China Policy Environment

China's rapid and sustained economic growth has vaulted China into a major world economic power. But it has also created a widening income disparity gap within China that the government must address.

There have been huge shifts in China's population distribution along with rapid industrial expansion, and the urban population is expected to grow from 500 million to 800 - 900 million by 2020, according to the Beijing International Institute for City Development. However, despite this rapid urbanization, approximately 60% of China's population remains in rural areas, where agriculture is the dominant and often the sole source of income.

China's history is littered with revolutions that initiated with widespread rural discontent, and the government is acutely aware of the need to avoid the historical trend.

The Chinese government has been aggressively addressing the need to close the income gap with several measures contained within their program of Five-Year Plan. Many of these measures involve improving rural incomes and quality of life by shifting the focus from urban infrastructure to building rural infrastructure, as well as initiatives to increase rural incomes through higher agricultural yields.

In addition to the income disparity issue, the alarming decrease in world rice supply, compounded by China's loss of farmland in the past decade has made agricultural productivity an urgent issue. The fact that China, due to its "One Child Policy" now has one of the fastest aging population means that there will be less workers to work the available farmland. Greater efficiency must be extracted out of the agricultural industry to increase crop yield through high-yielding varieties and better farming practices, including improved fertilizer use.

Modernization of Agriculture, Increasing Crop Yields & Raising Farm Incomes

Traditionally, the Chinese government has taxed its farmers to fuel government activities, but as China has become the economic powerhouse it is today, agriculture accounted for less than 5% of tax revenue, and 15% of GDP. The growing disparity between rural and urban incomes, where the average rural per capita income is less than 30% - 40% of the urban average, and the growing rural discontent has become an increasing concern to the Chinese government.

To address the income gap, the government has become very active in pursuing agricultural policies, including shifting subsidies and policy focus to benefit the farmers directly. The government eliminated all agricultural taxes as of January 1, 2006. In announcing their 11th Five Year Plan for 2006 - 2010, the government highlighted their "New Socialist Countryside" aimed at increasing rural production and incomes, improving cultural, educational and health development as well as promoting clean villages and the democratic management of village affairs. Rural production and incomes can be increased through a number of initiatives, including better farming methods and technology, improved fertilizer use and irrigation, high-yield crop seeds, and education. More initiatives will be taken to help alleviate financial stress for farmers, thereby freeing up additional funds to purchase even more farm inputs such as better fertilizer and seeds.

Grain Self-Sufficiency & Dr. Yuan Longping, "Father of Hybrid Rice"

The Chinese government has long identified grain production and grain self-reliance as a major area of importance, and has employed a myriad of agricultural policies with varying success to ensure grain supply.

The recent growing world shortage of grain, China's farmland loss to development and erosion, as well as a decreasing water supply has concerned the Chinese government. This situation is further exasperated by a rapidly aging farm population. The government has mandated a "grain production enhancement program", which includes cultivation of new "super rice" varieties that will produce yields of 13.5 tons per hectare. This task to greatly increase rice production in China has been given to the highly respected Dr. Yuan Longping, known to many millions of Chinese farmers as the "Father of Hybrid Rice." Dr. Yuan is the director of the China National Hybrid Rice R&D Center.

Dr. Yuan produced a commercial hybrid rice variety called Nan-you No. 2 in 1974, which dramatically increased crop yield, and is credited with helping feed an extra 60 million more people per year in China alone. Dr. Yuan has spent the last thirty years teaching his techniques to thousands of scientists and researchers in over 25 countries in Asia, Africa and the Americas. Dr. Yuan is the 2004 recipient of the World Food Prize, the 2001 Magsaysay Award, China's State Supreme Science and Technology Award (often referred to as the "Nobel Prize of China"), the UN FAO Medal of Honour for Food Security, and the 2004 Wolf Prize in Agriculture.

In May 2006 Hanfeng was profoundly honoured to commence a program of field trials and marketing of Hanfeng's Sulfur Coated Urea (SCU) slow-release fertilizer with the China National Hybrid Rice R&D Center. The field testing will focus on measuring and recording the effectiveness of SCU fertilizer to increase rice crop yield and quality, of the Center's "super rice" hybrid. Once the field trials are completed, Hanfeng's SCU will be marketed as the designated fertilizer to be used with the Center's "super rice" which is expected to increase crop yield significantly.

Some of the most agriculturally important areas of China for grain production are the North East and North China Plain provinces, which includes Heilongjiang, Jilin, Liaoning, Shandong, and Jiangsu. While government policies and subsidies require grain quotas to be met, there are many other high-value cash crops that farmers are increasingly interested in cultivating. Better farming practices, including the use of high quality fertilizers that produces higher crop yields will allow farmers to divert cultivated land areas to cash crops while maintaining their grain quotas.

Hanfeng Evergreen Inc. has been working directly with farmers and fertilizer distributors in these regions, conducting extensive field tests, soil and plant analysis and educational seminars to help farmers increase crop yields, decrease the amount of labour required, and learn better farming techniques. The Hanfeng team of researchers and sales staff has received tremendous response and interest from these farmers and distributors, and support of the local and national government.

Improving the Environment & Raw Material Efficiency

The environment is a concern not only in the urban centers but throughout China. In many areas, in a rush to pursue industrialization or increase crop yields, environmental concerns were often overlooked. However, the government has increasingly focused its attention on the need to improve the environment and has chosen to pursue a "Green GDP" in their Five Year Plan to emphasize its growing commitment to sustainable growth. They have reiterated very strongly to provincial and local governments to work harder to reduce energy consumption.

A key pollution problem that plagues China is water quality. Water pollution has been recognized by the Chinese government as a serious problem for the well-being of the Chinese population and the economy. With a limited supply of water, some areas of China are seeing shortages and conflicts in water usage between agricultural and industrial needs, and polluted water only compounds the problems of an already limited resource. Industrial disasters such as the benzene spill in 2005 into the Songhua River in Heilongjiang, a major agricultural area, has focused even more domestic and international attention on China's environmental commitments.

The Chinese government is aware that environment, pollution and economic growth are intertwined. In the case of fertilizer, all three issues are addressed as it relates to raw material efficiency. One of the key components of fertilizer is nitrogen, which is widely used in the form of urea. Urea is produced by natural gas, an increasingly expensive commodity that is in short supply. Access to natural gas is of great importance to the Chinese economy, and is vital for the country's massive fertilizer consumption, in addition to other industries. Slow-release fertilizer, like Hanfeng's Sulfur Coated Urea (SCU), and slow-release NPK allows for more efficient use of urea (nitrogen), by allowing the urea to be released over time, as the plant requires it, instead of the current problem of over application and being leached into the water system or simply blown away by the wind.

Hanfeng's value-added fertilizer limits the run-off and leaching of fertilizer into the water system, thereby reducing water pollution. Additionally, because value-added fertilizers can be more specifically targeted to plant requirements, it allows for the efficient use of raw materials, adding to its environmental benefits.

China Urban Greening & Golf Courses

As China's cities grow ever larger and more congested, the demand for urban green space as well as a cleaner environment is increasing. The growing urban middle class are demanding access to amenities that are comparable to European and North American cities, and the growing popularity of urban parks and golf courses cannot be ignored.

Combined with the goals of attracting world-class investment to its cities and industries, and involvement with international organizations (such as the WTO, and the 2008 "Green" Olympics in Beijing), urban greening initiatives have become synonymous with progress. Urban centres must do more than simply offer the lure of a factory job - they must offer people a healthy city for their well-being, as well as a healthy environment for business.

Hanfeng Evergreen Inc. continues to be a leader in the urban greening movement in China, having established itself in 1996 as a supplier of high quality horticultural products and importer of specialty fertilizers to cities embarking on this trend. Hanfeng then further capitalized on its relationships and expertise by becoming a large-scale landscaper of choice for cities, businesses and government organizations in key Chinese cities, including 2008 Beijing Olympics sites.

Urban green spaces, including recreational and sporting venues, such as golf courses have very specific specialty fertilizer requirements, not just to maintain and protect the investment in landscaping and horticulture, but also to ensure that excess run-off does not further compromise an already stressed environment. To lower costs and increase market penetration, Hanfeng began the domestic production of specialty fertilizers in April 2004. Hanfeng has continued to develop and supply market-leading slow-release fertilizers to the urban greening and golf course markets both domestically in China, and internationally.

External Pressures from Major Importing Countries

In mid-2006, Japan introduced tough new regulations on imported foodstuff, which sets new targets for allowable limits for chemical residuals in foodstuff, such as pesticides and fertilizer.

Japan is a major importer of China's farm products, accounting for approximately 30% of all international export of foodstuff from China. This tough new regulation has had a major impact on farming practices in China, as improved fertilizer quality and use are imperative to keeping the lucrative and voracious Japanese export market. Many Chinese farmers are only using fertilizers and pesticides that have been approved by Japanese importers to ensure the new quality standards are met.

Japan has been using slow-release and premium NPK fertilizer for agricultural uses for a number of years, and Hanfeng slow-release fertilizer has met or exceeded Japanese standards. Hanfeng has made several sales of slow-release fertilizer to Japan and is actively developing and growing this important fertilizer market.