UPDATE 2-China won't hike grain import quotas for U.S. trade deal - Caixin

China will not increase its annual low-tariff import quotas for corn, wheat and rice to accommodate stepped-up purchases of farm goods from the United States, local media group Caixin quoted senior agriculture official Han Jun as saying on Tuesday.

The report underlines China's desire to protect its domestic producers and raises further questions about how it will meet a target of spending billions of dollars more on U.S. agricultural goods as the two countries look to calm an extended trade war. U.S. President Donald Trump said in December that China had agreed to double its pre-trade war purchases of U.S. agricultural products over the next two years as part of a Phase 1 trade deal to be signed this month.

Han, a vice agriculture minister and part of the negotiating team, said last month China would buy more U.S. wheat, rice and corn to meet demands for higher imports. His comments led to speculation that Beijing could increase the quotas that it issues each year to grain buyers, setting the amount of wheat, corn, and rice that can be imported at a tariff rate of 1%.

The amounts for 2020 were issued in September last year and were steady on previous years. Imports outside the quotas are rare because of tariffs of 65%. Han was quoted by Caixin on Tuesday as saying the quota is offered to global markets and "we won't adjust it for one country."

"This is soothing market nerves here," said Meng Jinhui, a corn analyst with Shengda Futures. "I think the market is worried about a blow from the possible increase of grain imports, and that (message) has gone to the high leadership." Increasing sales of meat, ethanol, distillers grains and soybeans are likely to be more important for reaching the U.S. target for doubling farm exports to China, Meng said.

U.S. Trade Representative Robert Lighthizer said in December Beijing had committed to buy an additional $32 billion of American agricultural products over two years, or roughly $16 billion a year more than the 2017 baseline of $24 billion. China's annual quotas are 9.64 million tonnes for wheat, 7.2 million tonnes for corn and 5.32 million tonnes for rice, but large portions go unused each year as China relies on domestic production.

"This is about national food security, so it won't be opened up," said a Chinese wheat trader, who declined to be identified as he is not allowed to talk to media. The quota system has been heavily criticized by the United States, which last year won a World Trade Organisation ruling that China violated its obligation to administer the quota on a fair basis.

China has not bought large volumes of U.S. wheat, corn and rice in recent years. "Although there's certain types of high-quality wheat that China would look to import, maxing out the tariff rate quota would also weigh on domestic producers," said Darin Friedrichs, senior Asia analyst at INTL FCStone, in a note late on Monday.

"China will be facing a tough balancing act of trying to satisfy the U.S. demands for large agriculture purchases, while also not hurting the rural population." The agriculture ministry did not immediately respond to a request for comment.

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