China says it will not issue additional raw cotton import quotas in 2015

China says it will not issue additional raw cotton import quotas in 2015

China, the world's top cotton consumer, has announced a significant reduction to its 2015 cotton import quota to boost demand for domestically-produced fibre. But experts disagree on whether the policy could pose risks for textile and clothing manufacturers.

The reform was introduced to encourage the estimated 10,000 yarn and fabric makers in the country to use Chinese raw cotton unless they want to pay higher prices for imports. China imported 1.88m tonnes in the first eight months of this year [2014].

A statement made last week by Liu Xiaonan, vice head of the economy and trade department at the country's powerful National Development and Reform Commission (NDRC), said Beijing will only provide import quotas next year that are required under its World Trade Organization (WTO) commitments, suspending its usual additional quotas to textile mills. Chinese language media has reported this amounted to between 600,000 to 800,000 tonnes last year.

"Apart from the 894,000 tonnes of import quota required under WTO entry commitments...we will not issue additional import quotas, instead guiding domestic textile companies to use more Chinese cotton," Liu told journalists in Beijing.

The announcement followed China's move earlier this year to end its three-year old policy of buying cotton from Chinese farmers at above market prices. Massive state reserves have been accumulated, which the authorities have been wary to release, giving the risk of reducing prices.

Quality issues
A specialist at the Hong Kong Polytechnic University's Institute of Textiles & Clothing told just-style that if China-based spinning mills now replaced imported cotton with Chinese cotton to offset higher import costs, they could encounter difficulties owing to "quality issues involving fibre length, impurities, micronaire and fibre maturity".

A Taiwan-based vertically-integrated knitwear manufacturer even claimed that the quality of cotton from Xinjiang - China's main growing region - was so unstable that it cannot be handled by the factory's newly-purchased advanced Mayer & Cie circular knitting machine, which can process both synthetic fibres and cotton.

Meanwhile, an official at a European clothing brand operating several factories in China, who did not want to be named, warned the new quota could further drive yarn and fabric makers from China to lower-priced jurisdictions such as Vietnam, Bangladesh and Cambodia.

That said, textile consultants in Beijing stressed that the devil is in the details, and the new cotton quota is by no means all doom and gloom.

"Recent international media reports painting the quota reduction as a problem are quite misleading, and the reduced cotton quota will not speed up the outsourcing of contracts from China," argued an analyst for China Textile Access Consultants Co Ltd.

He said reports had wrongly claimed that Chinese out-of-quota cotton import tariffs are 40% across the board.

"They apparently have overlooked adjustments made this year to the sliding duties for cotton; non-quota imports of top quality cotton types will not become significantly more expensive through the quota cut because tariffs for those stand at only 5%."

He was referring to the China finance ministry's 2014 tariff implementation plan, which left unchanged both tariffs for cotton priced lower than US$0.555/lb at 40%, and for cotton priced higher than US$1.11 - such as US-made Pima of which China is a major consumer - at 5%, while lifting tariffs for intervening prices by about 5%. So if Chinese companies import higher quality cotton, the impact of the quota reduction will be eased.

He furthermore dismissed the notion that the use of Chinese cotton would likely bring along quality problems, "as much of the Chinese cotton is handpicked unlike US cotton, and the way spinning mills in China operate provides for stable production processes and cotton quality."

Cotton supply glut
He stressed that the 2015 import quota cut was the first since China's accession to the WTO in 2002. He said that by cutting the quota for next year, the authorities were preparing to manage weak demand in the Chinese spinning market, which has suffered, mainly owing to lacklustre demand in Europe.

"China has been plagued by a cotton supply glut, which drove down prices to the current unreasonable levels," he said. "And in the event demand picks up again thanks to a recovery in the key consumer markets, the authorities will have no problems in adjusting the quota upwards again."

Another anomaly is that while there is a limit on the amount of raw cotton that can be imported into China, there are no limits on the amount of cotton yarn that can be shipped into the country. So yarn can still be made anywhere in the world and imported into China to be woven into fabric for apparel and textiles.

Click on the following link for further insight: China cuts cotton imports to boost domestic sales.