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China’s Mixed Bag of Cotton Imports

Despite being the world’s largest producer of cotton, China’s imports of that commodity have expanded dramatically in the past year, mostly in response to the Chinese government’s concentrated stockpiling efforts.

Since producing cotton within China is more expensive than doing so in such locations as America or Australia, where farmers have access to more efficient machinery, the Chinese government began a campaign earlier this year to buy up large portions of China’s domestic production in an effort to stabilize prices for its textile manufacturers. The government’s efforts have been both wide reaching and largely successful. At present, the Chinese government sits on a cotton stockpile equal to roughly half of its annual domestic consumption. In cotton year 2011/2012, which began in October and will close at the end of this month, the Chinese government bought up more than a quarter of the nation’s total cotton product.

The global aftereffects of this action have proven numerous, producing phenomenon that include, according to some readings, India’s cotton export ban of earlier this year.

While some countries have shown discomfort at the prospect of having their cotton used to create a buffer for Chinese manufacturers, many cotton exporters have also benefited from the arrangement, as well as its subsequent stabilization of market prices.

Australia, which sells 60% of its total cotton product to China, has enjoyed bumper crops over the past three years, the sale of which have allowed for investment in the Australian cotton industry.

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The United States and India, the world’s first and second-largest exporters of cotton, respectively, have seen an increasing amount of cotton headed for China as well.

According to figures released by the United States Department of Agriculture (USDA), exports of US cotton to China have reached 1.8 million bales in the cotton year to date, which the US government views as beginning on August 1. This figure far dwarfs the States’ next largest cotton export partner, Turkey, which imported only 376,000 bales in that same time period.

The export of Indian cotton to China has proven more controversial. When the Chinese government effectively began dictating the global price of cotton earlier this year, India responded with its infamous cotton ban, which was intended to secure a low-priced source of cotton for its own textile manufacturers. At the time of the ban, India had already exported 9.5 million bales to China in the cotton year to date, far exceeding the 8.4 million bale surplus the country had predicted.

India has since relinquished the ban, though the lessons of that scuffle remain fresh in the memories of cotton traders the world over, who now have to deal with the reality that China, with its sizable stockpiles and penchant for government intervention, can effectively dictate terms to the world’s largest cotton-producing nations.