BEIJING — China should issue more cotton import quotas in return for purchases from its bulging cotton reserves, helping reduce Beijing’s financial burden and meet demand from textile firms for high quality international cotton, said the chairman of one of the country’s biggest yarn makers.
China has said it will in principle allow for no more than 894,000 tonnes of cotton imports this year, which it is required to issue under its commitments to the World Trade Organisation.
But textile mills say they need more imported cotton, with domestic prices still around 10 percent higher than the global market.
In a proposal submitted to China’s parliament last week, Shandong Ruyi Chairman Qiu Yafu urged the government to issue more import quota in return for mills’ purchases of overpriced reserve cotton.
“Hundreds of billions of yuan (worth of cotton) is just sitting there. Every year the cotton quality degrades, the warehouse and financial costs are another tens of billions of yuan,” Qiu told Reuters.
He said Beijing should redirect the money spent on holding cotton in reserves to textile mills to subsidise their purchases at prices some 35 percent higher than the market.
Mills could then combine the poor quality reserve cotton with high quality imports, helping to reduce the state’s huge inventory that is also artificially supporting domestic prices.
China has accumulated more than 12 million tonnes of cotton in its reserves after a three-year stockpiling programme aimed at supporting farmers. Qiu estimated that the stockpiles cost 30 billion yuan in fees and interest each year.
“If you don’t sell the reserve cotton to me, you have no way to sell it,” Qiu said he told the government.
Ruyi, which posted revenue of 34 billion yuan last year from its yarn, fabric and branded garments business, will need 300,000 tonnes of cotton this year but has only been granted 8,000 tonnes, about 20 percent less than the last year, he added.
China has made an unofficial pledge to issue some additional quota in return for purchases of its domestic crop but the ratio of around 6 tonnes to 1 tonne of quota does not satisfy demand, said Qiu.
Ruyi bought a cotton farm in Australia in 2012 but needs import quotas to bring the cotton home. The firm ships it to Indonesian yarn processing facilities instead.