China Buzz

China’s government has two faces when it comes to the fate of the greater cotton/textiles supply chain. Towards the end of the year, there is grave concern over the plight of the nations famers and how much they will plant after the downtime offered by the Lunar New Year Festival. Here is when the government will launch almost a yearly stimulus to prop up the farmers’ sagging income. I cotton’s case, it began last fall with the start of the government’s massive state reserve procurement plan which has now come to an end with a total of 2.7 million tons. For farmers, the plan’s effect has been enormous with a tremendous bounce in seed cotton prices and in effect their incomes. Even better, there was a trickle of enthusiasm over perhaps planting more cotton for the 2009/10 marketing year. For textile mills, however, the reserve procurement has become a nightmare as average prices for all grades of lint cotton have risen dramatically the past month or so. The gist of this has been the strict quality parameters for the reserve’s procurement program has created a severe shortage of high grades around the country as merchants rushed to buy local and deliver to the reserves. This would have been solved had the government issued additional import quota other than the 894,000 tons as mandated by the WTO. What is likely to happen now with the farmers in much better shape and mills complaining bitterly over rising raw material costs are the release of additional import quota despite the government’s strong desire to not do so.