China urged to free up cotton supply
(China Business Weekly)
Updated: 2004-03-15 16:57

China's embattled textile sector wants the government to free up the national cotton market this year to allow the industry to compete in global markets on an equal footing, a senior industry official said last week.

The call comes as the industry is reeling from rising domestic cotton prices over the past year after a poor harvest in 2003, and increasing imports that are battling long-protected textile players for market shares at home.

China's textile industry has been accused of dumping products on the European Union and the United States, with the latter saying in November it would slap quotas on selected Chinese textile imports if no agreement was reached by March 23.

China's massive textile industry is the world's single-biggest consumer of cotton.

"We feel the conditions are ripe for freeing up the market," China National Textile Industry Council President Du Yuzhou told reporters on the sidelines of an annual parliamentary meeting.

"It may happen this year or next year," he added.

Opening cotton markets would boost supplies locally and drive down prices, Du argued.

Chinese textile products have long benefited from the country's low labour costs, but rising prices are beginning to take away that edge.

Since 2003, China has taken the initiative to hike import quotas over and above pledges made under World Trade Organization (WTO) commitments, driven by international pressure.

This year, Beijing will raise the limit on imports to 1 million tons, versus the 894,000 tons it has promised for 2004, Du said in an interview.

Strong textile exports, which have grown an annual 20 per cent over the past three years, have pushed domestic cotton prices to as high as 18,000 yuan (US$2,175) per ton.

"If the domestic price is in line with the international price, China's textile industry would have more of an advantage," he said.

Still, industry analysts say high prices are tempting farmers to give up growing wheat and shift to cotton this year, despite efforts by the central government to maintain grain acreage to feed its 1.3 billion people.

Cotton acreage in 2004 could grow by 15 per cent this year from 2003, according to industry officials.

Demand from textile mills exceeded domestic production capacity, while acreage was limited as the crop grows at the same time as grains, Du said.

The textile industry needs about 6 million tons of cotton a year, but domestic production stands at 5 million tons, Du said. That means the industry has to source its raw materials both from home and international markets to develop.

"We don't expect farmers to all shift to grow cotton, as otherwise, we will not have enough grain to eat," Du said.

Du also said China needed to establish a domestic cotton futures market. China is expected to launch cotton futures in the first half of the year, exchange officials said early last week.

"How can we have an orderly market after we open? A cotton futures market would help stabilize prices," Du said.

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