As Xi visits, China's US crop demand a balm for tensions

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DES MOINES, Iowa (Reuters) - China is half a world away from the 2,300-acre family farm in east-central Iowa where John Weber and his son plant corn and soybeans.

But 62-year-old Weber is among a number of Iowa farmers who are benefiting as rising incomes in China lead to demand for billions of dollars of American farm goods.

"There are huge opportunities," said Weber, who in addition to his corn and soybean business, markets more than 14,000 hogs a year with a partner. "Absolutely huge."

This week, a visit by Chinese Vice President Xi Jinping to the farm state will underscore the possibilities of the deepening agricultural trade relationship between China and the United States.

Xi, who is expected to replace Hu Jintao as Communist Party chief late this year and then become China's new president in early 2013, will spend two days in Iowa after meeting President Barack Obama in Washington.

China last year bought $20 billion, or 14 percent, of record U.S. agricultural exports and it is now the largest buyer of U.S. soybeans, while becoming an increasingly important importer of U.S. corn and pork. The farm exports, up from $18.6 billion in 2010, now represent about one fifth of American sales of goods to China and U.S. officials are hoping for a lot more.

Beijing is not only buying food that will go directly to feed its 1.3 billion people but also for feedstuff that is going to the animals raised to meet increasing demand for meat and dairy produce that more Chinese can now afford.

Public policy experts say a wealthier China's increasing reliance on the American farm belt's enormous strengths - bountiful grain, advanced seed technologies and equipment - is likely to be a stabilizing influence on Sino-U.S. relations, which are fraught in a number of areas.

Those include friction over U.S. complaints that the Chinese currency is undervalued, that American manufacturing companies don't have fair access to the Chinese market, and allegations that China is carrying out cyber warfare to steal U.S. secrets. Add in disagreements over human rights in China and Iran's nuclear program, plus Chinese concerns that the U.S. military is meddling in its backyard through a renewed focus on the Asia-Pacific region, and the farm ties provide an important counter weight.

"The more the Chinese come to depend on U.S. agricultural exports, the more that could potentially make a big difference on the geopolitical relationship between the two countries," said William Overholt, a senior research fellow at the Kennedy School of Government at Harvard University and author of "Asia, America, and the Transformation of Geopolitics".

"The stronger that tie, the less the chance of some overall explosion happening in some other arena," Overholt said.

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Iowa is central to all this as it produce more soybeans, corn and hogs than any other U.S. state.

Xi will visit an Iowa soybean farm, be feted at a gala dinner sponsored by the state's corn, soybean and pork producers, and meet with Iowa business leaders.

"It makes sense for him to visit Iowa," Agriculture Secretary Tom Vilsack said in an interview. "They are a significant customer."

Vilsack, who served as governor of Iowa from 1999 to 2007, said he is working to strengthen what he already sees as a good personal relationship with China's Agriculture Minister Han Changfu and to resolve trade conflicts related to agriculture.

Vilsack has scheduled a first-ever U.S.-China "agricultural symposium" for Thursday in Des Moines as a forum for Xi, Han and other high-level Chinese and U.S. officials and business leaders to discuss agriculture, food security, food safety, and other issues.

China is increasing its investment in biotech seeds and other agricultural research and is trying to use farmland more efficiently, but is still relying more on imports. While it accounts for a fifth of the world's population, it has less than 9 percent of its arable land.

Soybeans, for feeding people and animals, are in particularly high demand. China imports about 60 percent of soybeans traded across the world, 52.6 million tons last fiscal year, including 24 million tons, or $12.1 billion, from the United States. That is up from 18.5 million tons, or $7.1 billion two years earlier, according to the U.S. Department of Agriculture.

U.S. pork exports to China rose 68 percent in 2011 (through November) from all of 2010. Indeed, China's monthly pork imports have been hitting new record in recent years, with U.S. imports accounting for most of the growth, U.S. figures show.

"China is the world's leader in pork production. But they can't supply their own market," said Ron Birkenholz, spokesman for the Iowa Pork Producers Association. "There's a lot of potential there."

LONG-STANDING TIES

Xi has ties to Iowa dating back to the 1980s, when he was a mid-level government official in the pig-farming region in Hebei. Iowa Gov. Terry Branstad visited China as part of a sister-states exchange program, and in 1985, Xi brought an animal-feed delegation to Iowa, staying for two nights in the tiny farming town of Muscatine, a community he will revisit Wednesday for an afternoon tea.

Xi and Branstad reunited in September at a meeting in Beijing, and Branstad extended the invitation that is now bringing Xi to Iowa. The governor said he considers Xi a good friend and sees ties between China, Iowa and the United States strengthening.

"We have a lot of Iowa companies doing significant business there," Branstad said.

Some new business is expected to be signed while Xi is in Iowa. A group of nearly three dozen Chinese soybean buyers have scheduled a ceremony in Des Moines to sign purchase intentions for billions of dollars in U.S. soybeans on Thursday.

A Chinese delegation will tour Des Moines-based Kemin Manufacturing, which makes animal feed and other human and animal nutrition products. Kemin has recently doubled the size of its Chinese manufacturing operations which annually bring in about $30 million in revenues for the family-owned Iowa company.

Kemin Chairman R.W. Nelson said sales in China are growing far faster than they are in the United States. He will be one of the business leaders honoring Xi at the state dinner on Wednesday night.

"We're growing with them," he said.

And another Chinese delegation is also slated to visit Iowa-based Pioneer Hi-Bred International, a global developer of biotech soybeans and corn owned by DuPont.

DuPont executive vice president Jim Borel described a "very rapidly growing" business in China. "China has their own food security issues. We're actively working with them," he said.

For Li Zhao, a native of China who now lives in Des Moines and brokers business deals between Iowa companies and Chinese ventures, this is a key moment for U.S. agricultural ties with China.

"The Chinese... they are all wanting to have better food. That puts a lot of pressure on the Chinese government," said Zhao, president of China operations for the ChinaIowa Group. "There is a huge market out there."

Iowans know that many fellow Americans are not as welcoming to China, particularly those involved in manufacturing industries that have seen jobs lost to China.

But here, the welcome is warm.

"It may not be the case for other segments of the economy," said Weber. "But agriculture is on the winning side of any trade with China."

(Reporting By Carey Gillam in Des Moines; additional reporting by P.J. Huffstutter and Andrew Stern in Chicago and Paul Eckert in Washington; Editing by Martin Howell)

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