Why is there controversy regarding China’s staple grain food market integration? Evidence and implication from price convergent club analysis

Abstract

There remains ongoing controversy regarding the degree to which Chinese food markets are integrated. Some economists conclude that China’s grain economy is well integrated, while others argue that China’s gradual reforms have led to fragmented domestic markets while others conclude that previous studies have produced mixed results. To reconcile the debate, this article models and analyses the behaviour of China’s food grain retail markets by testing for the existence of the convergent price clustering clubs using appropriate econometric methods and price data over 1997–2010. The article finds evidence as to why the controversy remains by identifying a number of small divergent price clustering clubs where it is hard to conclude that China’s food grain markets are fully integrated. However, given that large convergent clustering clubs were also identified, it can be concluded that the degree to which Chinese grain food retail markets are integrated is ‘high’. This finding is important for those who plan to investigate the economic behaviour of grain production under the assumption of a pure, fully integrated, food market economy in China.

Keywords:

• China
• grain retail market
• convergent cluster
• food price

JEL classifications:

• D24
• O33
• Q41

Notes

¹ There are also other ways to test market integration, such as Gluschenko (2011) who uses the cost of a basket of 25 basic food goods as price representative to test the spatial pattern of goods market integration that evolved within Russia in 1994–2000.

² See Phillips and Sul (2007) for more details.

³ The Price Monitoring Centre (PMC) of the National Development and Reform Commission (NDRC) provide price information to the central and local governments for macroeconomic management. The PMC collects price data for many sectors and commodities nationwide including agricultural production materials, grains, water resources, petroleum and industrial products, electricity, transportation, communication and medical and medicines. The NDRC publishes National Agricultural Production Cost and Return Data Collection (quán guó nóng chǎn pǐn sheng chǎn chéng běn shōu yì zī liào huì biān) produced annually by the China Statistics Press. Since retail price data are collected on a 10-day interval (the 5th, 15th and 25th) monthly, the NDRC chooses not to publish them because of the large number of observations. However, this source of price data has been extensively used in many other Chinese empirical economic studies; see, for example, Fan and Wei (2006), Ma and Oxley (2010), Lan and Sylwester (2010) and Xiao et al. (2012).

Additional information

Funding

Financial supports from National Social Science Foundation of China [14BGL093], The First Henan University Philosophy and Social Science Innovation Team Support Plan of Education Department of Henan Province [2012-CXTD-03], Philosophy and Social Science Key Breakthrough Project of Education Department of Henan Province [2013-ZG-06] and Science and Technology Key Research Project of Education Department of Henan Province [13A790472] are gratefully acknowledged.