Thursday, January 17, 2019

Ag Census Fraud Revealed by Bureau

Cases of fake data and manipulation of results in China's agricultural census were revealed by the National Bureau of Statistics last month.

The National Bureau of Statistics' "Notice on 7 Typical Cases of Agricultural Census Fraud and Falsification" released December 27, 2018 listed seven examples of fraud and interference by local officials uncovered by follow-up inspections carried out during 2017 and 2018 (the census was conducted in early 2017). In spot checks of rural households in several counties, residents said they had never been contacted by census enumerators. In other instances, the data transmitted by enumerators' handheld electronic devices did not match data on paper report forms. In once case, inspectors found stacks of blank report forms.
  • In Shanxi Province's Pingguan County inspectors surmised that census enumerators had filled in households' census report forms themselves using administrative records and by making phone calls. 
  • In counties in Jilin and Jiangxi Provinces, local officials ordered village cadres to fill in census tables to meet objectives passed down to them. 
  • In Gansu Province's Jingchuan County, local forestry bureau officials ordered census takers to falsify reports of the area covered by forests and fruit orchards. Similarly, area covered by tea plantations was "seriously" exaggerated in a district of Sichuan Province. 
  • In Hubei Province's Zhijiang City signatures on survey forms did not match those on electronically reported materials, data was changed without knowledge of respondents, and the business income from "scaled-up" farms was inflated. 
The document admonishes officials that the incidents of census fraud and falsification have a "very bad effect" by "damaging the reputation of both the Party and government." The Bureau advised local officials carrying out the Economic Census this year to learn from these agricultural census incidents and strictly adhere to the law. Each agricultural census fraud incident included descriptions of reprimands and penalties for officials implicated in census fraud. Officials are advised not to fill out forms themselves, modify data, or interfere with census activities. The document concluded with a promise to "unswervingly guard against and punish census fraud."  

Similar census enumeration problems were reported at the local level in the previous agricultural census in 2006. Problems in the 2016 census occurred despite veiled exhortations to actually go out and visit villages and households and avoid political interference issued when the agricultural census was kicked off two years ago.

Despite its importance, there is no indication of how widespread the problems were in the agricultural census. The Bureau released a set of communiques and bare bones census results. In October the Bureau revised its agricultural statistics from the past 10 years based on the census results. No detailed data have been published yet. This month, the Bureau resolved to work harder on agricultural and rural statistics in order to implement Xi Jinping's directives to carry out the rural revitalization and poverty alleviation initiatives. The Bureau pledged to find out what the rural population really is and to base its improvements in agricultural commodity surveys and rural poverty monitoring on the results of the agricultural census. 

The deep roots of these problems are revealed by a comment on Chinese statistics written in 1895 by W.A.P. Martin in his book A Cycle in Cathay (p. 460):
"Owing to imperfection in their mode of enumeration, strict accuracy is not to be expected. A governor of a province will sometimes add what he supposes to be the probable increment to an old census, instead of taking the trouble to make a new one."

Wednesday, January 16, 2019

China Ag Markets Postpone Instability

A China agriculture ministry review of 2018 market conditions highlighted adequate supplies, stable prices, limited impacts of trade tensions and African swine fever, progress in reforming grain price policies and promised continued disposal of excess corn and rice stockpiles. Steep declines in vegetable prices during 2018 were attributed to normal seasonal factors. Stability now may foreshadow future deficits when the government's corn stockpile is finally depleted and pork supplies could shrink as pessimistic farmers worried about African swine fever hesitate to restock pig barns.

Tang Ke, director of the market information office of China's Ministry of Agriculture and Rural Affairs, reviewed agricultural market developments during 2018 and discussed the outlook for 2019 at a press conference held in Beijing today.

During 2018, China's corn sector revolved around efforts to dispose of massive government stockpiles. Auctions of government corn reserves sold over 100 million metric tons, and corn processing capacity was expanded in northeastern provinces. Mr. Tang said China's consumption of corn exceeds its production. There were no major fluctuations in corn prices, but the December 2018 average wholesale price in production regions (1880 yuan/mt) was up 11.9 percent year-on-year and the December price in corn deficit regions (2060 yuan/mt) was up 9.6 percent.

Tang indicated that disposal of excess corn stocks would continue at a rapid pace during 2019 and might be completed this year as inventories return to "normal" levels. He anticipates that market forces might prompt a rebound in corn planting this spring, reversing the recent trend. Tang expects Chinese corn prices to remain stable or to increase slightly during 2019.

China's minimum prices for wheat and rice have been reduced as part of the reform of the government reserve procurement system. Wheat and early rice prices fell at the outset of the 2018 marketing season, but later rebounded to levels at or above the minimum prices. The 2019 minimum price for wheat was announced to be 1.12 yuan per 500g. The minimum prices for rice will be announced around the upcoming spring festival and are expected to be "stable", Tang said. Rice prices may be under downward pressure due to large government stockpiles, Tang said, but wheat supply and demand are "in balance" due to decline in quantity and quality of last year's wheat crop.

China's soybean imports fell during 2018 due to the 25-percent tariff on U.S. soybeans imposed in July, but there were no major fluctuations in Chinese soybean prices. Mr. Tang attributes relatively stable Chinese soy prices to adoption of low-protein feed formulations, weak downstream demand, and more protein sources. Tang thinks China's volume of soybean imports will remain steady during 2019. With large U.S. inventories and possible weather impacts on the South American crop, Mr. Tang promised to carefully monitor the international soybean market and issue regular reports on developments.

China's pork market opened 2018 with several months of plunging prices but prices were relatively stable in the second half of the year, Tang said. The average hog price fell four weeks in a row to 13.65 yuan/kg in the second week of January 2019, 11.2 percent below the price a year ago. The spread of African swine fever beginning in August prompted tight controls on transport of live pigs and a shift from transporting hogs to transporting pork. This caused declines in prices in production regions and moderate increases in consuming regions but no major impact on prices yet, Tang said. The average slaughter weight in December was a record 124.27 kg per head and hog slaughter was up 9.5 percent from the previous month. Consumer demand is relatively weak. The volume of pork traded in markets monitored by MARA was down 14.4 percent year-on-year. Tang anticipates relatively stable prices during the peak consuming period for the lunar new year holiday.

Tang anticipates tighter pork supplies and rising prices in the second half of 2019. The December inventory of hogs was down 4.8 percent from a year earlier and the inventory of productive sows was down 8.2 percent. The average price for feeder pigs is down 27.4 percent year-on-year, an indicator that hog farmers are not replenishing their herds, foreshadowing tight supplies later in the year. Tang encouraged farmers to re-stock their herds while paying close attention to control of African swine fever. Local officials have been advised to adopt measures to maintain pork supplies by addressing farmers' worries about restocking their herds.

Mr. Tang attributed strong prices of poultry, beef, and mutton to their role as substitutes for pork and seasonal factors affecting supply.

Tuesday, January 15, 2019

China Food Safety Challenges: Old and New

China has food safety problems stemming from fraud and pollution of farming areas, according to remarks by a Chinese food science expert praising the overall improvement in the country's food safety situation. The speech also highlighted new challenges posed by China's rapid growth in demand for health foods, e-commerce, and imported foods.

The comments were made by Professor Meng Suhe, director of the Nutrition and Health Institute of China's Center for Disease Prevention and Control, at a December 2018 meeting that assembled a team of food scientists to address the year's food safety hot topics for attendees from news media. The speech pointed to improved compliance found in government testing of dairy, meat, grains, and eggs, a reduction in microbiological food safety incidents, and reduced concerns about food safety in public opinion polls as indicators of an improving food safety situation in recent years. 

Although the food safety situation is "stable overall," Prof. Meng cited four persisting problems that need to be addressed:
  • Contamination of raw materials by pollution in farming areas
  • Use of food additives in foods where they are not authorized or in excessive amounts
  • Nonfood materials in food items
  • False advertising in nutritional supplements and health food
The scientist identified food additives as the top problem revealed in testing results during the third quarter of 2018. Professor Meng also observed that the public has rising concerns about residues of pesticides and veterinary drugs in foods that violate standards. She interpreted this as reflective of the complex, long-term problem of contamination of raw materials. 

A discussion of new challenges facing food safety regulators was omitted from most accounts of Prof. Meng's speech circulated on Chinese news sites. Prof. Meng cited several emerging challenges related to major changes in China's food market:
  • Explosive growth in demand for health foods driven by a "Healthy China" initiative has attracted fraudsters along with legitimate companies. Problems include illegal use of pharmaceutical ingredients in foods, fakes, adulteration, and exaggerated advertising claims. 
  • 30-percent annual growth in e-commerce sales are pressuring traditional marketing channels. Many online food products have "a brand but no factory," which "hollows out" the supply chain and creates a new "hot spot" for food safety regulation, Prof. Meng commented.
  • Imported foods and raw materials are growing rapidly as China opens its market, but food safety management is uneven, posing another source of risk. 
  • Food safety information transmitted from abroad needs rapid responses from Chinese scientists, Prof. Meng said. 
Food safety informational meetings for news media have been held since 2012 to prevent the spread of rumors and to disseminate a scientific viewpoint in order to shape public opinion. The main purpose is to squelch unscientific rumors that spread by word-of-mouth, social media, and news media, in turn influencing public opinion and company sales. The meeting is purported to reflect a shift from crisis response to risk prevention and shared governance from all members of society. A poll purporting to show an increase in scientific knowledge among the general public was cited at the meeting.

The 2018 meeting assembled a dozen scientists from Chinese universities and institutes to address a dozen "hot topics", including:
  • whether coffee is carcinogenic 
  • whether edible fungus is toxic 
  • explaining news about cyclospora infections in the United States
  • an overseas article questioning the value of probiotics
  • whether African swine fever can be transmitted from pork to consumers
  • a scandal involving a health food company
  • whether an additive to prevent clumping in salt is toxic
  • adulteration of high-end oils with cheap oils and use of oils from genetically modified oilseeds without acknowledging the materials on the label
  • de-bunking a claim that a food can balance acids and bases in the consumer's body
  • self-styled "professional anti-counterfeiters"
The 2017 meeting cited a reduced degree of concern about food safety problems in public opinion polls since 2013 attributed to improved regulation that "calmed the market." Governments at national, provincial and local levels set up news digests and short-messaging systems to issue 85 messages from China's FDA. The 2017 meeting cited three main problems: microorganism contamination of foods, food additives, and residues of pesticides and veterinary drugs. The 2017 meeting discussed a recall of French infant formula, whether pu'er tea and a type of Chinese salted fish are carcinogenic, whether drinking liquor can prevent cancer, a health food brand's claim to extend life by 10%, concern about excessive aluminum in fried dough, and online food safety and health food problems.

While food safety is improving in cities, regulation in rural areas is often lax. Last week, Vice Minister of Agriculture Yu Kangzhen toured Guangdong and Jiangsu Provinces to urge officials in rural communities to strengthen their regulation of food adulteration and illegal meat slaughter. Yu toured small food shops, restaurants, workshops, food markets, and slaughter facilities. He met with village committees and township governments to hear work reports, discuss potential risks, and to urge local officials and producers to carry out responsibilities, raise the quality of food industry, coordinate government and grass roots communist party organizations, increase propaganda, and strengthen supervision of animal slaughter.

Monday, January 14, 2019

China Imported 5.72 mmt Soybeans in December

China posted its largest-ever decline in annual soybean imports in 2018 after consecutive year-on-year declines during November and December.

Preliminary December 2018 trade data posted on China's customs website show:
  • China imported 5.72 million metric tons (mmt) of soybeans in December, bringing the calendar year total to 88.1 mmt. 
  • The December import volume was down 3.8 mmt from a year earlier, following November's 3.3-mmt year-on-year decline (see chart below).
  • The calendar-year 2018 soybean import total of 88.1 mmt was down 7.47 mmt from the previous year's 95.5 mmt, the first year-on-year decline since 2011 and its largest decrease ever. 
  • 2018 soybean imports were valued at $38.1 billion, down 4 percent from 2017.
  • The average unit value of December soybean imports was $445/mt, about 6 percent higher than a year earlier.
  • China has not yet released data showing which countries supplied December soybean imports. (Brazil's customs data show 4.1 mmt of soybeans exported to China during December 2018.)
Data for other major commodities show:
  • China's imports of cereal grains totaled 20.47 mmt for 2018, down from 25.59 mmt in 2017.
  • China's imports of edible oils totaled 6.29 mmt for 2018, up from 5.77 mmt in 2017.
  • China's imports of fruits and nuts totaled 5.65 mmt for 2018, up from 4.51 mmt in 2017.
  • China's exports of rice totaled 2.089 mmt for 2018, up from 1.2 mmt in 2017.
  • China's exports of fish and shellfish products totaled 4.25 mmt for 2018, down from 4.27 mmt in 2017.



Saturday, January 12, 2019

Marxists Who Fear Revolution and Class Struggle

After creating fabulous wealth for China's urban elite by seizing land from village collectives and employing a low-wage army of rural migrants, Marxist Chinese leaders are now on a crash program to let some of that wealth trickle down to the countryside.

An essay in China's Farmers Daily last week assured Chinese communist party cadres that Xi Jinping's directive to improve peoples' living standards is entirely consistent with Marxism by pointing to Marx's tenet that "struggle" is all about peoples' "material interests." The essay skipped over some other glaring contradictions: a communist party founded on revolution and class struggle has adopted "order," "stability," and "harmony" as its main watchwords, and Chinese communist leaders are grafting capitalist mechanisms on to socialist institutions to forestall any possible uprising in the countryside.

The Farmers Daily writer elaborated on Xi Jinping's assertion--in his speech celebrating 40 years of China's economic reforms--that improving citizens' quality of life must be the focus of the communist party's struggle. "Respecting the main position of people," ensuring they enjoy a wide range of "effective democratic rights," letting them share in the benefits of development, and promoting the peoples' participation in development are consistent with the basic views of Marxism, the Farmers Daily author intoned.

Chinese communist party officials are engaged in an adventurous--but mostly unnoticed--"deep reform" of rural institutions: ambitious projects to clean up the socioeconomic mess in the long-neglected countryside and engineer a hybrid merger of socialist and capitalist institutions. Socialist institutions--fuzzy "collective" ownership, State domination of land and banking, concentration of resources in urban areas and barriers to urban citizenship--created the problems in the first place, but the communist party's solution is to double down on these institutions designed 60 years ago and fuse them with capitalist market mechanisms instead of allowing something new to take their place. The Farmers Daily writer's bottom line is that the countryside must be "harmonious" and "orderly" under a governance system featuring a "complete communist party organization."
Rural people attend launch of a project promoting party members' role in setting up rural cooperatives

"Party branch + cooperative" organizational chart shows farmer cooperative leadership committees 
under the direction of communist party committees.
In 2019, authorities are ramping up rural poverty alleviation programs that feature recruitment of companies to develop impoverished regions to achieve the "all-round relatively prosperous society" scheduled to be achieved in 2020. The degraded and shrinking stock of collectively-owned rural land is another major emphasis this year. Officials are finishing up a years-long effort to measure millions of tiny land parcels and issue certificates specifying villagers' rights to derive income from these assets. Unproductive aging villagers are to be pried loose from their land by converting their farmland to shares in village land "cooperatives" and "trusts" that will consolidate fragmented plots of land into bigger farms while sharing dividends with villagers.  Rights to use abandoned house sites will also be rented to vacationers or to returned migrant-entrepreneurs where they can construct new villas and mansions. 

The "deep reforms" are also political--they aim to establish a grass roots political system that gives common people a voice in their own governance by establishing networks of village committees, cooperatives, and service organizations with elections, boards, and oversight. Although it's described as "self-governance" (自治), these organizations are not allowed to pop up in a chaotic, organic fashion. They are to be systematically set up by local branches of the communist party and placed under the party's supervision. Numerous online articles instruct low-level cadres on how to carry out a "Party Branch + Cooperative" strategy. For example, a November article in the magazine China Farmer Cooperatives includes an article, "Strengthening Grass Roots Party Organization by Developing Farmer Cooperatives" and "The Influence of Farmer Cooperatives on Grass Roots Governance in Ethnic Minority Regions."

Framing the complex challenge of strategizing rural governance, the Farmers Daily author explained that rural people have three identities: as citizens of the State, as members of collective organizations, and as members of village communities. The "deep reform" of rural institutions creates a new set of collective organizations that are both political and economic--farmer cooperatives, family farms, farmer service organizations, and village social organizations. Establishing "rule by law" (法治) will attempt to uncouple institutions of rural governance--village elections, committees and supervisory boards--from control by powerful individuals, clans, and triads who currently have a firm grip on many villages.
TV report on village cooperative dividend distribution organized by local communist party
Chinese communists love Marx's focus on material needs over the spiritual as an excuse to squelch any religious movement that could threaten their control. However, the exaltation of the material over the spiritual led to pervasive corruption, organized crime, and fights over "collectively owned" assets which the communist party is combating with an initiative to promote "moral governance" (德治).

Actual discussion of Marxist theory in China is almost always limited to a series of slogans, aphorisms, and toss-off references to Xi Jinping's Socialism for Chinese Characteristics for a New Era. One reason for avoidance of deeper discussion is the risk of uncovering contradictions in 21st-century Chinese communism that are not unlike the contradictions Marx saw in 19th-century capitalism.
Communist party inspection team discusses a farmer cooperative in Hainan Province
while an actual farmer looks on with curiosity from the door to the pig barn.
"party branch + cooperative + company" that engages China's biggest peanut oil company. 
Five villages are promised 250,000 yuan in income to their collectives annually. 
Chinese communists set aside Marx's insistence on the inevitability of upheaval, struggle and revolution to bring about a new and better society. The initial Chinese communist movement in the 1920s famously fizzled because there were virtually no oppressed industrial workers to organize as a revolutionary force. The Chinese communists got some traction when Mao rebranded the party as rural reformers. China's communists have created a society much like 19th century Europe which Karl Marx saw as ripe for class struggle and revolution: teeming cities and factories, a fabulously wealthy merchant class and a huge underclass of urban workers. Today, China's communists are like the pigs in the farmhouse in Orwell's Animal Farm, acting much like the humans they replaced, while the rural population are left outside peeking in through the windows. 

Chinese leaders are very mindful of the country's history of rural uprisings that brought down many dynasties that came before them. In dialectic terms, they are on guard against any "antithesis" in the form of a movement outside their control that might threaten "order," "harmony," and "stability"--whether it be Falun Gong, Muslim or Christian sects, multi-level marketing, triads, peer-to-peer lending, genuine farmer organizations. The Chinese communist party wants to manufacture its own "synthesis," not let it appear organically in Hegelian fashion.
Diagram illustrates how communist party organizes farmer cooperatives and 
engages them with the supply and marketing cooperatives organization to
increase incomes for farmers.

Monday, January 7, 2019

China Rice Subsidy Replaces Support Price

China's new rice subsidy payment is designed to replace the crop's 15-year-old price support program as it is phased out, officials say. Information about the subsidy is sparse, even though it is a major new policy designed to benefit millions of growers of one of the country's staple crops.

Scattered references to a rice subsidy began to appear in official Chinese news media in early 2018, but there was never any major announcement of the program. More reports about distribution of subsidy funds in several provinces appeared in December, and other propaganda has appeared this month explaining that the subsidy is intended to offset the gradual reduction of the support price and wean farmers off their habit of growing rice to sell to the government.

The most detailed explanation is a December report from "Voice of Rural China" radio assuring farmers that the rice subsidy in Heilongjiang and Liaoning Provinces would be paid out by the end of the month. A brief article announced rice subsidy distribution in Guangxi Province, and a document issued by Hunan described that province's subsidy program. Several articles over the past month announced distribution of funds in various prefectures.

The rice subsidy generally operates as a block grant, much like the corn and soybean producer subsidies: the central government issues funds to provinces who then divide the funds among farmers. Different provinces and prefectures have varying provisions, but in most localities the funds are divided by the area planted in rice to set a payment per mu of land (15 mu = 1 hectare) made to each grower.

Hunan's document allows county governments to add their own funds to increase their local subsidy up to a limit of 20-percent above the provincial average. In Guangxi (which describes its payment as a "target price subsidy") a payment is given for each kilogram of rice produced.

One article this week explained that the rice subsidy is intended to compensate farmers for the reduction in minimum prices for rice over the last three years and notes that the Minister of Agriculture promised that subsidy funds would be much larger this year. The article explained that the government is reducing its purchases of grain to encourage farmers to produce high quality rice that the market demands.

An article in Rural Observer informs farmers that the reduction of the minimum price is a signal that the reserve system is being reformed and admonishes farmers that they should no longer expect the government to buy whatever they produce. Rural Observer warns that grain prices may fluctuate more in the future due to reduction of minimum prices--and possible elimination of the policy altogether--but the subsidy payment is intended to give farmers a cushion to stabilize their income. The article moans about rising production costs, including a 20-percent increase in fertilizer price and a doubling of land rent in three years.

An article published in June 2018 explained that rice, corn, and soybean producer payments are in addition to the so-called "land fertility subsidy" which combines three previous subsidies (direct payment to grain producers, improved seed subsidy, and general input subsidy). That article speculated that the rice payment would start at about 100 yuan per mu and later be raised to 150 and 250 yuan. (The land fertility subsidy was 71 yuan/mu in Heilongjiang Province in 2017, according to this article.)

Subsidy amounts will be set by each county government and have not been revealed.  The Voice of Rural China report last month reported that the rice payment is 70 yuan per mu in one county of Liaoning. The 620 million yuan allocated to Liaoning Province for its rice subsidy divided by the province's area planted in rice last year works out to 83 yuan per mu. Some have guessed that the Heilongjiang subsidy will be 80 yuan per mu, according to Voice of Rural China.

The subsidy is to be paid to farmers who actually grow rice, including new-type farm businesses such as "family farms" and farmer cooperatives. Land is ineligible if it has been reclaimed without permission, is not designated for farming, if the land is in a land retirement program, or if it is idle or has been requisitioned for other uses.

Most descriptions emphasize production of high-quality rice to change the entrenched practice of producing volume to sell to government depots without regard for quality. Guangxi's new subsidy is 200 yuan per metric ton for generic rice and 380 yuan per metric ton for high quality rice.

Some provinces (including Guangxi and Hunan) give extra subsidies to scaled-up farms or to farms using "green" production. The Rural Observer article revealed that Hunan gives a 50-yuan/mu subsidy to rice growers who plant 200 mu or more (13.3 hectares). When land is rented there should be a written agreement specifying which party collects the subsidy--the lessor or the lessee. Landlords who receive the subsidy are instructed to reduce the rent. In Heilongjiang counties are instructed to cut the subsidy by 40 yuan/mu for farmers who irrigate rice with groundwater to discourage depletion of aquifers.

In Liaoning, all rice growers are eligible, but many provinces only give the subsidy in major producing areas. Guangxi only gives the subsidy in counties designated as "functional areas" for rice. Hunan gives a 20-percent bonus in funds to counties classified as functional areas and it discounts funds by 20 percent to counties in urbanized regions.

Most farmers receive modest payments. Anqing Prefecture authorities in Anhui Province said they distributed 18 kinds of rural subsidies valued at 2.69 billion yuan ($393 million), but the average was 1,793 yuan ($262) per household. On the other hand, Su-ken Agricultural Development--a company run by the state-farm bureau in Jiangsu Province--said it received 65.56 million yuan (nearly $1 million) in rice subsidies, which exceeds its reported profit of 58 million yuan.

Sunday, January 6, 2019

China Cotton Clumped in Northwest; Imports in East

Cotton production stimulated by subsidies is booming in China's northwest corner, while another subsidy bonanza intended to create a textile industry in the region has spun out of control. Meanwhile, demand from textile mills along China's seaboard stimulated a rise in cotton imports during 2018.

China's 2018 cotton output was 6.096 million metric tons, according to estimates by the National Bureau of Statistics released last month. Production has rebounded from a low of 5.43 mmt in 2016, but 2018 output was still 1.5-mmt below the peak reached in 2007. Cotton area of 3.195 million hectares in 2018 was up 4.9 percent from the previous year, and the average yield of 1818.3 kg/ha was up 2.8 percent. Production was up 7.8 percent year-on-year.
All of this year's cotton expansion occurred in China's Xinjiang Autonomous Region, which now accounts for an eye-popping 84 percent of the country's cotton output--up 3 percentage points this year. Xinjiang cotton output went up 545,000 metric tons in 2018, while production in "inland" provinces fell 102,000 mt. Xinjiang's 2018 output was up 11.9 percent year-on-year, reflecting a 12.4-percent increase in area planted.
China cotton output, 2017-18
Region

Area 

(1000 ha)

Output

(1000 mt)
2017 2018 2017 2018
National 3,195.0 3,352.3 5,653 6,096
Xinjiang 2,217.5 2,491.3 4,566 5,111
Others 977.5 861.0 1,087 985

A National Bureau of Statistics explanation of the cotton statistics attributed the increase in Xinjiang's output to the "target price subsidy" policy--which operates only in that region--and the Xinjiang Production Corp's cotton price policy, which was not explained. The target price policy makes payments to cotton producers annually based on the area of cotton they plant and the difference between the market price and a target price set to cover costs and provide what the government thinks is a reasonable profit margin. The target price subsidy replaced a support price policy in 2014, and operates only in Xinjiang. The  Bureau explained that area planted in cotton has been in long-term decline in other regions due to relatively low net returns (and high labor requirements). According to the Bureau, cotton area plunged 22 percent in the Yangzi River region this year.

The cotton subsidies are focused on Xinjiang to (1) maintain a degree of national self-sufficiency in the one region where the crop is attractive to growers, (2) to maintain social stability in a region where ethnic unrest is an acute concern, and (3) to engineer a cotton-textile industry belt running from northwest China through central and south Asia to western Europe as part of the "One Belt One Road" strategy.

China now has a geographically bifurcated cotton-textile industry. Xinjiang produces vast volumes of cotton, but most of the textile and apparel industry is concentrated in coastal provinces thousands of miles to the east. Imports of cotton by coastal textile companies have increased as domestic output shifted to Xinjiang. China's imports of cotton during January-November 2018 totaled 1.35 million metric tons, up 300,000 metric tons from the same period in 2017. China's imports of cotton bottomed out in 2016, the same year as the nadir in China's cotton output (the result of offloading massive cotton stocks accumulated under the ill-advised price support policy during 2011-13).

China's imported cotton is purchased mainly by textile companies in coastal provinces. Customs data show that companies registered in Shandong and Jiangsu Provinces--on the coast--imported 930,000 metric tons of cotton (69 percent of the national total) during January-November 2018. Shandong and Jiangsu only produced a combined 238,000 metric tons of cotton. Companies registered in Beijing--which probably include the government's cotton reserve corporation and other state-owned companies--imported 143,000 metric tons. Most other cotton-importing companies were registered in provinces along the coast that produced little or no cotton. Xinjiang companies imported 87,200 metric tons of cotton.

China regional cotton production and imports, 2018
 Province
Cotton
produced
Cotton
imports*
(Jan-Nov)
National 6,096 1,353.8
Coastal regions:
Shandong 217 621.5
Jiangsu 21 308.8
Beijing 0 143.0
Hebei 239 23.3
Zhejiang 6 20.9
Guangdong 0 19.1
Shanghai 0 18.8
Fujian 0 4.4
Guangxi 1 4.2
Tianjin 18 0.8
Others 8 5.6
Central/western regions:
Xinjiang 5,111 87.2
Hubei 149 31.8
Anhui 89 18.3
Hunan 86 3.0
Jiangxi 68 12.4
Henan 38 30.9
Gansu 35 0.0
Shaanxi 10 0.0
*Province where importing company is registered.

Chinese officials introduced another layer of subsidies to create a textile industry in Xinjiang to utilize the region's cotton output. In 2014, a plan was issued with a target of creating 1 million textile jobs in Xinjiang by 2020, and subsidies were offered for textile worker training, retirement and social insurance, favorable tax treatment, earmarked bank loans, electricity subsidies, subsidies for transportation of textile and apparel products, and subsidies for equipment to clean up wastewater from dyeing.

At first, textile companies were dismayed by the subsidies for Xinjiang, but they soon piled into the region, building new capacity at breakneck speed. Textile production capacity in Xinjiang exploded from 7 million spindles in 2012 to 17.46 million in 2017. However, the new plants mostly turned out the same generic low-to-mid-quality yarn, and little investment was made in upscale products, apparel and household textiles. Some industry observers raised concerns that new projects in Xinjiang were simply chasing subsidies and were not sustainable without them. In March 2018, the Xinjiang government issued an "Emergency notice on strict control of disorderly development of the textile industry" that called for a halt to all textile investment in the region.