross domestic products) per capita reaching US$1,000 this year, the country is well on the way into a dietary shift towards more meat, milk, eggs, fruits and vegetables, he said.

Cargill is one of the world's leading agricultural produce companies, processing and distributing wheat, corn, soybeans, beef, pork and cotton.

With a successful operation in East China, Cargill established a joint venture to produce fertilizer in Yunnan Province.

Coquillard's opinion is echoed by Ma Xiaohe, director of the Institute of Industrial Development under the National Development and Reform Commission.

"Green, organic, rare and well-processed foods have become popular in big cities,'' Ma said.

He cited an example that with the improvement of living standards, more Beijingers tend to buy free-range eggs, which cost about 13 yuan (US$1.57) per kilo, rather than those from caged hens at 5 yuan (60 US cents) per kilo.

Due to geographic problem, the foreign investment in the west lags far behind the east.

Statistics from the National Development and Reform Commission indicate that foreign direct investment (FDI) in the western region is expected to account for only 3.2 percent of China's total FDI this year, more than 2 percent lower than the figure in 2000.

Foreign investment for agriculture is even less.

The central government has realized that developing unique local farming may immediately help alleviate poverty and boost income for western farmers.

Zhang Baowen, the vice-minister of agriculture, revealed that his ministry has finished a draft plan on the development of unique local farming, which will be released soon.

He said, during the two-day Western Forum of China that every province, that the western region has been called to focus on the specific attributes of each local economy, pushing unique farm products in tune with market needs and available natural resources.

He said China's vast western region has some competitive strengths when it comes to farming, such as arable land, grasses, water and biodiversity, with many areas possessing unique weather patterns and geology.

For example, farmers in Northwest China's Ningxia Hui Autonomous Region will use gouqi -- a popular herb -- to fatten their pockets. In Yunnan Province, flowers and plants will continue to be their export product of choice while cows are deemed to become the new money-spinner for residents in Inner Mongolia Autonomous Region.

Zhang said locally-tailored agriculture may not only raise farmers' incomes but also serve as a platform for nurturing related industries, such as processing, packaging and even machine tool manufacturing.

Problems to tackle

Experts say the coming five years will be crucial for the drafting of the macro-control measures targeting structural changes in industry and regional development.

Ma suggested a complete and highly-efficient marketing system should be put in place to enhance the competitiveness of the western region in the international market.

Ma said outdated logistic mechanisms should be upgraded and complicated administrative examination and approval procedures should be streamlined to reduce costs and guarantee quality.

Still more preferential policies, more input and more subsidies should be granted to the west, he continued.

Foreign firms pointed out that China should align its agricultural policies more closely with its resource endowments in the west.

"With limited land but plentiful labour, the government should shift production from land-intensive to labour-intensive crops. It should also combine this production policy with a trade policy to export more labour-intensive products, like fruits, vegetables and animal protein,'' he told China Business Weekly.

Although the 12 provinces and autonomous regions of western China account for 71.5 percent of the country's total land mass, 80-90 percent of the area are mountains and desert.

Local infrastructures need to be improved to attract more foreign investment.

Wu Xiaoling, deputy governor of the People's Bank of China, said that the bank will issue project bonds and promote private funding towards the construction of infrastructure, public projects and energy development.

Wu confirmed that financial institutions will make use of the floating lending rate mechanism to support structural adjustments.

The annual income of farmers in the west was 1,879 yuan (US$226.9) per capita last year, accounting for 52 percent of its counterparts in the east, according to the Institute of Industrial Development under the National Development and Reform Commission.

(China Daily December 2, 2004)