Quota speculation in China hurting private-sector firms
Companies fear they will be forced out of business if the issue is not addressed
Soaring speculation over textile quotas in the mainland has prompted an outcry from privately run exporters who fear they may be forced out of business.
Private enterprises said rising quota prices had more than doubled their production costs, damaging the competitiveness of goods they exported to the United States and Europe.
'The mainland authorities should curb the speculation,' said Tong Hui International Trading chief Gui Mingjun, who recently filed a complaint to the Ministry of Commerce.
Mr Gui said the quota on a design of socks the company traded was originally priced at US$1 per dozen in a government tender, but speculation had sent it as high as $5. This was far beyond the product's base cost of $2 per dozen.
'How can we do business under the soaring quota prices?' Mr Gui said.
On Wednesday, Shanghai-based trading firm Feima urged the government to reduce quotas granted to state-run export firms.
A Ministry of Commerce spokesman yesterday said the complaints were being studied. However, he refused to confirm there was textile quota speculation in the market.
The quota system is used by importing countries to regulate the influx of low-cost Chinese-made goods.
The quotas are controlled by China's central government, which distributes them to exporters.
Companies can bid for quotas through government tender or apply to the Ministry of Commerce.
The ministry also allocates quotas to enterprises of a sound business scale and sizeable trade volume.
Under mainland regulations, it is illegal for companies to sell unused quotas to other exporters. However, it is a widespread practice for quotas to be sold on the black market instead of being returned to the ministry.
'A big slice of textile quotas is usually granted to trading companies directly or indirectly under the ministries in the light of their long business history and large business scale,' Mr Gui said.
'Small and new companies like us find it hard to be allocated quotas. We have to buy quotas from these firms.'
Tong Hui International, which has annual sales of about US$3 million, was set up in Ningbo, Zhejiang province, three years ago.
An industry source in Hong Kong said that as the quotas were unevenly distributed, state-backed enterprises could easily control quota prices, which then led to speculation.
'These trading firms do not need to operate textile-exporting business as they have made a lot of money through quota trade,' the source said.
However, industry sources believe that quota speculation in China will ease as export restraints are completely removed by 2005 under the World Trade Organisation Agreement on Textiles and Clothing.
