Hunan Xindaxin Co. is a state-backed private equity firm specializing in the agricultural sector. Last year the firm attempted a failed $60m bid to acquire the large seed developer Origin Agritech Ltd. and is rumored to try again this year. 
China currently bans the import of GMOs, however executive estimates see the state allowing the production of GMOs for human consumption by 2020. The introduction of GMOs into the world’s second largest seed market (~$17 billion) will open a large door of opportunity for domestic seed developers. However, Beijing fears that foreign agro-conglomerates such as Monsanto or DuPont will be able to leverage massive R&D budgets to stay ahead of smaller Chinese companies. The Chinese government has responded with large-scale consolidation, “slashing the number of domestic seed companies to about 5,200 last year from 8,700 in 2011.” The Chinese state has called for domestic seed makers to double their share of the market to 60% by the end of this decade. Consolidation is key in a market characterized by loosely stratified producers, rather than “a single corporate giant.” The single entity structure would allow profits to be centralized and funding for R&D and other operations to be better directed and allocated.
Beijing has built barriers to entry for foreign agribusinesses by limiting their operations to joint-ventures. However, the country will need to increase yields as arability wanes and the population increases in the long term. If Chinese companies cannot produce the technology themselves in the transition from heritage seeds to GMO, they will have to rely on technologies abroad. Or they will have to find other means to increase yields, either through increased mechanization or heavier dependence on fertilizers. The Chinese state has voiced a commitment to creating new seeds internally and seems poised to acquire and consolidate until it does.
Source: http://www.wsj.com/articles/china-seeks-to-develop-global-seed-power-1427049765
Many countries throughout history have tried to force local technological development through government-led enterprises. However, few have succeeded in turning these state-funded companies into dynamic, enterprising forces in the country’s economy. GMOs have dramatically increased productivity and helped reduce hunger throughout the world. China is depriving itself of these benefits by insisting on prohibiting the introduction of GMOs into the country with the purpose of developing local producers.
There are economies of scale in seed development. Until the advent of hybrids, all (modern) seed development took place in government agricultural research institutes. [Historically there was a lot of selection of seed for the next year by farmers, which gradually did lead to better seed.] What prevails in China (OK, this is based on an academic article or two, so is NOT current) are lots of firms peddling low-quality seed [too many firms for the government research institutes to test], or even outright counterfeit seed.
This is different from the GMO issue. There it’s handing power to a monopolist. I’m not particularly concerned about GMO seeds themselves, I’m concerned that your whole agrarian system could become dependent on a handful of firms with a global agenda that may not match the (perceived) needs of China.
This also recalls the Li book’s description of the lengthy process of domestic seed development in China during collectivization. At this point, do the benefits of domestic control outweigh the better crop yields available through foreign technology? Of course, this is less of a tradeoff if you can hack the agribusiness companies of the world.
China should realize by now that restricting trade under an import-substitution model actually hurts its economy. By restricting foreign agribusinesses’ access to China’s market, China is making its citizens suffer from higher food prices.