Research Reports
Analysis of Structural Change of Chinese Agriculture for the FTA between Korea and China
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AuthorJeon, Hyoungjin
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Publication Date2011.11.30
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Original
Agricultural trade between Korea and China shows a clear one-way trade from China to Korea and consists mainly of inter-industry trade. The products available to intra-industry trade are rare with the exception of several processed foods. This overwhelmingly unbalanced trade structure makes it difficult for the two countries to avoid severe competition and build a mutually beneficial cooperative relationship in agricultural sector, and is not expected to change in the near future.
Since the establishment of diplomatic relations between Korea and China in 1992, the share of grain in their bilateral agricultural trade has decreased, but the shares of vegetables and processed foods have increased. The pattern will set in because grain trade is quite restrictive to the supply and demand in the Chinese domestic market and most of fruits, vegetables, and livestock products trade are not allowed to trade because of inspection and quarantine barriers, which is not expected to be completely removed in the near future.
The implications from our analyses on relevant issues in the agricultural trade structure between Korea and China are summarized as follows:
First, Chinese agriculture is now on the stage of labor productivity-led growth and changes its production structure to the one relying on intermediate inputs gradually. Hence, the rises of input prices including agricultural wage and land rent are likely to threaten the price competitiveness of Chinese agricultural export.
Second, China is a young market economy and the economy is not yet sophisticated enough due to the government's frequent interventionist economic policies. Most of all, China still clings to the socialist system in politics. Thus, resource allocation in Chinese agricultural sector would be distorted by other factors rather than market principles. In this case, the prospect that the structural change in Chinese agriculture will follow a stylized path, through which developed countries already passed, will lead to a mistaken prediction of its change and then fail to properly act in the light of Korean agricultural sector.
Third, the two countries have a similar production structure and a development course of agriculture, but also have distinctive resource endowments and growth stages, which led to the current overwhelming one-way trade that is expected to leave not much room for a complementary relation in the near future. It is necessary to find constructive cooperation plans between the trading partners towards co-prosperity under a more liberalized trade in the future, focusing on the establishment of a specialization system reflecting their comparative advantages in agricultural production.
Researchers: Hyoung-Jin Jeon, Myong-Keun Eor and Min-JI Nam
E-mail address: hjchon@krei.re.kr
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