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FAS China. U.S. Agriculture’s Advocate in the Middle Kingdom. Economic Overview. Economic Overview World’s Second Largest Economy (PPP) GDP Growth 2006: 11.1 % 2007 Forecast: 11.5 % World Bank estimated 2007 GDP per capita $9,800 (PPP) Unemployment: 4.2% (2006, official).

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FAS China

U.S. Agriculture’s Advocate in the Middle Kingdom


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Economic Overview

Economic Overview

  • World’s Second Largest Economy (PPP)

  • GDP Growth 2006: 11.1 % 2007 Forecast: 11.5 %

  • World Bank estimated 2007 GDP per capita $9,800 (PPP)

  • Unemployment: 4.2% (2006, official)

Source: CIA Fact book, EIU, 2007


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Economic Overview

  • Slightly Smaller Area than the United States

    • Total: 9,596,960sq km

Source: www.flora.huh.harvard.edu/china/images/floramap.gif


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Economic Overview

  • Only a third of economy is state controlled

    • Accounts for just 17% of gross industrial output value

    • Excludes many state-controlled firms such as joint ventures with foreign capital high enough for the company to be classified as a "foreign-funded"

  • Joined WTO in December, 2001

  • $1.3 trillion in foreign exchange reserves

  • Unprecedented migration

    • 150 million people moving to cities

  • Increasing inequality

    • Promotion of “Harmonious Society”

Source: EIU, 2007


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U.S. – China Trade Overview

  • Fourth largest market for U.S. exports

    • Expected to overtake Japan in 3rd place in 2007

  • The United States exported $55.2 billion in goods and services to China

  • The United States imported $287.8 billion in goods and services from China

  • U.S. trade deficit at $232.6 billion in 2006, the deficit with China is our largest

    • Expected to rise to $270 billion in 2007

Source: CY 2006 Data, Census Bureau, Post Forecast, 2007


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U.S.-China Trade Overview

U.S. Total Exports, China Forecast to Overtake Japan in 3rd in 2007

Billion $U.S.

Source: USITC 2008 Data


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U.S.-China Trade Overview

U.S. Total Imports, 2007 Deficit with China Forecast at $270 Billion

Billion $U.S.

Source: USITC 2008 Data


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Total Exports from China

China’s Exports Continue to Grow Rapidly

China Exports

Source: Census Bureau, 2007


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Inflation: Retail Food Price Increases

Especially for Staple Consumer Goods in China

Prices in $U.S./Pound

Source: MOA and industry data


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China’s Agriculture

From Self-Sufficiency to Global Integration


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China’s Agriculture in Context

  • Agriculture contributes 11.9 percent of GDP

    • Industry (48.1 percent)

    • Services (40.0 percent)

  • Agriculture employs 45 percent of labor force

    • 340 million people

  • 10 persons to feed per hectare of arable land, more than twice the world average of 4.4

Source: CIA, USDA/ERS, 2007


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China’s Agriculture in Context

Annual GDP

Breakdown of the Labor Force

vs.

Agriculture

12%

Services

40%

Services

31 %

Agriculture

45%

Industry

48%

Industry

24 %

Source: CIA, USDA/ERS, 2007


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China’s Agriculture

  • World’s largest ag producer by volume

    • Planted area and total production in decline

    • Increasing environmental pressures

    • Improving yields will not match domestic demand

  • Increased demand for higher value products for processors and domestic consumers

    • Growth in cash crops, livestock, and fisheries sectors and other labor intensive crops unlikely to match consumer demand

Source: CIA, USDA/ERS, 2007


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China’s Land Use

Most of China’s Land is Non-Arable Desert, Dry Savanna & Mountains

Source: CIA Fact book, 2007


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China’s Grain Production Stagnant

Million Tons

Source: China Statistical Handbook, 2007 and FAS Beijing forecasts


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China’s Meat Production Growing

Million Tons

Source: China Statistical Handbook, 2007 and FAS Beijing forecasts


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China: World’s #1 Aquatic Producer

Production growth driven by strong domestic consumption

Million Tons

Source: MOA China Agriculture Statistics Report; * estimated by FAS Beijing


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China: Top World Producer of…

Apples

Peanuts

Pears

Pork

Source: USDA PS&D Data


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China: Top World Producer of…

Cotton

Rice

Source: USDA PS&D Data


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China’s Agricultural Production

China is World’s #2 Producer of:

  • Poultry (17%), second to U.S. (26%)

  • Corn (19%), second to U.S. (41%)

  • Wheat (16%), second to the EU-27 (21%)

  • Citrus (19%), second to Brazil (24%)

  • Rapeseed (27%), second to the EU-27 (34%)

Source: USDA PS&D Data


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China’s Soybean Market

Production Slightly Declining, but Demand Increasing

Million Tons

Source: FAS Beijing PS&D data by MY, 2007-08 forecast


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China’s Consumption

China Broiler Consumption Grows Strong

Amid Slow Recovery in Pork

Million tons

Source: FAS Office of Global Analysis


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China’s Agricultural Investment

  • Improved agriculture mechanization, post-harvest treatment, & distribution

  • Upgraded agriculture processing & manufacturing facilities

  • Large domestic investment in biotechnology & other research


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China’s Agricultural Future

  • China as a Competitor

    • High-value products (fresh and processed horticultural products, meat/poultry, etc)

    • Rapid quality improvements and distribution infrastructure are major factors

    • Large scale investment in export-oriented agricultural production suggests increased threat to U.S. growers

    • Can China continue to boost agricultural production enough to satisfy a booming domestic market and still increase exports?


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China’s Agricultural Future

  • China as a Market

    • Despite challenges, no market matches China’s potential, especially for high-value products

    • China has been our best performing export market recently -- led by oilseeds, cotton, hides, meats, and grains

    • Continued rapid economic growth will create unprecedented expansion in China's food demand

    • Over next 15 years, as incomes expand, product mix of China’s agricultural imports should become more diversified

    • How will water supply and energy demand affect the outlook?


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Agricultural Trade

The World’s Most Dynamic Market


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Agricultural Trade with China

  • Imported $30.6 billion in 2006

    • World’s sixth largest food importer

  • Exported $20.9Billion in 2006

    • World’s 11th largest food exporter

  • In 2006, $7.2 billion U.S. Ag Exports

    • In 2007, expected over $8 billion

  • 30 years of 10 percent Avg. Ann. Growth

Source: FAO, FAS Beijing, USDA/ERS, 2007


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World Trade with China

In 2006, China was a $9 Billion Net Importer

China Imports

China WTO Accession

China Exports

Source: FAS Beijing, USDA/ERS, 2007


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U.S. Trade with China

Rapid Rise in U.S. Exports after WTO Accession

China is now Fourth Largest Market for U.S. Ag Exports

U.S. Exports

China WTO Accession

U.S. Imports

Source: FAS Beijing, USDA/ERS, 2007


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U.S. Agricultural Exports to China

Total 2006 Exports were $6.7 Billion

Total 2007 Exports Forecast at $7.1 Billion

China’s WTO Accession

Billion $U.S.

Source: FAS Beijing, USDA/ERS, 2007


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U.S. Agricultural Exports to China

Economic Growth & Enhanced Processing Capacity:

Soybeans, cotton, and hides and skins are leading exports

Million $ U.S.

Source: U.S. DoC, Census Bureau, 2007


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U.S. Agricultural Exports to China

China’s Beef Imports – Impact of Market Closure

1,000 $U.S.

United States

Australia

New Zealand

Brazil

Source: World Trade Atlas, China Customs


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China’s Trade in Soy Complex

China’s Rising Soybean Imports have Changed the Balance of Trade

Source: FAS PS&D Tables


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U.S. Hardwood Lumber Exports

China’s Imports Rapidly Increase

Million $U.S.

Source: U.S. Trade, DoC, U.S. Census Bureau


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China’s Agricultural Exports

China’s Total Agricultural Exports

Million $U.S.

Source: Census Bureau, 2007


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China’s Ag Exports to the United States

Horticultural Products have Shown the Greatest Growth

Source: Census Bureau, 2007


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China’s Apple Juice Exports

China is the World’s Largest Producer and Exporter of CAJ

Million $ U.S.

(Jan.-Nov.)

Source: China Customs Data 2007


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Policy Issues

Market Access for U.S. Agriculture


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Opportunities and Challenges

  • Importance of China’s WTO Accession

  • U.S.-China Bilateral Relationship

    • Policy (especially related to Food Safety)

    • Market Development

    • Capacity Building

  • Evolving Agricultural Trade Environment

    • Consumption and import growth potential

    • China as a competitor


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China’s WTO Accession

  • By joining the WTO, China committed to Trade Liberalization. It agreed to:

    • Lower tariffs (lowered by 17% by 2004)

    • Abide by International Standard Setting Bodies (IPPC, OIE, CODEX)

    • Weaken state trading monopolies

    • Increase license and quota transparency

    • Base SPS measures on science

    • Notify and allow comment on new regulations


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Bilateral Trade Issues

  • Mainly SPS-Related

    • Beef trade has not yet resumed, pending negotiation of a protocol

    • Pathogen and drug residue standards threaten to disrupt pork/poultry trade

    • Numerous plant health issues

  • Biotechnology

    • Slow review of applications

    • Soy and corn trade at risk


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Bilateral Trade Issues

  • Export Subsidies

    • China believed to subsidize corn exports, but may soon become a net importer. In 2006, first major U.S. shipment to China in ten years

  • Quarantine Inspection Permits (QIP)

    • Required of any product needing inspection

    • Used as a de facto import licensing system

  • Tariff-rate Quotas (TRQ)

    • Trade is flowing

    • TRQ distribution system not transparent


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Bilateral Trade Issues

  • Intellectual Property Rights (IPR)

    • Rampant problems with trademark infringement involving western brands (e.g. Wisconsin Ginseng), creating financial, legal, and food safety concerns

  • Value Added Tax

    • Refund for local producers

    • Possible national treatment issue


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SPS Issues

  • Non Science-based restrictions on trade

    • Lack of notification/transparency

    • Lack of risk analysis

    • Lack of adherence to international standards

    • Use of trade as bargaining chip

  • Affects many products including

    • Beef, poultry, pork, and horticultural products


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Biotechnology Issues

  • Registration difficult

  • No opportunity for foreign direct investment

  • Regulators’ research branches involved in commercial research and development

  • Technical/Political discussion driven by U.S. regulators have had limited results


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Biotechnology & Seed IPR Issues

  • Synchronized registration

  • Stacked trait policy

  • Detection methods

  • Revision of bio-safety regulations

  • Application window period

  • Patentability

  • Genetic source material

  • Plant variety protection


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WTO Compliance: Issues

  • Import Licensing

    • QIP

    • Import reporting system for soybeans

    • Poultry Automatic Registration Form (ARF)

  • TRQ

    • Lack of transparency affecting quota fill



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IPR Issues

  • Foreign companies lose 20% of the value of all sales in China to counterfeits

  • 20% of all consumer products are counterfeits, including well known brands, e.g., Gucci, Rolex, P&G, Kraft, Sunkist, Wisconsin Ginseng, etc

  • By some estimates, U.S. industry lost $84 billion in value in 2006


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IPR Issues

  • Of the 35 cooperators operating in China 9 are registered properly and 4 have pending trademarks

  • 12 are registered in the U.S. but are not registered in China, nor have they applied

  • 9 are registered neither in the U.S. nor China

  • Informal surveys of tradeshows indicate approximately 30% of companies are trademarking their brands


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IPR: Marketing

  • Marketing in China

    • Market Analysis

    • Market Development

    • Branding

  • Protecting Your Brand

    • Trademark/Patent

    • Using the Regulatory/Enforcement Infrastructure


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Value Added Tax: The Problem

  • Domestic farm products pay reduced VAT

  • Most purchasers of domestic farm products pay no VAT

  • Most purchasers of imported farm products pay VAT

  • Some exporters of domestic farm products get a VAT rebate (for VAT not paid!)


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VAT: Next Steps

  • Detail of Chinese Law

  • Investigative Research

    • 6 + Commodities, including processed products

    • Against GOC interest – expect interference

    • Identify the difference between law and practice

  • Review of WTO law

    • GATT Article III

    • Subsidies

    • Ag Agreement-AMS

  • GBI Sponsored by USWA


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Moving Forward

From Engagement to Results


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USDA Policy Engagement

  • We have an obligation to hold China to its bilateral and multilateral commitments

  • U.S.-China Joint Commission Meeting on Science and Technological Cooperation (JCM)

  • U.S.-China Strategic Economic Dialogue (SED)

  • State-NDRC Dialogue on Rural Development

  • U.S.-China Joint Commission on Commerce and Trade (JCCT)

    • Agricultural Working Group (AWG)

    • SPS Working Group (SPSWG)


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USDA Policy Engagement

  • USDA-MOA Joint Committee on Cooperation in Agriculture (JCCA)

    • U.S.-China High Level Joint Biotech Working Group (BWG)

    • Animal and Plant Health Working Group

    • Scientific Cooperative Research & Exchange

  • WTO

    • Transitional Review Mechanism (TRM) – China-specific

    • Trade Policy Review Mechanism (TPRM)

    • SPS and TBT Committees

    • Committee on Agriculture (COA)


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Engagement Works

  • Avian influenza ban on U.S. poultry lifted in 2005 (ban retained in 7 states)

  • China extended quarantine inspection permit validity from 90 days to 6 months

  • Market access for California plums and new Florida counties approved to export citrus

  • Access to port of Shenzhen for U.S. horticultural products

  • Re-certified expiring biotechnology events


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Looking Ahead

China’s Future


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Consumption: The Known

  • 29 years of 8-12% growth

  • At least 1.5% rural to urban migration

  • At least 1% growth in population

  • Approaching 20% middle income consumers and above


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Consumer Expenditures

Annual per Capita Expenditure

Per Household RMB

Source: China Statistical Yearbook, 2006


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Consumption: The Unknowns

  • Food away from home

    • Estimates are one-quarter of the middle income food budget is spent outside the home

  • Individual demographic data

    • Current research does not differentiate age, education, individual income, job type, or work schedule

  • Specific attributes

    • Current research regarding differentiation of consumer demand on the basis of quality, safety, convenience, nutritional, branding, and certificationis lacking


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Opportunities for U.S. exports

Expected Growth in China’s Food Expenditures

WTO Accession

Source: Global Insight’s Global Consumer Markets Service


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Expanding Rapidly

China's Middle Class

WTO Accession

Source: Global Insight’s Global Consumer Markets Service


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Biofuels Development

  • 5 MMT of production

  • 3.5 MMT of food ethanol

  • Over 1 MMT of corn based ethanol production

  • Fluid use of inputs based on relative costs

  • Double total production over the next 5 years


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Biofuels: Fuel Production and Input Sources

  • Expanded corn production

    • China, U.S., Brazil…

  • China’s domestic demand for feedstock

    • Pork, beef, and poultry production forecasts

  • Production limitations

    • Land and water resources and competition

    • Limited adoption of biotechnology


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Market Development Programs

  • More than 50 Cooperators/Participants currently active

  • Promoted products range from apples to wheat

  • Total funding for 2007 program year is about $27 million

  • Product-specific strategies vary, but common themes:

    • Increase product familiarity

    • Improve understanding of food safety issues

    • Expand awareness of healthy eating guidelines

    • Enhance trade capacity through tech training/trade servicing

    • Provide critical support on trade policy/market access issues

    • Strengthen rules on IPR and copyright

    • Extend market development efforts to Emerging City Markets


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Market Development

  • ATOs develop markets and identify market access issues for Ag Affairs Office

  • Key tools include trade shows, promotions, & sector reports


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USDA Resources

The Department’s Commitment to U.S. Farmers in China


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USDA Presence in China

  • USDA has 45 employees (13 Americans and 32 local staff) in China -- our largest overseas presence

  • FAS Agricultural Trade Offices in China’s three largest cities—Beijing, Shanghai, and Guangzhou. Chengdu opened in 2007 and Shenyang opening in 2008

  • Animal & Plant Health Inspection Service (APHIS) office in Beijing to focus on SPS-related bilateral market access issues


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ATO Responsibilities

  • Identify market opportunities & support private sector trade facilitation in expanding U.S. high-value agricultural exports to China.

  • All FAS China Coordination:  Responsible for ‘One FAS China Voice’ Reporting, CSS, and Cooperator Reviews (MAP, FMD, EMP and CPR).

  • Advisor to the Agricultural Minister-Counselor for market development in the China market.

  • Sharing Market Expertise:  Actively assess, analyze, and report China’s agricultural market and trade trends in support of trade policy goals and objectives including market access, intelligence and development efforts.  


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ATO Responsibilities

  • Identify/turn ‘on the ground’ market information into user friendly market reporting in support of USDA/FAS China trade facilitation advocacy.

  • Advance the image of U.S. products via relationship building with importers, distributors, retailers, food service operators, the media and consumers to establish and reinforce positive perceptions of food and agricultural products from the United States.

  • ATOs support bilateral trade by connecting traders on both sides of the Pacific; grow and maintain network of contacts; build support for economic realities in local terms (Chinese language, customs, culture) that support U.S.-China agricultural trade.


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ATO Activities

Works with USDA Cooperators and State and Regional Trade Groups to Promote U.S. Food Products. Activities Include:

Multi-LevelCampaigns

Menu Promotions

Chef Seminars

In-store

promotions

Trade Shows


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China Government Bodies

Ministry of Commerce (MOFCOM) - formerly MOFTEC

General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) – formerly part of MOA, negotiates market access for plant and animal products

Ministry of Agriculture (MOA) – biotechnology, pathogen and drug residue standards, domestic animal and plant disease surveillance

Ministry of Health (MOH) – pathogen and drug residue standards

State Food and Drug Administration (SFDA) – new

State Environmental Protection Administration (SEPA) – new

Source: Chinese Government Yearbook, 2007


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FAS China Contacts


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