Government officials last week assured textile companies that cotton prices would not rocket out of control.

The State Development Planning Commission has decided to auction about 200,000 tons of China's cotton reserve around October 1, said an official with the National Cotton Trade Market.

The market is responsible for selling China's cotton stocks.

If necessary, China will sell more cotton to calm down rising price, he added.

Experts warned cotton growers not to anticipate extraordinarily high prices and stow their produce.

Although China's cotton production is expected to fall short of demand this year, officials said risks of soaring cotton prices are small as the government would not stand by and let that happen.

"China will use its huge cotton stocks to balance supply and demand," said Zhu Lanfen, director of the Enterprise Reform Department of the State Textile Industry Bureau.

Insiders estimate China has about 2 million tons of cotton in stock, but no official statistics are available.

Textile officials said there is no need for textile companies to panic and rush to purchase cotton at irrationally high prices.

China's cotton production this year is predicted at about 3.8 million tons.

The country has a cotton planting area of about 3.66 million hectares, according to official statistics.

As Henan Province, Jiangxi Province and Hunan Province were hit by drought earlier this year, the country's cotton production dipped a little from last year's 3.9 million tons.

But officials with the National Supply and Marketing Co-operative said other cotton-growing provinces will have bumper harvests.

"The quality of China's cotton production will also improve this year," an official with the Marketing Co-operative told Business Weekly in a telephone interview.

The proportion of high quality cotton will climb about 10 percentage points from last year, he said.

However, a gap exists between this year's production and estimated use of cotton, the official admitted.

Flourishing domestic and overseas demand for textile products has boosted demand for cotton.

China produced 3.1 million tons of cotton yarn in the first half of this year, up 16.8 percent year-on-year.

China's textile industry made use of 2.1 million tons of cotton in the first half year.

Rising demand will inevitably increase cotton prices, said the official.

A national cotton conference hosted by the Marketing Co-operative in August decided that a suitable cotton price will be around 8,600 yuan (US$1,036) per ton this year.

The price is higher than last year's suggested cotton price of the co-operative at 7,600 yuan (US$915.70) to 8,000 yuan (US$963.90) per ton.

It is also about 10 per cent higher than last year's actual purchasing price at about 7,800 yuan (US$939.80) per ton.

The official said when working out the figure experts have taken into account cotton growers' costs, textile companies' bearability, the international cotton market situation as well as the prices of synthesized fibre.

He told Business Weekly the country will then make use of its cotton stock to balance cotton supply and demand and to stabilize the price of cotton at around 8,600 yuan (US$1,036) per ton.

Zhu Lanfen with the textile bureau said China's entry into the World Trade Organization will also help stabilize China's cotton prices.

She expects China's cotton imports to climb after the country's accession to the WTO. China has promised to lower its customs duty on cotton imports after it becomes a WTO member.

Although the government has allowed a 70,000 ton quota for cotton imports to upgrade the variety of China's cotton production, China has bought little cotton from other countries in the past due to high prices on the international market, she said.

(Business Weekly)