High cotton prices have been inflating costs for Chinese manufacturers

High cotton prices have been inflating costs for Chinese manufacturers

A director at the China Cotton Association has welcomed the planned replacement of China's national cotton reserve programme with a system of subsidies.

The move was unveiled in a formal opinion released on 19 January by the country's State Council.

Government subsidies will first be trialled in China's largest cotton production base Xinjiang, north-west China, in 2014, and be gradually rolled out to other areas, according to the note.

The director, who did not want to be named, said: "The purpose of the hoarding [reserve] programme is to protect cotton farmers from huge loss when the price drops sharply. We have to admit in this case it worked well in the past two years.

"However, the programme also keeps the price of Chinese cotton so high that it has seriously undermined the competitiveness of Chinese textile companies in the global market."

Indeed, the spot price of US cotton was US$0.8071 per pound on 28 January, compared with CNY20,197/tonne (about US$1.51 per pound) for Chinese-produced cotton.

High cotton prices have been inflating costs for Chinese textile and clothing producers, pushing some companies to manufacture abroad to keep their competitiveness.

Among them are Shanghai-based Texhong Textile, the major China cotton yarn supplier that opened an operation in Turkey in 2013, as well as its Zhejiang province-based counterpart Keer, which is to build a cotton yarn plant in South Carolina.