Sliding Tax Reduction Benefits Cotton Imports And Concerns Its Negative Impact On Domestic Cotton Prices

According to the regulation of import and export provisional tax rates issued in 2019 by the Ministry of finance, the cotton sliding tax has been adjusted in January 1, 2019.

In contrast, in 2018, cotton sliding quasi tax rate decreased by 0~2% in 2019.

As a tariff management tool to stabilize import prices, sliding tax reduction will reduce the cost of cotton imports and stimulate cotton imports to a certain extent.

Due to insufficient production, the annual gap between supply and demand of cotton in China is 2 million 300 thousand ~280 million tons, which requires import quotas and supplementary supply of national cotton stores.

According to the US Department of agriculture report, China's cotton production and demand gap reached 3 million 160 thousand tons in 2018/19 (September 2018 ~2019 August).

In June 2018, in order to make up for the gap between production and demand, China resumed its provisional cotton quota tax quota for 3 years, and added 800 thousand tons of cotton import quotas to 894 thousand tons of import quotas.

From the perspective of domestic supply, in 2018, China's cotton acreage and output increased, and the market demand gap and high price or stimulation of cotton growers' willingness to grow, but subdivision data showed that there was still some hidden trouble in China's cotton production in the future.

According to the data released by the National Bureau of statistics, the output of cotton in 2018 was 6 million 96 thousand tons, an increase of 444 thousand tons over 2017, an increase of 7.8%.

Hou Rui, chief statistician of the rural Bureau of the National Bureau of statistics, said that from the planting area, in addition to the 273 thousand and 900 hectares (4 million 108 thousand acres) of Xinjiang's cotton growing area in the largest cotton producing area, the other 30 provinces and municipalities were affected by factors such as planting efficiency and planting structure adjustment, which continued to shrink for many years, and the cotton planting area was reduced by 116 thousand and 200 hectares (1 million 743 thousand acres).

Moreover, when cotton planting area increased in Xinjiang, cotton yield per unit area decreased slightly.

It is estimated that in 2019, China's cotton planting area will continue to increase on the basis of 2018, with an intention to grow 42 million 642 thousand mu, an increase of 0.6% over the same period last year.

But on the whole, the main planting area of Xinjiang is restricted by the returning farmland to forests in the northern Changji area and the shortage of water resources in Kashi in southern Xinjiang. The cotton planting area will stabilize in the next few years, and cotton planting will face the bottleneck of increasing production.

In the case of limited domestic production, the elimination of inventory has greatly reduced the stock of state cotton reserves, and also restricted the support role of domestic market for supply.

By the end of September 2018, after the completion of the rotation of the cotton reserves, the stock of the national reservoir was about 2 million 700 thousand tons, which was below the critical value of 3 million tons.

Hongye futures analysis pointed out that with the completion of the National Treasury's inventory, the increase of cotton import quotas will normalize.

To offset the demand gap, China's cotton imports have increased significantly.

According to statistics, in November 2018, China imported 130 thousand tons of cotton, an increase of 18.2%, an increase of 80% over the same period last year.

In 2018 1~11, China imported 1 million 360 thousand tons of cotton, an increase of 29.5% over the same period last year.

Meanwhile, in 2018, the cotton prices in various main producing areas in China increased year by year. In addition, the cotton boll disaster occurred in India in 2018 and the ice and snow weather occurred in Xinjiang, China.

It is estimated that the import cost of China's long staple cotton will be reduced by 297 yuan per ton in 2019.

This will undoubtedly facilitate the import of cotton and increase the supply of raw materials.

According to the analysis, in the long run, reducing the sliding tax rate and reducing the cost of imported cotton can effectively protect domestic downstream cotton and national storage demand and balance domestic and foreign cotton prices in the case of increased imports.

But in the process of implementation, we should pay close attention to its negative impact on domestic cotton prices.