China is in discussions to build a price subsidy system for cotton farmers amid dropping cotton prices, said a senior official yesterday, according to Shanghai Securities News.

Ma Zhanping, deputy director of the Economic & Trade Department under the National Development and Reform Commission (NDRC), made the remarks at "International Cotton & Textile Summit Forum 2008" held in Shandong province.

Ma said the economic planning body will set up cotton target prices and subsidy farmers directly to protect their benefits, and will not overly intervene in cotton prices, which will be good for cotton production.

To avoid a rapid drop in cotton prices, the NDRC may launch purchase & storage policies, especially for the cotton-rich Xinjiang Uygur Autonomous Region, said Ma.

Ma said the cotton output yield in 2008 is equal to that of last year, but demand will slow down, adding farmers are not willing to sell cotton under current prices while costs rise.

Currently, the cotton purchasing price per kilogram in Xinjiang is 5.3 yuan (77 US cents), lower by 0.8 yuan compared with that of last year.

And purchasers are reluctant to open their pockets due to tight capital, soaring market risk, and squeezed profits, said Ma.

Figures from the NDRC show more than 10,000 textile firms have collapsed, and two-thirds will face restructuring to meet new demand. To cut costs, some firms have turned to chemical fibers.