Report Highlights:

MY14/15 forecast planting area of 4.41 million hectares (MHa) and production of 6.5 million tons are both down from last year as a support policy change lessens incentives for planting. Government cotton purchases over the past three years have built domestic stocks to a record high 12.3 million tons through MY13/14 which, when coupled with weak consumption growth of 8.2 million tons, further reduces demand for imports which are expected to fall to 1.8 million tons in MY14/15. The U.S., with 1.3 million tons of cotton exported to China in MY12/13, was China's top supplier but faces increasing competition from India and Australia.

China’s official cotton market information collection system covers cotton and yarn production, however, the lack of reliable data (production, consumption, and stocks) has been more pronounced in recent years due to the rapid expansion and diversified scales of production. The numerous players continue to diversify ownership in the industry chain, including the large number of cotton farmers, gins, merchants and mills. All these entities contribute to making the collection of reliable production statistics in China an extremely difficult task. 

Executive Summary:

MY14/15 forecast planting area of 4.41 million hectares and production of 6.5 million tons are 7.1 percent and 6.2 percent down, respectively, over the estimated 7 million tons and 4.7 MHa last year. A change in government support policy for cotton is widely expected to lower farmer payments and financial incentives for planting. The government’s new cotton production support policy for MY14/15 narrows eligibility to Xinjiang farmers only and pays a direct subsidy based on a target price instead of price support purchases. In MY14/15, these program changes are expected to prompt a reduction in cotton planting intentions, particularly in Yangtze and Yellow River regions, due to the loss of government production support altogether and the option of more profitable, alternative crops. 

Government cotton crop purchases at record prices over the past three years have built domestic stocks to a record high 12.3 million tons through MY13/14. MY 13/14 cotton consumption is forecast at recover slightly to 8.2 million tons from an estimated 8.04 million tons in MY13/14. China’s ability to manipulate domestic supply resources through state reserve auctions and tariff rate quotas continues to impact import demand. The U.S., with 1.3 million tons of cotton exports to China in MY12/13, was China's top supplier but faces increasing competition from suppliers like India and Australia as China's imports fall to a projected 1.8 million tons in MY14/15. 


MY14/15 domestic production will fall to 6.5 million tons based on planted area of 4.41 MHa, both down 7.1 percent and 6.2 percent, respectively, over the estimated 7 million tons and 4.7 MHa in the previous year. A recent change in MY14/15 government policy that supplants a nation-wide price support policy with a narrower eligibility pool and direct payments based on a target price has lowered overall profit expectations. 

China's policy change reflects a reassessment of its measures to encourage production through ensuring positive returns by paying artificially high prices to cotton farmers. In retrospect, as a result of this support policy, the government has absorbed vast expenses for handling and storage, the textile industry has endured inflated, above market cotton costs and in return, the policy returns in cotton acreage and production gains have been negligible. Going forward, instead of purchasing cotton at a high floor price in all cotton-producing regions, the government will provide a direct subsidy based on a target price only to Xinjiang farmers. Without the government support payments, farmers in the Yangtze and Yellow River production regions are expected to switch to alternative crops, thus decreasing overall cotton acreage and production.

Estimates of China’s total cotton production (area and yields) continue to differ among sources. For MY13/14 example, China’s National Statistics Bureau (NSB) estimates MY13/14 production at 6.31 million tons based on planted area of 4.35 MHa with yields of 1,450 Kg/Ha. Industry sources, however, estimate MY13/14 production at around 7 million tons, believing Xinjiang planted area remains under-reported. Further clouding the forecast picture, statistics based on official classification data could be skewed by the repeated classification of domestic cotton or even classification of imported cotton (to take advantage of the price difference between imported and domestic cotton). Adding to the difficulty in accurately forecasting production with data inconsistencies, the changes in government policy for MY14/15 also muddy the profit picture and impair accurate forecasting by province. 

For Xinjiang, in mid-January, the Xinjiang government released estimates that MY13/14 cotton production was 3.4 million tons (based on planted area of 1.57 MHa, both up slightly by 45,000 Ha and 20,000 tons over the previous year). This figure is significantly below the China Fiber Inspection Bureau (CFIB) classified volume for Xinjiang, as of March 16th, of 4.68 million tons (out of the nation’s total 7.28 million tons). 

For the eastern production regions, MY13/14 production data bears additional explanation. CFIB data shows MY13/14 classified volume for Henan at 75,000 tons (as of Mid-March). However, industry sources suggest that a portion of Henan production is likely being reported under Shandong and Hubei province volume. Large traders/mills purchase seed cotton in Henan which is baled and classified in Shandong/Hubei provinces and reported under their production figures. Additionally, MY13/14 Hubei’s stable production seems to be supported by improved profits received in the previous year. Based on all these factors, Post adjusted MY13/14 production estimates for these provinces accordingly.

Planted Area

Cotton planted area is expected to continue its downward trend as rising production costs, variable profits and alternative crops influence planting decisions. Post forecasts MY14/15 cotton planted area will fall to 4.41 MHa from an estimated 4.7 MHa last year.

The Ministry of Agriculture (MOA) estimates MY14/15 planted area will decrease by 7 percent over the previous year based on its March planting intention survey on farmers. 

In addition, a China Academy of Agricultural Science Cotton Research Cotton Institute (CAAS) January forecast shows a 10.7 percent fall in MY14/15 cotton planting to 4.37 MHa, a drop from its estimated area of 4.9 MHa in MY13/14, with the Yangtze River region down 12.1 percent, the Yellow River region down 17.4 percent, and the northwest region down 4.9 percent (with north Xinjiang down 5.8 percent, south Xinjiang down 4.8 percent). 

A recent China Cotton Association (CCA) survey also indicates MY14/15 cotton planting intention will decline by 10.5 percent over last year to 4.17 MHa. The survey showed the Yellow River planting intentions were down 22 percent with Henan, Shandong both down more than 20 percent and Hebei down 29 percent as higher profits to competing crops pull acreage from cotton. For example, farmers planting both wheat and corn had a profit of RMB6, 600/Ha in Shandong compared to farmers planting cotton who had a negative profit in MY12/13. 

More recently, the National Cotton Market Monitoring Network (NCMMN) released a March 27th forecast that MY14/15 planted area will be down by 14.2 percent to 4.13 MHa and readjusted its MY13/14 production data to 6.99 million tons. A China National Cotton Exchange (CNCE) forecast agrees that MY14/15 cotton area will fall by 10 percent over the previous year. 

Similar to the national experts, local industry forecasts also show varying forecasts. In Yiyang/Hunan, farmers expect a 13.3 percent decline in cotton planting intention in MY14/15 following comparatively low profit as drought and typhoon conditions lowered yield and quality in the previous year. Farmers in Heze and Liaocheng/Shandong province expect cotton planting intentions to be down 7.7 percent and 25 percent, respectively, in MY14/15. 

In MY13/14, low yield, labor shortages and low profits in both the Yellow River rand Yangtze River regions further eroded cotton prospects. The withdrawal of government price support in MY14/15 is expected to further accelerate an eastern region planting decline and exacerbate profit and labor issues. 

For the northwest, the Xinjiang Development and Reform Commission reported a 3 percent decline in cotton planting intentions in MY14/15 due to uncertainties following changes in government support policy. Post forecasts, though, that MY14/15 planted area will remain stable at 2.2 MHa. A record of positive profits, which peaked in MY10/11 due to a surge in world prices, has continued strong at RMB8,550 (or $1,357)/Ha in MY11/12 and RMB8,820 (or $1,420)/Ha in MY12/13. Furthermore, the government has reportedly purchased a majority of Xinjiang’s relatively high yielding MY 13/14 crop (4.6 million tons as of March 9) at above world market prices (RMB20, 400 or $3,290). Thus, Xinjiang cotton farmers are expected to continue their profitable record which should keep planting intentions high for MY14/15.


China’s average cotton yield varies significantly by individual province/autonomous region, ranging from 976Kg/Ha in Anhui to 1,815Kg/Ha in Xinjiang. Overall, MY14/15 cotton yield is forecast above average at 1,474Kg/Ha with Xinjiang yield forecast at 1,909 Kg/Ha. MY13/14 cotton yield averaged 1,450 Kg/Ha (NSB total production divided by planted area), with Xinjiang's yield topping 2,009Kg/Ha, according to the Xinjiang Agricultural Working Conference Report.

Yellow River provinces of Henan, Hebei, Shandong, and Anhui Provinces could potentially see 100 percent use of Bt variety cotton in the near future which reduces pest-related yield losses. Weather uncertainties in the Yangtze River and Yellow River region though continue to impact yields. 

In Xinjiang’s dry climate, Bt cotton is less prevalent due to fewer pests. Conventional varieties with specific traits, such as dwarf plant size and early maturity, continue to raise yields in Xinjiang. The Xinjiang Production and Construction Corp (PCC) farms, which are organized on a larger scale than other typical cotton farms, incorporate particular agronomic practices, such as high density sowing, plastic sheet covering, and drip irrigation technology, to improve yields. 


Government purchases of more than 6.24 million tons of the MY13/14 cotton crop (as of March 24) raises state-held reserves to a record level approaching 12.3 million tons at the end of MY13/14, a sizeable increase from an estimated 11 million tons of beginning stocks. 

Post forecasts ending stocks could reach 12.4 million tons at the end of MY14/15, depending on the consumption recovery rate and the price gap between the domestic and world market. The stock to use ratio remains high at above 150 percent in MY13/14 and 14/15. 

Record high stock levels prompted recent government auctions of state reserve cotton but the response has been lackluster. As of March 24th, the government had only sold 715,000 tons of reserve cotton, roughly 39 percent of the volume offered for sale at RMB18,000/ton. This reaction reflects stagnation in cotton demand and/or an unwillingness by the textile sector to pay the inflated price. In an attempt to stimulate purchases, the government will lower the state cotton release price from RMB18, 000/ton to RMB17, 250/ton (Grade 328) beginning April 1st, according to the China Cotton Association. 

Cotton Trade

Note: Annual import volume is controlled by the government through a tariff rate quota (TRQ) system. This policy facilitates the government's ability to regulate the supply of cotton imports.

As committed by its WTO agreement, the government allots 894,000 tons of cotton import TRQ (subject to one percent import tariff) every year and then has the option to allocate additional import quantities. In 2013, industry sources estimated that the government issued 2.3 million tons of additional TRQ subject to a variable tariff rate or for processing/re-export. The government has not provided any additional TRQ distributions for 2014, but some analysts believe the government could add 1 to 1.5 million tons for processing trade or combine a purchase of reserve cotton with the distribution of additional TRQ to encourage the mill’s purchase of state reserve cotton. 

Cotton imports without a TRQ allocation face a stiff 40 percent import duty which normally impedes its price competitiveness. Recent market conditions, however, including a favorably low world market price and tight domestic cotton supply, converged to trigger the import of over quota, full duty (40 percent) cotton in 2013. Industry experts believe that, so long as the price gap between domestic and international markets remains around RMB5,000/ton ($800/ton), Chinese cotton buyers will continue to pay the duty and import cotton outside the TRQ to meet the needs for various grades/quality of cotton. 

MY 14/15 cotton imports are forecast down significantly to 1.8 million tons from the estimated 2.4 million tons in MY13/14 as China is expected to expedite the release of state reserve cotton to an appropriate level in 2014. Imports, however, will depend on the balance between many factors, including the size of domestic production, strength of cotton consumption, and the price gap between domestic and world prices.

Cotton imports affected by yarn imports

Contrary to cotton imports, yarn imports do not face volume import restrictions. In 2013, China imported a record 1.97 million tons of yarn, up from 1.4 million tons in 2012. High net yarn imports at 1.59 million tons in part reduced cotton imports in 2013 and will continue to impact cotton imports in 2014. 

U.S. Competes with others for China’s Market

In MY12/13, the United States resumed its status as the number one cotton supplier to China with total export volume of 1.3 million tons, followed by India and Australia with export volume of 987,000 tons and 887,000 tons, respectively. While the quality and reliability of U.S. cotton appeals to China’s end-users, India’s price and transportation advantages provide serious competition. India’s cotton production is expected to increase as it incorporates new technology, expands Bt cotton dissemination and actively promotes its product. Competition from India and other suppliers, coupled with expected low demand for imports, is expected to reduce demand for US cotton exports to China in MY13/14 and MY14/15. 

Consignment Trade

Due to strong demand for alternatives to high-priced domestic cotton since late 2011, consignment trade has been on the rise. China’s small to medium-sized mills choose consignment purchases due to the flexibility they offer, including short delivery time, convenient quality verification and lower financial commitment. However, due to the lack of import TRQ, most mills pay the full duty to take delivery of the cotton on consignment being held in bonded warehouses. Consignment trade is expected to remain a viable source until the world cotton price changes making the cost of import plus full duty unattractive for Chinese mills. Industry sources indicated as of the end of February, total cotton in the bonded zone of Qingdao and Zhangjiagang/Jiangsu ports was about 205,000 tons. 

Cotton exports insignificant

China’s cotton exports average about 10,000 tons annually, insignificant compared to total cotton use. Yarn exports increased slightly to 387,000 tons, making net yarn imports 1.59 million tons in 2013 showing a significantly rise from 500,000 tons in 2011. 


MY14/15 cotton consumption is forecast at 8.2 million tons, up from an estimated 8 million tons in MY13/14. Although demand from developed markets, like the US and EU, remains sluggish due to recovering economic performance, strengthening demand from developing countries, and especially China, raises expectations for consumption of apparel and textile products. 

On the other hand, industry experts anticipate that the share of synthetic fibers and other fibers in cotton yarn production may continue to rise in 2014 due to high domestic cotton prices while the price for synthetic fiber may remain relatively low and competitive. Historically, the price of cotton fiber runs approximately 20 percent higher than that of synthetic fiber. According to NSB, total chemical fiber production in 2013 was 41.22 million tons, up 7.9 percent over the previous year.

New Challenges for textile sector impact cotton use

The textile industry in China employs over 23 million people and is considered an economic pillar industry. In China’s 12th Five Year (2011-2015) Plan, the government confirmed its support to upgrading this sector. According to NSB, while fixed asset investment in the textile industry in 2012 reached $64 billion, up 8 percent over 2011, this figure is significantly lower than the 30.9 percent growth in 2011. The investment value in 2013 is not available, but NSB indicated that the fixed asset investment in general manufacturing industry increased by 18.5 percent over the previous year. Total profit for the sector in 2013 increased 15.8 percent over 2012. The sector’s marketing profit margins averaged 5.5 percent, up slightly (0.2 percentage) over the previous year. 

Despite this financial influx, the textile industry faces significant challenges, including declining orders from overseas, appreciating Chinese currency and rising production costs for key inputs such as raw materials and labor. Industry statistics show that in 2013 mills paid more than RMB 4,000/ton ($645) above the world price for domestic cotton. 

In addition to high prices for raw materials, Chinese Ministry of Labor indicated 27 provinces/municipalities adjusted the minimum wage level in 2013 with average growth up by 18 percent over the previous year. High electricity price coupled with environmental pressure (emission limit) not only adds to production costs, but also inhibits facility expansion. 

To address these ongoing hurdles, textile industry leaders use different approaches. Some mills are improving efficiency and productivity to maintain profits. Others have moved operations towards China’s central and western regions (Henan, Sichuan, Anhui, Jiangxi, Xinjiang and Ningxia Provinces) and foreign countries (Vietnam and Cambodia etc.) in search of lower raw material/labor inputs and a favorable investment climate. For example, China’s industry reported the construction of a 150,000 ton annual spinning capacity project in North Carolina in February which is expected to be operational in October 2014. A Zhejiang Textile Group began a $136 million spinning investment in Vietnam at the end of 2013 that is expected to reduce costs in raw material, labor, logistics and duties, and facilitate access to Southeast Asian Markets. China’s industry associations are also organizing trips to Southeast Asia countries for talks on textile investment. 

Recovery of exports support moderate growth of cotton use 

According to NSB, total textile and apparel exports were valued at $283.9 billion in 2013, up 11.4 percent over the previous year. Specifically, textile export value increased by 11.7 percent to $106.9 billion, and apparel export value increased by 11.3 percent to $177 billion, both figures reflecting growth rates in excess of those in 2012. Although total textile and apparel export value in the first two months of 2014 fell slightly (by four percent) over the previous year (mainly due to China’s Spring Festival vacation, analysts reported), China’s industry experts remain optimistic regarding export growth prospects in 2014 given a moderate recovery of overseas markets and lowering of domestic cotton price due to policy changes.

Domestic demand support cotton use

According to the China Textile Industry Association (CTIA), the domestic market accounted for more than 83 percent of the sector’s total sales value in 2012. However, the general sales trend remained weak in 2013. The estimated low cotton use of 8.04 million tons in MY13/14, however, is expected to rebound to a forecast 8.2 million tons in MY14/15. In addition to an anticipated fall in cotton prices, and constant high GDP growth of 7.7 percent in 2013 and likely 7.5 percent in 2014, higher disposable income and rising living standards of Chinese consumers are driving retail consumption to the benefit of cotton products. For example, the 2012 per capita expenditures on clothing increased for both urban and rural residents, with urban resident’s still far outspending rural counterparts. High urbanization is expected to continue in 2014 (with newly added urban residents at 19.29 million in 2013). The market potential for China’s 629.6 million rural residents to increase textile related purchases is expected to rise as rural incomes grow as well. This will support continued demand for domestic cotton products.

Misreporting of yarn categories and volume continue

A long standing problem in consumption forecasting is the lack of reliable data to connect cotton consumption data with finished product numbers. For example, according to NSB, total yarn production for 2011 was reported at 29 million tons, of which 22 million tons (accounting for 75.4 percent) was reported as pure cotton yarn, with the remainder as blended yarn and synthetic yarn. These figures are problematic when compared to China’s average cotton consumption of 10 million tons annually in recent years, plus other fibers available for spinning, which cumulatively cannot produce the volume of yarn as reported. Over-reporting of total yarn and pure cotton yarn production and under-reporting of synthetic fiber ratios and cotton consumption, or some combination thereof, distorts accurate analysis. China’s industry insiders acknowledge misreporting of yarn categories and volume by mills is the basis of the problem. 


Domestic cotton support policy amended

The State Purchase of Domestic Cotton Program, established three years ago to boost income and stimulate production through fixed price supports and the cotton TRQ regime (sliding scale and processing scale quotas) are government programs enacted to maintain domestic cotton supply/demand balance. The minimum cotton purchase price for domestic cotton started at RMB19, 800/ton in MY11/12 and rose to RMB20, 400/ton in MY12/13 and MY13/14 (approximately $3,100-3,300 per ton). During this same period, world cotton prices declined significantly to an average $2,000/ton in 2014 (based on Global Trade Atlas/China import price), far below the internal cotton price set by the government. The inflated domestic price depressed consumption of domestic cotton thus forcing the government to purchase the majority of the MY12/13 crop. This massive purchase added 6.46 million tons of expensive cotton to state reserve storage facilities. In MY13/14, the government purchased another 6.24 million tons (as of March 24, out of estimated 7 million tons total production in MY13/14) which will push state reserves levels to a record high 12.3 million tons by the end of MY13/14. The policy resulted in an unsustainable situation with huge government stocks and limited stimulus to cotton production. 

In 2014, China’s government announced an adjustment in this policy to transition toward less market distortion and government intervention. Beginning in MY14/15, only Xinjiang cotton farmers will receive an acreage based subsidy based on a target price (which would exceed world price). The nationwide fixed purchase price policy will be eliminated. 

As of this report, the government target price for cotton remains unknown although information suggests it will be RMB19, 400/ton. In general, this policy change will have limited impact on Xinjiang cotton planting intention based on analysis of production costs and yield expectation in this region, but is likely to reduce planting intentions in other cotton-producing regions where alternative crops are an option. 

As such, China’s total cotton planting area is expected to shrink in the short term (due to the government’s significant stocks, a moderate small crop in next few years is desirable for policy makers). However, as an NDRC official hinted, the government’s resumption of the state purchase program is possible in the future if the government deems it necessary. 

Over the next two years, government decision makers will be deciding whether a Xinjiang only support policy will produce sufficient cotton for domestic needs while staying consistent with its policy of having imported cotton primarily the domain of textile use for export. Policy leaders are unlikely to accept a situation where a regionalized support policy puts domestic needs and government stock levels into a position where they could be perceived to be vulnerable to imports. 

Seed Subsidy

Large seed producers/traders currently compete for the $34/Ha subsidy provided for selected “high quality variety” seeds to improve quality cotton coverage. Total expenditure in 2013, though unpublished, is believed to exceed $155 million (if based on the NSB’s 5.04 MHa planted area for MY13/14). 

Registration System for Overseas Cotton Suppliers

Overseas cotton suppliers must be registered with China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) to export cotton to China (CH8075 and CH9004). On January 18, 2013, AQSIQ published Decree No.151 on "Supervision and Administration Measures for Inspection of Import Cotton." The measures took effect on February 1, 2013. Preliminary comparison between the draft and final versions shows only slight modifications in Article 26 (CH13003). The impact of the Measures on cotton trade is expected to be limited. 

Traders are also recommended to register with AQSIQ to export cotton to China based on these requirements. AQSIQ keeps updating the newly registered or renewed overseas cotton supplier list on its website with the latest dated on December 13, 2013. Post received no complaints on this registration. 

Official cotton classification

According to CFIB, as of March 16, 2014, total cotton baled and classed under the new classification system has reached 7.28 million tons, up from 5.56 million tons in MY11/12. The government requirement that only classified cotton qualifies for its purchase support program is stimulating the increase in classified cotton. Although the intent behind requiring classification was to simultaneously upgrade the quality of China’s ginning sector and facilitate the collection of production data, the reality is not so clear cut. Industry sources report that some cotton may be presented repeatedly for classification and purchase and even some imported cotton may also be presented for classification to take advantage of the import/domestic price difference. The inclusion of multiple repeat purchases or imported cotton skews the overall production data. The new purchase program for MY14/15 is expected to eliminate some problems in that without the government purchase program, mills may not request ginners to provide official classification data. 

Targeted Loans

In MY13/14, the Agriculture Development Bank of China (ADBC) continued to provide targeted loans with favorable terms for the purchase of seed cotton. This program facilitated the marketing of seed cotton when market prices remained weak and demand for cotton was stagnant. Xinjiang government information indicated that total loans exceeded RMB66.3 billion in My13/14, up RMB5.7 billion over the previous year. ADBC will continue to provide financial assistance for domestic cotton marketing in MY14/15. 


The government continues to provide a transportation subsidy of RMB500/ton ($80) in MY13/14 (up from RMB 400/ton in MY11/12) for Xinjiang origin cotton shipped to mills in coastal and southern cities. Xinjiang province provides 40 percent of China’s domestic cotton production yet there is only one rail line to move the raw product cross-country to the textile production areas. Harvest time can be a bottleneck. The shipping congestion improved slightly in MY12/13 and MY13/14 when the government purchased most of the Xinjiang cotton for reserve and stored it locally, thus reducing the pressure on rail transportation. 

The China International Cotton Conference, a biannual event sponsored by CCA and MOA attracts a worldwide audience from the cotton/textile industry. The 2013 conference was held in June in Qingdao, Shandong Province. CCA, in collaboration with China National Cotton Exchange also holds an annual event, the China Cotton Industry Development Forum, which focuses on analysis and outlook of the market situation. The 2014 Forum will be held in May in Xiamen, Fijian Province