China Restricts International Cotton Price Quotas

Recently, the US Cotton Corp said in its October report that the Chinese government manages cotton imports through the import quota system, which includes the minimum import volume stipulated by WTO (894 thousand tons or 4 million 100 thousand packages). The imported cotton beyond the quota quota will be subject to a 40% tariff, while the quota issued by the WTO shall be determined by the Chinese government itself.

The Chinese government's own quotas can be divided into two categories: one is "quasi tax quotas", with a tax rate of 5-40%, paying taxes according to the principle of high price, low tax rate, low price and high tax rate, and the other one is "processing trade quotas", which only deal with export processing enterprises.

Understand the difference between China's various cotton import quotas in order to better understand how the Chinese government decides on China's cotton imports. Both the WTO regulations and the quotas allocated by the Chinese government are calculated according to the calendar year.

Therefore, the quotas for each calendar year belong to two cotton harvest years (for example, from the beginning of each year to the end of July, and from the beginning of August to the end of the calendar).

In September 19th, Chinese government It is announced that no self determined quotas will be issued in 2015. This is an important event in the cotton market, because China's cotton imports have always been an uncertain factor. This decision indicates that China's imports will be restricted to a lower level, which will bring downward pressure on international cotton prices.

Although there will be no additional quota in 2015, the number of quotas that need to be exhausted before January will be unknown in 2014. However, no matter how many quotas left on the market in 2014, it will not be able to significantly change the trend of China's cotton import decline in 2014/15. It also means that global cotton stocks, including China, will set a record, which will lead to further decline in cotton prices in the future.