Bloomberg | May 4, 1999

HONG KONG -- China is granting export subsidies on cotton from Xinjiang Autonomous Region and offering foreign textile mills in China export tax rebates for using Xinjiang cotton, said the U.S. Agriculture Department.

The export subsidy amounts to 2,000 yuan ($240.96) a ton, or 18 percent of the price the government paid to buy cotton from Xinjiang farmers in northwest China last year, said the attache report.

China's Ministry of Foreign Trade and Economic Co-operation has also allowed the local Xinjiang government and state farms to sell cotton directly on international markets.

Beijing is giving joint venture and foreign-owned textile mills a 13 percent rebate on the 17 percent export duty they pay if they use Xinjiang cotton, said the report.

Last year, Xinjiang harvested a record cotton crop of about 1.6 million tons, or 5.75 million bales. The government bought 1.25 million tons for 11,000 yuan a ton.

For this year's crop, the authorities plan to pay 9,000 yuan a ton for Xinjiang cotton, the report said. The government typically pays about 10 percent less for cotton grown elsewhere in China.

At the same time, the Chinese government may grant a subsidy of as much as 50 billion yuan to help reduce its huge inventory of cotton produced before 1998 -- purchased at about 14,000 yuan a ton, the report said.

Cotton for July delivery fell 1.01 cents, or 1.6 percent, to 60.70 cents a bale.