Price gap hampers textile firms
( 2001-07-10 11:38) (2)
China's textile industry, the world's largest, is being battered by a big price gap between the domestic and international markets.
The average domestic cotton price for the first half of the year was 14,000 yuan (US$1,686.7) a ton - 3,000 yuan (US$361.445) higher than the international level.
The international market is still closed to Chinese textile producers owing to policy restrictions.
The price gap has decreased the competitiveness of Chinese textile producers against their foreign rivals because they are paying more for their cotton.
Calls are growing for the government to open the market to domestic private dealers and increase imports of cotton.
A source from the State Economic and Trade Commission said the Chinese Government intends to grant domestic market access to private traders and increase imports.
A series of new policies were expected to be announced at a national meeting on cotton to establish a market-driven circulation system and ensure a stable domestic supply, the source said.
Analysts say, however, the implementation of the reform is not an "easy job."
The State depends on selling part of its huge cotton stockpile at a higher price to reduce losses, Lu Feng, a renowned agricultural economist with the Peking University, said.
"A reform is likely to cause strong price fluctuations and make the target harder to be achieved," he said.
Lu estimated that the State cotton reserve is about 2.5 million tons.
It is mainly stored by the Chinese Supply and Marketing Co-operative, which acts as both a market trader and a State-backed department.
The cotton reserves are released by the National Cotton Exchange Centre, whose daily operations are also heavily influenced by supply and marketing co-operatives.
Cotton imports are firmly controlled by the State.
Cotton production in 1999 and 2000 in China was 3.6 and 3.8 million tons, well below the country's actual demand.
Lu suggested the State gradually release its cotton stockpile, increase its imports, or connect both.
This would help narrow the price gap between the domestic and world markets and avoid a potential price slump.
Interests in different departments involved in cotton transactions are a factor hindering market-driven reform.
"The inflated cotton prices mainly result from the supply and marketing co-operatives' monopoly," said Wu Tongxing, an official with the State Economic and Trade Commission.
In 1999, the State relaxed its control on cotton pricing, although private dealers were still not allowed to buy cotton directly from farmers. Some 70 per cent of cotton produced by farmers is purchased by the supply and marketing co-operatives and the rest is bought by State-owned textile factories.
Wu said the market monopoly ensured the supply and marketing co-operatives would push cotton prices higher for a bigger profit.
More cotton imports and an open market for private dealers will harm the interests of the co-operatives and cause bigger losses for the State cotton reserve.
Lu said: "The State appears to be suffering bigger losses because of a cotton circulation reform, but it could be fended off by increasing tax revenue expected from a larger export of textile producers, who can obtain more cheap cotton through the reforms."
China's cotton output is one-fifth of the world total, but its cotton textile production accounts for one-third of the global volume. Cotton makes up 70 per cent of the production cost in the textile industry.
The interests of the current three firms controlling cotton import and export will be hurt by opening the market to foreign cotton.
"Though it would impact on those in control, the market will certainly be more open to foreign exporters with China's World Trade Organization (WTO) entry," Wu said.
China has promised to maintain an import quota of 700,000 tons of cotton annually five years after its WTO accession.
Lu from Peking University argued that the early opening of the market to foreign cotton would allow textile producers to enjoy a cheaper and more sustainable supply of material supply sooner.
There are also worries that private access will produce market instability and lower cotton quality.
Lu disagreed, saying that the government should strengthen its supervision of private dealers rather than forbidding them from entering.
"The market will naturally wash out those non-standard dealers," he said.
|
