Editor's Note: The 2018 China Cotton and Cotton Yarn Industry Investment Summit - and the Fourth Annual Meeting of the China Cotton Elite Club will be held in Luoyang, Henan on October 26. The theme of the meeting is the global and Chinese economic trends, the impact of the Sino-US trade relationship, and the new changes and new formats in the global cotton and cotton yarn market supply and demand pattern. Recently, the CCEC Summit organizing committee conducted an exclusive interview with Mr. Wei Gangmin, Chairman of Henan Tongzhou Cotton Industry Co., Ltd. and Honorary Chairman of the China Cotton Elite Club.
Interviewee: Wei Gangmin
Interviewer: Mei Yong
Interview Date: October 11, 2018
Interview Method: On-site interview
Content Compilation: Wang Hua
Part 1: Reflections on Career Experience
Q1: You have worked in the industry for decades, witnessing the development and changes of China's cotton industry. Your company has also developed from a single spot trading model to a multi-model approach, becoming a well-known enterprise in the industry. Please share your insights from your years of experience.
Wei Gangmin: Having worked in the cotton industry for more than 30 years, from a planned economy to a market economy, from simple spot trading to participating in cotton futures, and then to a combination of spot and futures trading, I have experienced both great gains and great losses along the way. Being where I am today is fortunate, but whether I can continue to succeed and thrive in the future depends more on "risk control." Managing leverage well, not seeking huge profits, not aiming for immediate expansion, but focusing on steady, sustainable, and long-term growth is the most important path to survival.
Part 2: Corporate Operation Model
Q1: What is Tongzhou's corporate operation model?
A: In our operations, we don't blindly pursue profit maximization. We adhere to the principle of "stability," avoiding excessive expansion. However, in terms of business models, we cooperate with related companies, maximizing efficiency in our respective fields and earning what we deserve.
Q2: What operating model does Tongzhou adopt?
A: Capital determines the scale of an enterprise, and sales determine the size of its income. Any enterprise is subject to limitations in scale and capital. What needs to be done is to integrate limited resources to maximize profits. In our operations, Tongzhou focuses on cooperating with large state-owned and foreign-funded enterprises, leveraging their capital, scale, and resources to enhance our own operating capabilities. On the other hand, we focus on cooperating with various small and medium-sized spot trading enterprises and brokerage firms to amplify regional marketing advantages. Through the combination of spot and futures trading, and through strategic alliances, we accelerate the turnover of goods and finances, maximizing the advantages of capital and scale, and maximizing the use of limited resources and efficiency.
Part 3: Future Industry Development
Q1: From the perspective of corporate management, how do you view the current spot and futures prices and market opportunities?
A: The core issue now is to solve the problem of price transmission in the market. Trading companies have spot resources and need to explore arbitrage opportunities between different periods. The price difference between Zhengzhou cotton 901 and 905 contracts currently includes the full time cost and a certain amount of quality risk premium, similar to the situation between the 809 and 901 contracts. Theoretically, old cotton warehouse receipts will be completely delisted from the 901 contract, but they will exist in the futures market in another way, and will also affect the 905 and even later contracts. From the perspective of spot trading, there are not many hedging opportunities at present, but from the perspective of arbitrage, there are still opportunities to exchange time for space.
Q2: How do you view the future development trend of cotton? How should enterprises grasp it?
A: There are two variables in the future cotton market: internationally, India; domestically, consumption. There is too much uncertainty in the market now, making it difficult to grasp. As an enterprise, what we need to do is to find trading opportunities instead of predicting market trends, so that we can minimize risks.
Q3: What are your expectations for the future development of the Chinese cotton industry?
A: I hope that China's cotton industry will become more market-oriented, and that we can find the right policy positioning for the development of the Chinese industry, including the positioning of reserve policies and import policies. Enterprises should also find their own positioning, competing on resources and price differences. From the perspective of industry development, the market capacity is limited, and the main theme of development is to grow bigger, stronger, and more scalable. Resources will eventually become more concentrated in the hands of a few oligarchs, just like the current US cotton industry, where only a dozen or so enterprises have scale and competitiveness. China will also develop into this model in the future.
