Cotton reserves

China's cotton prices surged to a record high this year, pushing up apparel prices. A statement posted on the website of the State-owned Assets Supervision and Administration Commission said the country's cotton output may fall 5.5 percent to 6.36 million metric tons this year.

Faced with possible shrinking output and growing demand, the government said Wednesday that it will increase cotton transportation from Xinjiang Uygur Autonomous Region, which is China's largest cotton-producing area. Its cotton acreage increased to 22 million mu (1.47 million hectares) this year.

Additionally, Xinjiang put extra trains into service to increase transportation of cotton, Liang Juan, an official with the Urumqi Railway Bureau said.

The total transport volume of cotton hits 13,500 tonnes per day. About 300 train wagons are available to carry cotton out of Xinjiang, Liang said.

Xinjiang also rolled out measures to crack down on cotton-price speculators.

What's more, the State Bureau of Material Reserve has sold cotton from state inventories this year in an effort to ease shortages and curb price gains. The reserves regulator plans more action this year, if needed.

In line with producers' interests

Experts dismissed worries that the price control policy, which aims to stabilize prices may, instead, squeeze producers' profit margins.

"The measures are targeted at wholesalers and dealers of agricultural products who bid up prices, rather than grain farmers," Li Guoxiang with the CASS said.

Han Changxue, a vegetable grower in Shouguang city, Shandong Province, told Xinhua the purchase price of his cucumbers was around 1.2 to 1.3 yuan per kilo, barely enough to match his production costs.

However, cucumbers sold at 5.2 yuan per kilo at the supermarket, more than quadrupling Han's selling price.

"Growers like us didn't benefit from price gains. It is vegetable dealers who profited greatly," Han said.

"Many growers are consumers themselves. A stabilizing price level is in their interests," Li said.

Soak up liquidity

Zhuang Jian, a senior economist with the Asian Development Bank, pointed out that the root of recent rapid price gains was excessive liquidity caused by record lending last year.

"Besides the measures the government announced, it should tighten its moderately loose monetary policy," Zhuang said.

Chinese banks extended a record 9.6 trillion yuan in new loans in 2009 to stimulate the economy amid the global financial crisis.

"The US quantitative easing policy will send more capital inflows into China, adding to domestic liquidity and undermining the country's fight against inflation," Zhuang added.

Actually, the government has moved to drain liquidity. The People's Bank of China, the central bank, raised its benchmark one-year lending rate on Oct. 19 by a quarter of a percentage point to 5.56 percent, the first increase in more than two years.

Also, the central bank lifted the reserve requirement ratio for China's commercial lenders by 50 basis points on Nov. 11 to mop up liquidity.

"China may need to continue to soak up liquidity in a bid to keep prices under control," Zhuang said.

(Xinhua News Agency November 19, 2010)