CRG Weekly: Pork and UK-China trade
News from the China Research Group
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The week in review
Six years ago today, Xi concluded his state visit with the announcement of £40bn of investment deals that marked the high point of the UK’s Golden Era with China. Trade with China has increased every year since, and many of the decisions made then have shaped the supply chains of today. The British and Chinese economy have become more intertwined.
Today, a new Liz Truss interview is splashed on the front cover of The Telegraph, where she says Britain must not become “dependent” on China, and that critical national infrastructure, such as nuclear power plants, should be built only with “like-minded” partners.
One of the biggest success stories of the Golden Era was British pork. Ministers - most famously Liz Truss - queued up to visit Beijing to secure access to its pork markets. From 2013 to 2019, the UK secured access for exports of everything from pig trotters to frozen boar semen.
By 2020, China was buying 50% of British pork exports. The growth drove almost all of the industry’s overall export growth.
But this autumn has seen the British pork industry plunged into crisis. British pork producers have sounded the alarm about having to cull healthy pigs. While this was largely driven by labour shortages in abattoirs, a worsening export environment has also played a role. Exports to the EU have been dampened by customs problems after Brexit. And pig meat exports to China have sharply dropped, down just over 30% year-on-year to August 2021.
The most visible sign of trouble was when Beijing banned pork imports in the immediate aftermath of the Covid-19 pandemic, based on the conviction that Covid could spread through frozen food. British pork processors were still complaining about about slow reinstatement of access in April this year, even after proving that their pork plants were Covid-free.
They’re not alone: Germany was hit with a ban on exporting pork to China last September, nominally over the discovery of African Swine Fever (ASF) in wild boars, but with political timing on the eve of trade talks. Berlin is still in negotiations with Beijing over ending the ban. That has also created a surplus of German pork in the EU market, lowering prices.
But the core structural reason is that China’s domestic pork industry has now recovered from the devastating African Swine Fever crisis of 2018, which one expert called the “probably the biggest outbreak we ever had of any animal disease”. It is estimated that as many as 300 million, or 50% of China’s pigs, were wiped out. China turned to the rest of the world, and doubled its imports of pork in 2019 and 2020.
But now - three years later - China is facing a huge oversupply of pork. Investment soared in the wake of ASF as China’s pork producers looked to rebuild domestic pig stocks, and now the price of pork in China has dropped by 60% compared to this time last year. Given China’s State Council called for China to aim for 95% domestic self-reliance in pork production, President Xi Jinping’s push for greater agricultural self-sufficiency is now reaping rewards.
While the oversupply will likely correct by mid-next year, the prognosis for China’s import demand is unclear. Its domestic industry has restructured in favour of large industry producers over small rural farmers. And Chinese analysts also reckon demand has permanently dropped as Chinese consumers switched to alternative proteins during the ASF crisis.
British pork industry may shift towards finding ways to support the new technology-driven pork industry in China, which has consolidated towards megafarms. Chinese behemoth Muyuan Foods made headlines in December last year when it was announced it was building the world’s largest pig farm, which would be capable of holding 84,000 sows at a density five times higher than regular farms.
This trend of high-density pork production also raises a new set of concerns about the risks of intensive agriculture. Xiaowei Wang’s brilliant book Blockchain Chicken Farm takes you behind the scenes of Chinese pork factories today; a world where Chinese internet firm NetEase runs a side gig in optimising pork production and Alibaba has developed an AI ‘agricultural brain’ which monitors pigs in real time, looking for signs of disease.
In many ways, the story of the UK pork industry’s relationship with China tells the story of the past few years; huge short-term economic upside somewhat tempered by Xi’s desire for domestic self-reliance, the risks of intensive agriculture and a clash of trade and geopolitics.
In brief
Britain and New Zealand struck a free trade deal. Foreign Secretary Liz Truss is also signing a string of tech deals with India on her two day trip to the country.
New international trade secretary Anne-Marie Trevelyan said China is welcome to carry on investing in non-strategic parts of the economy, with Boris Johnson following up that he doesn’t want to ‘pitchfork away’ from Chinese investment. Zheng Zeguang, Beijing’s ambassador to London, called for Britain to show ‘sincerity’ on investment in return.
The UK, US, Australia, Canada and EU condemned China’s ‘unfair trade practices’ during the WTO trade review in Geneva. The UK, US, and EU embarked on another round of last-ditch effort to bring world leaders to Cop26 table, with Johnson claiming that the talks would be ‘extremely tough’. Chinese envoy Xie Zhenhua asked for patience, saying Xi’s attendance is yet to be confirmed.
Shares in embattled Chinese property giant Evergrande opened up 6% in Hong Kong after Chinese media reported it had made an interest payment before a crucial deadline. Another deadline on a second offshore bond payment worth $47.5m (£34m) looms next week.
On Monday, China denied a report by the Financial Times last weekend that it has tested a nuclear-capable hypersonic missile. A further report revealed that two, not one missiles were tested, probing the Pentagon to also test hypersonic weapons.
Britain’s defence minister warned against Chinese incursions into the Taiwanese air defence zone, while Biden answered yes when questioned if he would “vow to protect Taiwan”. A White House spokesperson quickly clarified that US policy on Taiwan had not changed.
NATO Secretary-general Jens Stoltenberg announced a significant broadening of objectives to include China. French strategic review also included a tilt toward Japan, India, but Germany’s defence minister warned her European counterparts from detaching from NATO and defending the continent without US help.
EU reiterated ‘solidarity’ and ‘support’ for Lithuania in its row with China over Taiwan. The European Parliament, with a majority of 580 to 26 votes, backed a non-binding resolution requesting the bloc to deepen ties and start work on an investment deal with the island.
A cross-party group of more than 137 parliamentarians, including 117 MPs called for a review of the parliament’s pension fund’s Chinese investments. The House of Lords also voted in support by 180 votes to 176 for a legislative change requiring the government to provide an annual update on 5G network diversification.
France led a UN statement, signed by 43 countries including the UK, which expressed concern about in Xinjiang and repeated the call for immediate access to the region. The UK, US and EU also criticised the continued crackdown on Hong Kong, including a new ousting of 16 more democratically elected councillors. Seven Hong Kong democrats were jailed for up to 12 months over national security.