The Impact of Economic Globalisation on Cofco

1. Introduction

In November 2001, China became a formal member of the World Trade Organization (WTO), which symbolised ChinaЎЇs involvement in economic globalisation. Great opportunities and challenges would bring a big change in China. As a state agriculture enterprise, Chinese Oils and Foodstuffs Corporation (COFCO) is undoubtedly confronted with the impact of economic globalisation. The purpose of the report is to discuss the opportunities and challenges of China national cereals and COFCO under the impact of economic globalisation, and how to make a new development.

2. Background

Globalisation is an interaction and integration progress, which is among the people, companies, and governments of different nations. It is driven by international trade and investment and aided by information technology. Globalisation has impacted on the environment, on culture, on political systems, on economic, and on societies around the world (CSIS, 2006).

2.1 Economic globalisation is unavoidable.

Economic globalisation characterizes today's world economic environment. There are two major factors. First, economic globalisation has been promoted by the need for worldwide industrial restructuring. It has promoted the new emerging market economies highly and has helped the process of industrial restructuring with their new productive capabilities, especially in Asia. The second, the international capital generated from industrial production and commercial circulation becomes available. In addition, economic globalisation has been expediting by a different kind of capital which represented by various investment funds has eagerly been invested into areas where it can generate the most profit (Tong, 2006).

2.2 Globalisation and China

As one of the fastest growing economies, China has devoted herself into the economic globalisation process. And economic globalisation has brought several opportunities to ChinaЎЇs market. First, foreign capital inflow has helped relieve the bottleneck caused by the lack of capital. Second, accessing foreign markets and aligning with market-oriented management assisted China foster a healthy market economy. Third, it is helpful to China deepen its internal reforms and adopt "open-up" policies. Fourth, as a result of an "open-door" policy, more new overseas markets have been established. All in all, the world trade environment has become more favourable and important to China (Tong, 2006).

2.3 The situation of China agriculture products exports and imports

As the fifth largest exporter and fourth largest importer of agricultural products in the world, China is purchasing power parity that the second largest economy worldwide. In 2004, China agriculture attributes 13.8 percent to GDP. The major agriculture products identified are rice, wheat, potatoes, corn, peanuts, tea, millet, barley, apples, cotton, oilseed, pork, and fish (Mullen, 2005). With the developing of economic globalisation process, the increasing trend of import and export is apparent (see Table 1).

Table 1 Chinese Exports and Imports of Agriculture Products (in billions USD)

1990 1995 2001 2002 2003

Exports 10.10 15.00 16.60 18.80 22.20

Imports 7.90 16.10 20.10 22.00 30.50

Source: WTO, International Trade Statistics, 2004

3. Brief introduction of COFCO

COFCO was established in 1952, is one of the largest import and export companies in China, the most powerful and longstanding trader in agricultural commodities and foodstuffs, and a key conduit between the international agribusiness and China's domestic market. The main businesses include agricultural commodities trading, food processing as well as financial services. It has built up a wealth of experience in foreign trade and in the process has developed strong, mutually beneficial relationship with many companies from over 100 countries and regions.

4. Market Opportunity of COFCO

4.1 Tariff reductions and increasing quota

On one hand, the new Agriculture Agreement of WTO boosted both export and import of the agriculture product. The original GATT contained loopholes though it did apply to agricultural trade. For example, it allowed countries to use some non-tariff measures such as import quotas and export subsidies. Agricultural trade was distorted, especially with the use of export subsidies which would not normally have been allowed for industrial products. The Uruguay Round produced the first multilateral agreement dedicated to the sector. It was an important first step towards order, fair competition and a less distorted sector (WTO, 2006). Because WTO supplied a comparative fair international agriculture market, COFCO started to enlarge its oversea market step by step. For instance, 5,000 tons of quality food grain were shipped to Indonesia at the end of 2002, marking a breakthrough in China's grain exporting. This was the first time that China exported its flour-milling wheat to a foreign country since 1949 (Xinhua News Agency, 2002).

On the other hand, under the agreement of WTO Accession Protocol China has already amended the Customs Import and Export Tariffs to increase quotas and reduce tariff rates on agricultural imports, such as wheat, corn, rice, soybean oil, palm oil and sugar. For example, tariff rate quotas (TRQs) for soybean oil, which increased from 1.5 million tons in 2001 to 2.5 million tons in 2002, were subject to in-quota tariff rates of 9%, while out-of-quota tariff rates declined from 121.6% in 2001 to 52.4% in 2002, and was further reduced to 9% by January 1 2006 (Jones et al, 2002). With the distribution of agricultural TRQs of China government, it would bring more opportunities to import market and promote the businesses of COFCO.

4.2 Liberalising trade of agriculture products.

Although prices had been liberalised for most agricultural products, the government still dominated the purchase, sale, and import and export of staple agricultural products such as foodstuffs, cotton, and vegetable oil in the past. This placed a heavy burden on public finances. With the accession of WTO and allowing the entry of non-state companies, trade in foodstuffs, cotton, and vegetable oil has been diversified. At the same time, prices have been further deregulated to allow farmers to adjust their product mix to market demand. More and more large companies including private companies have been