China has deep problems, but offers opportunity for our food sector

Straight from the hip: The Asian titan is deeply in debt and its 
economy under stress, but it needs high-quality and safe food

China has always been regarded in the West as a superpower.

But despite its recovery from the 2008 financial crisis and the perceived recent growth, China is estimated to be $23.3 trillion in debt — which is up $15 trillion in the past five years. The world’s largest user of steel (46 per cent) and copper (47 per cent), it now needs something miraculous to rebuild its falling bridges.

The 1.3 billion persons in China were at the cusp of a true economic revolution both in terms of a creation of a middle class and for the explosion of the upper crust’s ability to spend on consumer goods. But the economic plan to stimulate the economy was based on credit creation or in simple terms — lending. And just as we saw in the U.S., those types of economic packages tend to implode, leaving thousands out of work and billions owed.

Perhaps the most telling sign of the economic upset in China is the fact its citizens are spending less on food and beverages. This is a very troubling fact for the Chinese government because when basic food and beverage consumption declines, so does all other domestic spending. And while China’s foundations are crumbling like week-old cake, the West is gaining in momentum. In Canada, the food sector is responsible for 2.3 million jobs, or more than nine per cent of GDP and 13 per cent of all employment.

It is reported one-fifth of China’s farmland is so toxic because of chemical pollution, it cannot be used for food production. Cadmium, nickel and arsenic are the top contaminants and are affecting water quality as well as destroying soil. More than one-half of the rice grown last year was reported as contaminated with cadmium, but was diverted to food processors to make noodles. The depth and breadth of toxicity is so great that China may never recover its ability to feed the population.

  • More from the Alberta Farmer Express: Beef benefits expected from China deal, over time

So why is it that many exporters and government still focus so heavily on China as the answer to our economic woes?

The staggering population would be a major driver when it has the capability to buy consumer or processing goods. But the backing off of domestic spending, even as wages increase is puzzling and not without just concern. With China’s high debt-to-GDP ratio and defaults a daily ritual (including bonds) it is only a matter of time before we smell the scorched dragon’s breath. In total, the combination of household, government and corporate debt is more than 200 per cent of GDP — a 150 per cent increase from 2008.

Even though Chinese immigrants will not find the level of jobs when they move abroad, they are willing to leave for a slower and less restricted life. They leave with their cash after selling property, and countries such as Canada welcome the investment. It may be just opportunity knocking, but the reality is they are concerned about their future should they stay on Chinese ground.

The yuan (Chinese currency) is widely used in financial transactions but is nowhere near conversion. To be a global trading currency, the yuan must not only settle deals but be convertible and then grow into a reserve. Many economists are skeptical that this will happen considering the protectionism in the past. And the past is concerning as China has a reputation as a bully on the international stage. Despite the government’s recent efforts to calm those waters, human rights violations continue to take centre stage and the ability to get things manufactured in China is now getting more costly. With growth projected to be near seven per cent in the near future, China is now desperate for our business and not us for theirs.

This presents an opportunity for Canada, the land of resources. In Canada, the food-manufacturing business is the leading sector in terms of employment and GDP — greater than auto manufacturing. We can gain traction in this area using more of our production and let the world come to us. Rather than standing with our mouths gaping looking at China as a potential for our primary product, perhaps we need to take off our red shades and see it as a potential for our goods.

It will be tough on the dragon either way. To get out of this mess they will have to clamp down and desperate measures to attract investment will hurt a lot of innocent people. The dragon has not been slain, nor should it be, as we need sound economies and a strong middle class worldwide. We will, however, feel the heat of the dragon’s breath as it rears up to clear the economic mess that makes its nest.

About the author

AF Columnist

Brenda Schoepp works as an international mentor and motivational speaker. She can be contacted through her website at www.brendaschoepp.com. All rights reserved.

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