Previous PageTable Of ContentsNext Page

Current Status of Foreign Capital Utilization in China's Agriculture and Its Policy Tendencies

Mr. Ma Yu
Research fellow of Institute under Ministry of Foreign Trade and Economic Cooperation

Profile of China's Foreign Capital Utilization in Agriculture

Role of China's Foreign Capital Utilization in Agriculture

Problems Existing in China's Foreign Capital Utilization in Agriculture

Status of China's Foreign Capital Utilization and Policy Tendencies in Agriculture

Agriculture is one of the key industries for foreign capital utilization. Since reform and opening up in 1979, especially after the 1990s, foreign capital utilization in China's agriculture has been growing rapidly, playing an important role in development of agriculture and the rural economy. Over a long period in the future, agriculture will continue to be a key industry in the national economy, and active, rational and effective utilization of foreign capital will also continue to serve as a practical and important approach to enhance agricultural productivity, increase the farmers' income, and establish the commercialized distribution system of agricultural commodities.


Agriculture is among the industries of earliest use of foreign capital. The total utilization of foreign capital in agriculture has reached US$26 billion, in which US$15 billion is from the mid/long term loans on favourable terms and US$11 billion from Foreign Direct Investment (FDI).

At the initial stage, foreign capital utilization in agriculture was dominated by borrowing, mainly favourable loans by international organizations and foreign governments. However, FDI has become the major type of foreign capital utilization since the 1990s. Before 1990, FDI accounted for 20% of total foreign capital, compared to more than 60% during 1991-1995, and averaged an annual amount of US$1 billion after 1996.

The fast growing foreign capital utilization in agriculture is characterized by concentration on coastal areas and projects of agro-processing and cash crops.


Making up for deficiency of domestic funds in agriculture, especially the infrastructure

About 8% of the foreign loans are put into agricultural development, in which most are for agricultural infrastructure construction, such as land improvement and irrigation works. Foreign capital input in agricultural infrastructure has come up to 40% of the aggregate government investment at its peak. In addition, foreign capital has also contributed to agricultural research, human resources development, high value added agro-processing, etc.

Restructuring to some extent the traditional agriculture and promoting deep agro-processing

Traditional agriculture in China is based on separated individual household farming, and didn't change fundamentally even in the 1980s in spite of achievements gained in mechanization and improved variety popularization. Furthermore, even the innovative household production responsibility system still lacks the method of modern agricultural production. Foreign investment in some regions has led to establishment of a certain scaled modern agriculture production system oriented at markets, aimed at profit, supported by advanced technology, and driven by key enterprises.

Accelerating agricultural industrialization

China's agriculture is still somewhat backward in respects of ideology, management mechanisms, operation systems, and production mode, and small-scale household farming remains fundamentally unchanged. Foreign investment in agriculture brought in modern agriculture operational concepts that agriculture is an integrated industry in which the production, processing, transportation and marketing are interrelated and interacted, in place of the old idea regarding agriculture as a pure cropping/rearing sector to provide sustenance goods. In this sense, such a re-examination of the concept of agriculture might be more important in China's agriculture development than the funds and technology introduced by foreign capital. Moreover, foreign investment has set up models for modern agricultural enterprises in practice.

Introducing advanced technology and improved varieties

A great deal of sophisticated technology and machinery has been imported with foreign capital to improve the agricultural production conditions to a certain extent. Although significant achievements have been attained in breeding and popularization of high-quality varieties, the problems of varietal undiversification and quality deterioration of certain agro-products, and lack of enthusiasm by farmers to accept new varieties remain unsolved, while foreign-capital-supported use of improved varieties and extension of scientific cultivation has obtained remarkable progress. The varieties introduced with foreign capital spread rapidly due to a ready market and good price, thereby increasing the technical content of the agro-products and allowing them to enter into the international market. Besides, advanced agro-processing machinery and technology imported with foreign capital have promoted the deep-processing of agro-products, and thus enhanced added value, and to a certain degree altered the situation of low level and backward techniques of the processing industry which has existed for a long time in China.

Leading to establishment of a great number of modern agricultural enterprises

Two great changes of significance have taken place since reform and opening-up. First, spring-up of township and village enterprises (TVE) has revitalized the national industry by breaking the industrial structure dominated by the state-owned enterprises. Second, a group of modern agricultural enterprises has been established with foreign capital assistance which are serving as a driving force to the rural economy, leading agriculture towards the direction of incorporation, industrialization and integration, which is substantially significant over the long run, though it's not yet obvious at the moment.

Increasing farmers' income, absorbing rural labour force, improving farmers' competence

The agricultural projects financed by foreign capital are in general closely related to farmers' production, therefore, a new project often creates new opportunities towards wealth for local farmers, helping them reduce poverty. Despite their small scale, foreign investment projects have so far been labour-intensive with extensive social benefits.

Promoting the commercialization of both agricultural production and distribution of agricultural commodities - probably of more profound significance to China's agricultural development

FDI has not only provided production elements as funds, technology and management, but also and even more importantly, brought in or intensified the market conception and market mechanism, adding commercial elements to agricultural production and operation, hence promoting the market-oriented reform in China's agriculture.


I. Problems in foreign capital borrowing (loans):

II. Problems in FDI:


The macro environment is favourable to foreign capital utilization in agriculture, however, challenges are to be encountered. The following factors should be taken into consideration:

Over the long run, China's policy on foreign capital utilization will have the following tendencies:

Previous PageTop Of PageNext Page