China’s textile and apparel industry has entered a challenging era. Besides rising labor costs, competitors in South and Southeast Asia are catching up with expanded productivity and product quality.
To increase competitiveness, China’s textile and apparel businesses are looking to slash costs in raw material acquisition with cheap and high quality import cotton. From January to May 2017, China imported more than 565,200 tonnes of cotton, a 58% year-on-year jump. However, the yearly import quota of 894,000 tonnes limits the potential for Chinese enterprises in outmaneuvering their competitors. While the textile and apparel industry hopes the quota will be relaxed, the government seems to be stalling. Why is this the case?
Chinese cotton growers find it hard to compete with foreign counterparts that are of higher quality and lower price. World cotton prices are on the decline, while domestic prices, shielded by protectionist policies, remain stable. So, the price gap has been widening. A tonne of Xinjiang cotton is priced at 15,940 yuan, while imported US cotton of comparable quality is 13,800 yuan. In May, the difference was around 1,000 yuan, and by the end of June it was more than 2,000 yuan.
In contrast to Chinese cotton cultivation that is limited in scale and still relies on manual labor, cotton growing in the US and Australia is totally mechanized and farmed on a large scale. This is a situation very difficult to remedy because China’s land-use policies prevent the emergence of large farms that are necessary for mechanized agriculture.
So why is the government insisting on buying locally when there are better options available?
National security is the key concern here. China’s restive Xinjiang Uyghur Autonomous Region is the national leader in cotton production. In 2016, Xinjiang produced 3.59 million tonnes of cotton or 67% of the national total. Cotton constitutes more than half of Xinjiang’s agricultural output value. Half of the farmers in Xinjiang grow cotton, which makes up 35% of their annual net income. In Uyghur-heavy southern Xinjiang, 90% of counties farm cotton. And lately, Xinjiang’s cotton industry has been sending out distress signals, as fewer orders from factories has forced traders to sell at a discounted price.
Xinjiang’s market is looking bearish and liberalizing the quota system would destroy many farmers’ livelihood. This is the last thing the state wants in a region of high tension.
Ordinary farmers in Xinjiang are not the only ones affected. China’s internal security organizations would suffer too. The Xinjiang Production and Construction Corps (XPCC), tasked with suppressing armed rebellions, would see a significant drop in profit if changes to the quota system occur.
Founded in 1954 to keep watch over recalcitrant indigenous Muslim groups, the XPCC also guarded against the Soviet Union after the Sino-Soviet Split. A semi-autonomous entity within Xinjiang province, the XPCC handles its own administrative affairs and maintains its own armed forces. Its members are described as having “a hoe in one hand and a rifle in the other”; in other words, engaging in economic production during peacetime and enforcing order amid a national emergency.
Agriculture is the XPCC’s main source of income and cotton is the number one cash crop. Priced at 16,044 yuan per tonne, its cotton is the most expensive in China, which means the XPCC would will suffer the most if the state decides to liberalize the import quota. Thus, the XPCC is staunchly opposed to more imports and makes its case on the basis of national security.
While the textile and apparel industry seek additional imported cotton, interest groups in Xinjiang are taking a stand against this proposal. If the price gap continues to widen, we will witness more gangs smuggling cotton – to satisfy China’s garment makers, locked in an increasingly competitive match.
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