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Sunday, December 15, 2019
China and the U.S. achieved a 'phase-one' agreement
Question: December 12, China and the U.S. achieved a "phase-one" agreement, which significantly boosted the global market. Many observers believe this agreement is mutual-beneficial or the least-worst deal the two counties can make now, what do you think about this?

Chan Kung: Let's just put the general, grand, structural issue aside for a minute, and see how the deal will impact the Chinese domestic agriculture market. This deal nailed 50 billion dollars purchase on pork and soybeans, which means in the long run, the pig industry will become a black hole for domestic investors, sucking their money dry and give nothing back. In this context, China must rely on the import on pig and it is easy to see the problems in that given what happened in the Chinese pig industry in 2019. The same thing would happen in the soybean industry as well unless Beijing issued a large number of subsidies, which is clearly not efficient and carries negative signals in Chinese continuing market-reforms. On the other side, this new market generated by the policy for the U.S. farmers is not necessarily a good thing for them as well simply because it is not a real market-generated demand and contains a certain degree of risks. This is why I think, in the long-term, this deal is not really a balance point in nature. It may be the "least-worst choice," whereas I think it won't take too long before we feel its backfire.

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