Potential China Corn Export Subsidies; Reduction in U.S. Agriculture Exports to China

May 31, 2005

Two recent reports from the U.S. Foreign Agricultural Service (FAS) in Beijing identify possible Chinese government export subsidization of corn, coupled with a significant decline in the value of U.S. agricultural imports into China. In the past 11 months, FAS has raised by one-third its estimate of the value of corn exports from China. In addition, the value of China’s combined imports of U.S. soybeans and cotton in the first quarter of 2005 were $1 billion lower than the first quarter of 2004. Soybeans remain the largest U.S. export to China by tariff line.

The Chinese government regulates all of China’s corn exports. In February 2005, the Chinese government issued a 3 million metric ton (mmt) corn export quota, compared to a 1.4 mmt export quota issued for the entire first half of 2004. China does not import corn from the United States. Growth in U.S. soybean and cotton exports to China has declined in the first quarter of 2005.

The reports on possible corn export subsidies and China's reduced imports of major U.S. agricultural commodities are available by following the links.

Potential corn export subsidies come from two sources: (1) a preferential shipping rate for corn destined for export, and (2) a 13 percent VAT rebate offered on export of products from China. China calculates the rebate from a fixed base price instead of the contract price. For 2005, even though the market price has dropped following a large 2004 harvest, the fixed base price has increased from 860 RMB/ton to 1100 RMB/ton. This artificially raises the value of the VAT export rebate from 112 RMB/ton to 143 RMB/ton, regardless of contract price.

China’s trade in corn is primarily with countries in the Asia-Pacific region and, except for some small quantities in border areas, is all outbound. These subsidies could affect U.S. corn exports by undercutting the price for corn in existing U.S. overseas markets, but since China's corn exports are still small compared to those of the United States, this effect is probably not occuring yet.

No data currently available explains whether state intervention or external factors affected soybean and cotton import levels. In terms of tariff lines in China Customs figures, soybeans are the number one import (including manufactured goods) from the United States with $1.393 billion in imports, and cotton is the eighth largest import, with $179 million in imports.