The US cotton company released the latest survey report, saying that as the world's largest cotton producer, consumer and importer, China has become the center of the world cotton market. Since the cotton price of cotton in the 2010/2011 year has fluctuated greatly, China's position on the cotton price issue has become more important, mainly because of the relevant policies of the Chinese government. Currently, China reserves 50% of global cotton stocks. At the same time, its decisions also affect global cotton prices.
China's cotton policy mainly includes two tools: government reserves and import quotas. The cotton storage mechanism has been used as a tool to stabilize China's cotton prices and to support spinning mills and cotton farmers. However, in March 2011, the minimum guaranteed price was introduced, and the regulation of interest was tilted toward cotton farmers to cope with the large fluctuations in global cotton prices. The high price of cotton in China poses a cost burden to the spinning mill and directs price pressures downstream of the supply chain.
In the 2012/13 cotton year, China's cotton and international prices also rose to 53 cents/lb. The difference in price between the two has made China's spinning mills less competitive in the global cotton yarn market, and has also led to a decline in China's cotton consumption in the past few cotton years. Compared with the 07/08 cotton year, China's cotton consumption in the 12/13 cotton year decreased by 15.5 million bales, which means that China's spinning mills reduced cotton consumption by more than 30% in five years.
Moreover, high stocks have also caused cotton supply problems. Because of the acquisition of the cotton storage mechanism, the market reaction is delayed, and China is still the world's largest cotton consumer. The main problem in the global cotton market is that China will plan how to supply cotton to the spinning mills – through the reserve cotton auction. Or imported cotton.
In order to consolidate the effectiveness of the cotton storage mechanism in regulating domestic cotton prices, China has also implemented an import quota system. China's import quota system allows for the purchase of cotton from abroad through three methods: tariffs with an additional preferential tariff rate (TRQ), a sliding tax and a 40% flat rate.
This year, the Chinese side agreed to import tariff quotas. However, there are still transparency issues in the different options for cotton imports under the import quota mechanism – the process of import quota allocation is not clear. For tariffs with additional preferential tariff rates and sliding taxes, the spinning mill's import cotton quota qualification process is not public. Those who can get the import quota certificate are the spinning mills of state-owned trading enterprises, spinning mills with at least 50,000 spindles and export-oriented spinning mills, that is, “processing trade” enterprises. Moreover, China's domestic cotton prices are always higher than global cotton prices, and imported cotton greatly affects the competitiveness of Chinese spinning mills.
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