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China Firms Lose Out on Cotton Import Quotas

Import quotas for cheap, high quality foreign cotton are at a premium this year in China, as the government steps up pressure on textile manufacturers to use higher priced, lower quality domestic cotton.

The cost difference between domestic and imported cotton has hit manufacturers hard, according to Yang Shibin, assistant president at China National Textile and Apparel Council. The gap, which is currently around $500 per ton, is one of many factors eroding Chinese competitiveness.

The Chinese government issued a 3 to 1 rule in January, requiring manufacturers to use three tons of Chinese cotton in order to be allowed to use one ton of imported cotton.

At issue is China’s massive 8 million ton cotton stock. The stocks were purchased to ensure that Chinese firms would have sufficient raw materials to continue operating during scarcity, but it has had the effect of driving up local prices. Farmers are also demanding high prices, creating a politically difficult situation for policymakers.

Competition for access to foreign cotton remains intense, and the procurement of an import license can make or break a business. Permission must be secured from the National Development and Reform Commission, which regulates markets.

One industry group in Shandong reported that clients had cancelled orders on concerns that the group lacked sufficient import permits to make high quality goods. The low quality of Chinese cotton compounds the problem by leading to production losses.

Cotton prices are expected to rise overall in the 2013/14 season, largely on stockpiling by the Chinese government, according to the International Cotton Advisory Committee. Stocks are near historical highs, but supplies are expected to tighten.