China to Change Massive Cotton Stockpiling Policies

Posted by Ryan Robinson on Jun 17, 2013

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China's aggressive cotton stockpiling policies have lead to drastically inflated costs for Chinese textile mills, pointing to lower profits and fewer jobs in local markets.

Chinese Cotton Association officials have announced plans to change the country's damaging cotton stockpiling policies that have resulted in holding nearly 60% of the world's cotton supply at one single time.

Reactions are mixed on news that the China Cotton Association is planning to revise their current cotton policies. This news is welcomed by Chinese textile mills that have long been forced to purchase cotton from government sources at above-market prices. Exporters of cotton to China, however are not as pleased. They face both a lower market value and lower demand for their products.

China, the world's largest cotton importer has operated on an outdated policy that supported purchasing cotton from local farmers at above-market prices in order to support economic growth. This policy, in turn required Chinese textile mills to purchase 3 out of every 4 Tons of cotton for garment production from government sources, shrinking their profit margins and decreasing their competitiveness in global markets.

In this attempt to protect their rural economies, the Chinese government has purchased upwards of 10 Million Tons of cotton from local farmers over the past few years, keeping domestic cotton prices at up to 40% above global market value. The government acknowledges the adverse effects on Chinese textile mills that have been forced to purchase overpriced cotton, lose money on production, and erode competitiveness in a global market. 

"We have reached a consensus that we need a better policy for the Chinese market." - Gao Fang, Vice President China Cotton Association.

"It was not our intention (to impact mills in this way) when we formulated the policy. We didn't expect it would be implemented for so long," says Gao Fang, Vice President of the China Cotton Association. 

Global Effects

Being that China is such a large global player in the global cotton market, this news was not well-received by US investors, as the United States is the world's largest cotton producer. For US exporters, this signals a possible price correction in the value of cotton that's now at unsustainably high price levels.

Although China has announced that they will continue stockpiling cotton through the 2013-14 year, cotton exporters around the world remain on their toes for an announcement as to which form policy revisions will come in. No specifics have yet been given. Until then, the global impact of China's cotton stockpiling policy revisions will remain a lingering question in the minds of those in the apparel industry worldwide.