Chinese textile manufacturers are competing to secure import quotas for well-priced and high quality cotton, as the government pressures them to use more expensive lower quality domestic supplies.

Yang Shibin, assistant president at China National Textile and Apparel Council (CNTAC), said the spread between Chinese and imported cotton has hit China's textile industry hard.

"It's one major reason that Chinese manufacturers are becoming much less competitive in the global market," Yang told just-style.

In January, the Chinese government imposed a '3-1 rule' on manufacturers: they had to use three tonnes of Chinese cotton to secure quotas to buy 1 tonne of imported cotton.

The goal is reducing the size of the 8m tonnes of stocks the Chinese government has bought to assure sufficient local supplies. The policy is already weakening the price of China-made cotton, but with farmers demanding high prices, it is still higher than foreign cotton.

Domestic cotton was priced at CNY19,222 (US$3,036.90) per tonne (on 1 August), compared with CNY15,919 (US$2,515.10) per tonne of imported American cotton.

So competition for foreign cotton remains intense. One group of companies recently securing import licences are 19 manufacturers from Dezhou city, Shandong province, south of Beijing, securing permission from the government's National Development and Reform Commission to buy 3,566 tonnes of imported cotton.

"Many of our clients have cancelled orders because we don't have quotas to buy less expensive imported cotton. It's a very difficult situation for us," said a sales manager at Qingyuan, Guangdong province-based Detai Textile Industry.

She added that the quality of Chinese cotton is also much worse than imported cotton, which generates more losses in production.

Last week the International Cotton Advisory Committee (ICAC) warned cotton prices are expected to rise in the 2013/14 season, despite cotton stocks heading towards a new high. The inter-governmental group blamed stockpiling by the Chinese government, and the expected tightening of stocks outside of China.