Cotton Reserves: A Terrible Idea

< p > it is reported that Tianhong "a target=" _blank "href=" //www.sjfzxm.com/ "textile" /a "group, China's largest textile manufacturer, its production has been shifting to Vietnam, Peng Bo reported that its stock price increased by 445% compared with a year ago.

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< p > > a href= "//www.sjfzxm.com/news/index_c.asp" > cotton reserves < /a >: a terrible idea < /p >

When the price is below the set level, the Chinese government purchases and stores domestic cotton. The purpose of the policy is to support the textile industry after the 2008 financial crisis inhibits export demand. P

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< p > oversupply leads to much cheaper cotton than Chinese cotton.

Reuters alerted to reduced profits, and companies such as rainbow went to import cotton, forcing the government to spend 33 billion yuan in the past two years to absorb excess cotton in the domestic market.

In 2012 alone, the government seized 89% of the domestic cotton (China's a href= "//www.sjfzxm.com/news/" > lint < /a >).

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< p > textile manufacturers are squeezed between expensive Chinese cotton prices and import restrictions.

Since 2013, the government has set up quotas for domestic cotton imports to cotton factories in 3:1.

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< p > cotton stocks have made China's a href= "//www.sjfzxm.com/" > textile factory < /a > cotton very expensive, unlike Tianhong Group, most of the textile mills are small and medium-sized debt laden enterprises (SMEs).

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< p > import rules this year make textile manufacturing industry make money or even less.

The manager of a textile company told reporters: "the current business is very tiring.

In addition to the increase in bank debt and labor costs, the greatest pressure comes from the purchase of raw cotton. "

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< p > farmers do not even get any benefit from the subsidy of 33 billion yuan, because the government reserves not to purchase raw cotton, but to process cotton, which means that the money goes into the hands of ginning merchants.

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< p > this is probably why, since the launch of the policy, domestic cotton cultivation has been reduced by 6.4%.

Reuters reported that the Chinese government may soon cancel its policy of purchasing and storing.

However, the proposed alternative policy may be that the government abandons cotton reserves and allows subsidies to be paid to farmers, which will cause other risks.

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Less than P, the money given to farmers will not solve the distorting production enthusiasm and contribute to oversupply, because subsidies continue to encourage farmers to grow more cotton and exceed the demand of the global market.

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< p > "as long as China continues to subsidize cotton farmers, the world's cotton will easily be overproduced," Joe Nicosia, chief executive officer of the world's largest a href= "//www.sjfzxm.com/" > cotton trader /a Allenberg Allenberg, told Bloomberg last year. "A"

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< p > why can we continue to subsidize cotton farmers for several reasons?

Chinese peasants are an important supporter of the Chinese Communist Party. In view of the permanent existence of the gap between the rich and the poor in urban and rural areas, there are more and more anger and complaints. Therefore, there are 600 million unruly peasants in China.

Also, please note that most of the cotton farmers are in Xinjiang, which is hard to control in Muslim areas in Northwest China.

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< p > that is why the government has to continue to subsidize inefficient and often unprofitable labor intensive operations.

Farms need better technology to improve production.

However, it is difficult for farmers to get loans; they can not use their land or farm equipment as collateral for loans, because technically their land belongs to collectives.

For a master's reason, the government thinks that it is unwise to give 600 million people the right to land.

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< p > however, free funds and small business loans are not the same thing.

Subsidies for farmers mean that they produce more cotton than the world needs.

This is a problem for the world's < a href= "//www.sjfzxm.com/ > cotton grower < /a >, not only in China.

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