China will slash its import quotas for 2015 to boost demand for the domestic fiber. To encourage domestic producers, the government will offer subsidies to provinces in the Yellow River and Yangtze River valley growing areas. China is the world’s top consumer of cotton. It will only provide import quotas next year for the 8,94,000 tons that it is required to offer at low duties under commitments with the World Trade Organisation.
Previously, China has offered another type of quota, in addition to the one compliant with the WTO, but no additional quota would be made available next year. Non-quota imports are subject to a 40 per cent tariff, so the restricted availability of import quotas will inevitably dampen Chinese demand for foreign cotton.
The change in quota policy will hurt major exporters such as the United States where Chinese demand has played a key role in influencing fiber prices. China said earlier this year it would end a three-year long program to stockpile domestic cotton to support local growers and instead offer subsidies direct to farmers.
Stockpiling had pushed prices of domestic cotton well above market prices, creating a demand for cheaper imported fiber. China’s cotton imports dropped by 32 per cent in 2013-2014 owing to weaker demand by the domestic textile sector and mills importing yarn instead of cotton.