The sale earlier this month of 200,000 tonnes of cotton was aimed at cutting massive stockpiles that built up because the government paid farmers above-market prices for their crop, officials and media have said.

But the government has abandoned its price-setting policy, introducing a system based on "indirect control and guideline prices," the newspaper said.

The reforms centred on cutting stockpiles that had resulted from rapid rises in cotton supply and falls in demand due to high prices, it said. It gave no further details.

The state purchase price for cotton has also been cut, to 650 yuan ($78) for 50 kg (110 lb) from last year's 700 yuan, the newspaper said.

This was aimed at solving problems resulting from over-supply, the newspapersaid. The paper said cotton stockpiles hit700 million kg (1.543billion lb) in March, a year-on-year increase of 38 per cent, leading to losses in 1997 by supply and marketing cooperatives totalling one billion yuan ($120 million), it said.

The April sale of 200,000 tonnes, or one million 480-lb (218-kg) bales, had helped cut the stocks, it said.

The sale -- which led to accusations of dumping and calls by US Cotton growers for official warnings from Washington -- cut stockpiles to six months' textile production supply, the news paper said.

Cotton future prices on the New York Commodity Exchange were hammered by news of the sale, falling 200 points on April 7, and another 100 points on April 17 on the threat of further sales.

China had announced its intention to export up to 300,000 tonnes of cotton, and the possibility of another tender has kept traders edgy about the impact on the world market.

Some grower sources, however, have questioned the quality of the Chinese product, which is generally poor by world standards, and said the worldmarket could be over-reacting to the sale.

China's total stockpile of cotton is now around 3.3 million tonnes, or 15.3 million bales, officials have said. That accounts for 40 percent of world stocks of 47 million bales.

Falling export demand for China's cotton textiles has also contributed to the stockpiling problem, the officials said, citing the regional Financial turmoil that has seen currency values in some Southeast Asian currenciesplummet.

Domestic demand, seen at 4.5 million tonnes this year, was set to fall to 3.25 million by 2000, The Economic Daily said.

Regional Financial problems were one cause, it said, adding that reduced domestic cotton textile production capacity and increased imports would also play a role.

It said more than 43 million rural Chinese households, or 150 million people, depended on cotton production.

This year's cut in the state purchase price would not affect the income of cotton growers because chemical fertiliser prices had been cut 20 percent and cottonyields had risen because more farmers were using sophisticated farming techniques, it said.

Official statistics show the country produced 4.3 million tonnes of cotton in 1997, up 100,000 tonnes from the year before.

This year's output would be roughly the same as last year's, official media have reported.

Last year, the state purchased 3.07 million tonnes of cotton, the newspapersaid.