China Cotton Policy
*******************************************************

The Chinese government has been implementing strict scheme management system of cotton for the past decades. The government designated All China Federation of Supply & Marketing Cooperatives (AFSMC) for the uniformed operation of cotton and stipulated the price for the purchase and sales of cotton. And regardless of market situation, the AFSMC had to purchase all cotton according to the price stipulated by the government, and for cottons that had not been sold, some would be purchased by the nation becoming national stocks, some would become the stocks of the Supply & Marketing Cooperatives for their sales purposes in the next year.

From the late half year of 1995, the situation of China cotton purchasing and selling has taken place a profound change. The supply of cotton shifts from a deficit to long-term surplus in comparison to the demand. China cotton policy adjusts itself to change of cotton situation. In November 1998, the Chinese government worked out the "Determinations on the Deepening of the Reformation of the Circulation System of Cotton". The target of the reform was: to establish the new system for the reasonable allocation of resources oriented mainly by the market under the macroscopic adjustment and control of the government. The document is a principal one for the transition of the circulation system of cotton from the planned economy system to the socialism market economy system. The conferring of the document marked the ending of the planned economy in the field of the cotton circulation.

The major contents of the document was as following:

1. Establish the system in which the price is oriented by the market under the guidance of the government. From 1999 cotton year, the selling price and the purchasing price of cotton will mainly be oriented by the market instead a unified price stipulated by the government, the government will adjust and control the market of cotton mainly by means of economical measurements like stocks and import and export etc. so as to prevent the price of the cotton from fluctuating too much. The purchasing enterprises will consult with cotton farmers for the purchasing price.

2. To expand the channel for the operation of cotton The AFSMC had been having exclusively rights for the purchasing and operation of cotton. And any textile enterprises identified by the provincial government as qualified will be allowed to participate in the purchase, processing and operation of cotton directly after 1 September 1999. However, enterprises not qualified for the operation of cotton and individual cotton venders are not allowed for the purchasing and process of cotton. Therefore, the AFSMC are still the major channel for the purchasing and operation of cotton. However, they are not the only one any more.

3. Maintaining of the channel of fund for the purchasing of cotton having expanded for the operation of cotton, the Agricultural Development Bank of China (ADBC) will provide the funds needed for purchasing cotton by the AFSMC . The AFSMC therefore has great advantages over the others while others are suffering from the shortage of funds.

4. To cultivate the cotton exchange markets and promotes the circulation of cotton in order. To establish a national cotton exchange and dealing network on the basis of computer network management centered by the China National Cotton Exchange (CNCE) with the support of all major cotton producing and selling provinces. The state will adjust and control the supply and demand as well as the price of cotton by means of purchasing and selling the national stocks of cottons via the CNCE

5. Import & export of cotton are still run by enterprises approved by the state. Textile enterprises are encouraged to produce products using domestic cotton for export purposes. Strict management will be imposed on processing trade, any smuggling activities and activities of selling smuggled cotton and cotton yarns in the name of processing trade shall be strictly punished.

6. Adjustment and optimization of the distribution of cotton production. To control the development speed of the cotton area in Xinjiang Autonomous Region; to reduce the cotton area in the middle and lower stream of the Yangtse drainage rivers on proper basis; to further reduce the cotton area in the Yellow and Huai rivers' drainage area. The improvement of productivity and the quality of the cotton are regarded as the major solution for increasing the income of cotton farmers and improving the long-term stability of the cotton production. .