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 on October 26 in Luoyang, Henan. 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, China Cotton Information Network 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: CCEC Conference Organizing Committee Interview

　　Interview Date: October 11, 2018

　　Interview Method: On-site interview

　　Content compiled by: Wang Hua

　　Part 1: Reflections on Career Experience

　　Q1: You have been 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 business 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 been 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 combining spot and futures trading, I have experienced both great gains and great losses along the way. Being able to reach this point is fortunate, but whether I can succeed in the future and go further, I am more focused on "risk control." Managing leverage well, not seeking huge profits, and not aiming for immediate success, is crucial for long-term survival. Stability and longevity are paramount.

　　Part 2: Enterprise Operation Model

　　Q1: What is Tongzhou's business operation model?

　　A: In our operations, we do not blindly pursue profit maximization. We strictly adhere to the principle of "stability," not seeking excessive growth. However, in our business model, we cooperate with related enterprises, maximizing efficiency in our respective fields and earning what we deserve.

　　Q2: What business model does Tongzhou adopt?

　　A: Capital determines a company's operating scale, while sales affect its revenue. Every 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 amplify our own operational capabilities. We also focus on cooperating with various small and medium-sized spot enterprises and brokerage companies to expand regional marketing advantages. Through the combination of spot and futures trading, and by forming alliances, we speed up the turnover of goods and finances, amplifying capital and scale advantages to maximize the use of limited resources and efficiency.

　　Part 3: Future Industry Development

　　Q1: From a business perspective, how do you view current spot and futures prices and market opportunities?

　　A: The core issue now is to resolve 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 all time costs and a certain degree of quality risk premium, similar to the situation between 809 and 901 contracts. In theory, 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 still affect the 905 and even later contracts. From the spot perspective, there are not many hedging opportunities at present, but from the arbitrage perspective, opportunities to trade time for space still exist.

　　Q2: How do you view the future trend of cotton development? 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 current market, making it difficult to grasp. What businesses should do is to find trading opportunities rather than speculate on market trends. This is the way to minimize risk.

　　Q3: What are your expectations for the future development of the Chinese industry?

　　A: I hope that the Chinese cotton industry will become more market-oriented, and I hope that it 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 in resources and price differences. From the perspective of industry development, the market capacity is limited. Growth, strengthening, and achieving scale are the main themes of development. Resources will ultimately become increasingly concentrated in the hands of a few oligarchs, just like the current US cotton industry, where only a dozen or so companies have the scale and competitiveness. China will also develop into this model in the future.