China's steadily increasing demand for natural rubber over the last few years, which?was?fueled by the rapid development of the automobile manufacturing industry, has made the country the world's second largest tire producer and exporter since 2003. International giant tire producers such as Michelin, Bridgestone and Goodyear have made significant investments in China adding to the demands on the natural resource.

As the world's largest natural rubber consumer and importer, China used 1.8 million tons of rubber in 2004, 21.5 percent of the total global volume. From 1999 to 2004, the volume of China's consumption increased 80 percent and import volumes doubled.

However, China can only produce 7 percent of world's total volume of natural rubber. The production area of natural rubber is 6.3 million mu (420,000 hectares) with a recorded 560,000-ton-output in 2004. At full capacity, the three main production provinces of Hainan, Yunan and Guangdong, can only churn out about 700,000 tons, leaving a yearly shortfall of 1.1 million tons. China's production of rubber for domestic use fell from 60 percent in 1999 to 30 percent in 2004. According to Lei Yongjian, vice director of the Guangdong Provincial Farm, the rate of production for domestic use will continue to drop, falling below 20 percent within a couple of years.

The accelerated industrialization in Thailand, Indonesia and Malaysia?-- three of the world's major runner producers?-- has actually curbed rubber export growth in recent years.

They therefore established the International Tri-Partite Rubber Corporation (ITRCo) in 2002 to regulate rubber sales and stocks in the three countries. They adopted policies on supply management, export reduction and setting up joint ventures to control the natural rubber market and stabilize prices. The target price for 2004 was US$1,100 per ton. This year it's US$1,981 per ton. Vietnam and India have expressed interest in joining the corporation.

China, however, is not a party to the ITRCo. If major changes take place on the international market, China could be faced with severe challenges in the areas of economy and defense security.

According to Lei, with its limited natural rubber and synthetic rubber resources, China should adopt the "go-out" strategy to establish overseas natural rubber production bases to enhance its competitiveness for global resources.

Furthermore, by establishing overseas bases, China can avoid trade barriers set by major producing countries and acquire the latest technologies of rubber production to strengthen its position on the international playing field.

However, there is a bumpy road ahead if Chinese corporations are to adopt the "go-out" strategy. This would be due to unclear state guidelines and support for development of the industry.

Industry insiders have suggested that government guidelines need to be developed, and implemented by the industry. Further, a plan regarding the establishment of overseas natural rubber production bases should be included in the framework of agriculture cooperation between China and the country where the bases are to be located. This would enhance administration by relevant departments and support from the partner country.

The state should also invest in strategic agriculture resource projects and offer discounts on all or some loans to lessen the risks. Experts also suggest removing tariffs and import value added taxes for rubber production manufactured in these overseas bases.

(Xinhua Daily Telegraph translated by Li Shen for China.org.cn, December 8, 2005)