Starting from the end of August, Xinjiang cotton has gradually entered the harvesting period, and a new batch of cotton will enter the market in mid-to-late September. On June 21 this year, the so-called "Uyghur Forced Labor Prevention Act," signed by US President Biden last December, officially came into effect. This "evil law" presumes all products produced in China's Xinjiang region to be so-called "forced labor" products, prohibiting the import of any products related to Xinjiang. Foreign media commented at the time that the law would significantly impact Xinjiang's key industry—the cotton industry—and could severely damage China's textile industry. In fact, since the beginning of last year, the US has imposed import bans on all Xinjiang cotton and its products. In the face of malicious suppression from the US, Chinese companies have been actively responding and have achieved results.
The Two Methods of the United States
"We planted cotton in Xinjiang, and this year should also be a bumper harvest," Huang Hongyu, president of Henan Tongzhou Cotton Industry Co., Ltd., said in an interview with a reporter from Global Times. He expects this year's Xinjiang cotton output to be higher than last year's, although there was some drought, the impact was minimal. New cotton will enter the market around September 10-20. Henan Tongzhou Cotton integrates cotton acquisition processing, cotton textile and garment production, and cotton import and export trade. Huang Hongyu said that the company also plants cotton in Xinjiang and has four cotton ginning factories there.
Regarding the impact of the US Xinjiang cotton ban, Huang Hongyu said that the biggest risk for cotton trading companies is market price fluctuations, and they must use futures tools to hedge risks. He predicts that the impact of the ban will continue for some time, and Chinese companies are finding ways to open up markets outside the United States.
A Chinese textile manufacturer who owns factories in Vietnam and requested anonymity told the Global Times that some downstream customers were required to provide proof of product origin. In this case, manufacturers must conduct lengthy investigations. "The US approach boils down to requiring sufficient supporting documents," he said, adding that it is difficult to distinguish between cotton from different sources entering Vietnam because they are mixed together during sea transport.
Two Reasons Behind the Price Difference
The Wall Street Journal recently reported that some US sanctions and Xinjiang import bans have "been effective." The report states that since the beginning of 2022, an "interesting phenomenon" has emerged: despite rising global cotton prices, the price of Chinese cotton futures is significantly lower than that of New York cotton futures, which is the first time since at least 2016. China's cotton production accounts for about 1/4 of the world's total, with about 90% produced in Xinjiang. For most of the past 10 years, Xinjiang cotton has been one of the most expensive varieties of cotton in the world.
Companies and experts do not agree with the US media's claims. Multiple sources confirm that the reduction in consumption during the epidemic is the main reason for the decline in Xinjiang cotton prices. "The price difference is quite absurd," Huang Hongyu said. In October last year, the average acquisition cost of Xinjiang cotton was over 24,000 yuan per ton, but the price has since fallen, now around 16,000 yuan per ton. He said that for a long time, the price of Xinjiang cotton has been higher than that of imported cotton such as US cotton. Taking October last year as an example, the price of Xinjiang cotton was 3,000 to 4,000 yuan per ton higher than US cotton, but now, Xinjiang cotton is 5,000 to 6,000 yuan per ton lower than foreign cotton.
Huang Hongyu believes that there are two main reasons for the price difference: one is that the domestic cotton supply is ample, but consumption has decreased; the second is that the foreign cotton supply is relatively tight, but consumption has increased. He said that the decline in Xinjiang cotton prices is mainly due to the decline in domestic consumption during the epidemic, and the impact of US sanctions on Xinjiang cotton is also becoming increasingly apparent. "Textiles and garments are not rigid consumption, the elasticity is not large, if the income is not good, people can temporarily not buy new clothes." But he also said, "As long as the domestic market picks up, a large amount of Xinjiang cotton can be consumed." Zhu Gensen also believes that the price difference between Xinjiang cotton and imported cotton will gradually narrow in the future, "the turning point has arrived.
Xinjiang Cotton Cannot Be Absent from the International Market
Zhu Gensen told a Global Times reporter that in the past, companies did not actively distinguish between using Xinjiang cotton or imported cotton, but only distinguished which raw material was more suitable for product requirements according to quality. After the implementation of the "Xinjiang Cotton Ban," companies have made adjustments and are now re-allocating product structures. For example, using imported cotton to produce products exported to Europe and America, and Xinjiang cotton products are used for domestic consumption or export to Southeast Asia. In the past, China imported yarn from Vietnam, India and even Thailand every year. Now, Chinese companies also export yarn, and the recent decline in the RMB exchange rate is also beneficial to exports.
Zhang Wensheng, managing director of New Era Garment (Bangladesh) Co., Ltd., said that the impact of the US ban should be temporary, and adjusting market allocation can quickly offset these impacts. In addition, Huang Hongyu said that Chinese companies are also developing overseas markets outside the United States, seeking new sales channels in ASEAN or along the Belt and Road Initiative. Industry insiders and experts believe that in response to the US's possible continued ban, China can appropriately adjust the pattern of cotton production being overly concentrated in Xinjiang, moderately restoring production in traditional cotton-producing areas in the Yellow River and Yangtze River basins, to diversify risks.
"The Xinjiang cotton ban implemented by the United States ultimately did not have that much of an impact on Chinese cotton. In another two or three years, once enterprises adapt to the new path, the impact will be even smaller." Zhu Gensen said that Xinjiang cotton cannot be absent from the international market. Xinjiang cotton has an annual output of more than 5 million tons, and the global cotton output is about 25 million tons, with Xinjiang cotton accounting for about 1/5 of the global cotton output. In addition, Xinjiang cotton is high-quality cotton, and the mid-to-high-end products made from it are quite popular both domestically and internationally. If Xinjiang cotton is excluded, international cotton prices will rise to an unimaginable level. If such an extreme situation occurs, the United States will inevitably suffer the consequences.
