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Around China

Long-term growth to continue, state investment fund to begin

By Compiled by RJ Whitehead , 19-Dec-2012

A round-up of the big new stories to come from China over the last week.

McDonald’s and KFC working towards food safety

Yum! and McDonald’s as having said they are working with Chinese suppliers to ensure the safety of food they serve, according to Bloomberg Businessweek. This comes in the wake of a China Central Television report alleging that the companies might have sold chicken that had been indiscriminately fed antibiotics and growth hormones.

The state broadcaster suggested that Liuhe Group and Yingtai Food Group, suppliers to customers including KFC and McDonald’s, did not properly inspect chickens they had bought from farmers in Shandong province before delivering the poultry. The chickens may have been given unapproved antibiotic drugs and growth hormones by the farmers, CCTV said.

We take food safety very seriously,” Yum!, the Louisville, Kentucky-based operator of the KFC and Pizza Hut chains. Each batch of chicken used by McDonald’s is tested to meet standards at a third-party laboratory, the restaurant-chain operator said in its Chinese-language microblog yesterday, without identifying suppliers.

The Chinese government has cracked down on food-safety violations after tainted baby formula was first found in 2008 and cases involving additives in pork and the use of reprocessed cooking oil followed, sparking public outrage. 

The Ministry of Agriculture has dispatched a team to Shandong province to investigate reports of antibiotic misuse in chickens, and urged veterinary officials to strengthen monitoring of drug use in poultry and livestock, it said yesterday.

Long-term consumer growth predicted

The latest study by Research and Markets is bullish on the long-term prospects for the Chinese consumer sector, but reveals that the country's domestic demand rebalancing is likely to be a long, drawn-out process. 

An acceleration of household spending driven by sizeable personal savings and rising wages would compensate for a reduction in capital outlay, helping to keep the economy motoring along at its current pace of expansion,” its authors explain.

Indeed, the vast size of China's consumer base, the undeveloped nature of organised retail, relatively low penetration of services, and strong scope for “premiumisation” are all structural positives and underpin our view that private consumption will slowly rise as a share of nominal GDP over the next decade. 

However, we would take issue with the notion that this process can occur without a material slowdown in headline economic expansion,” the report concludes.

From 2013, Research and Markets predicts compound growth in food drink consumption in China of 13.3% until 2017. This can be broken down to 9.2% growth in mass grocery retail sales, 10.7% in soft drink sales and 10.8 in alcoholic sales.

Farm produce prices stay climbing

Farm produce prices are continuing along an upward trend across 36 large and medium-sized cities in China, the Ministry of Commerce has revealed.

The figures to the end of the second week of December showed the wholesale price of 18 types of vegetables gained 4.9% week on week, with the prices of cabbage, green peppers and lettuce wen up 13.7%, 12% and 10.6% respectively, according to the ministry's statement.

The wholesale price of pork went up 1.6% week on week, but dropped 7.9% from the same period last year.

The retail price of eight kinds of aquatic products monitored by the ministry moved up 0.4% from a week earlier, while the price of eggs rose 0.4%, up for the fourth straight week with cumulative gains of 1.3%, according to the statement.

Food prices account for almost one-third of the weighting in the nation's calculation of the consumer price index, a key gauge of inflation.

China's CPI grew 2% year on year in November, up from a 33-month low of 1.7% in October, the National Bureau of Statistics has announced. Analysts believe the inflation rate was mainly driven up by rising food prices.

State investment fund gets green light

China has set up its first state-sponsored investment fund designated for the agricultural sector.

The fund is supported by US$160m contributions from each of the Ministry of Finance, CITIC Group, China Agricultural Bank and Cinda Asset Management. The move is intended to act as seed money to attract more investments into the sector.

To promote the development of its agricultural sector, with domestic food security also a high priority in the Five Year Plan, China has invested more than US$930bn between 2003 and 2012, the most in the country's history, the Ministry of Finance said in October.

Over that time, expenses in the sector from the central budget jumped from RMB214bn in 2003 to RMB1.2tn, with an annual increase of more than 21%, according to the ministry.

The financial support has contributed to a system designed to improve farmers' livelihoods and incomes as well as the country's agricultural output, the ministry added.

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