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.The spread between Chinese and imported cotton has hit China's textile industry hard. It’s one major reason Chinese manufacturers are becoming much less competitive in the global market.
In January, the Chinese government imposed a 3:1 rule on manufacturers. By which they had to use three tons of Chinese cotton to secure quotas to buy one ton of imported cotton. The quality of Chinese cotton is much lower than that of imported cotton, which generates more losses in production.
The goal is to reduce the size of the eight million tons 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.
The International Cotton Advisory Committee has 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.